Earnings Call Transcript - CMPS Q1 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the COMPASS Pathways First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Schultz. Please go ahead.

Steve Schultz, Senior Vice President of Investor Relations

Welcome all of you and thank you for joining us today for our first quarter 2023 results conference call. Again, my name is Steve Schultz. I’m Senior Vice President of Investor Relations at COMPASS Pathways. Today, I’m joined by Kabir Nath, our Chief Executive Officer; Dr. Guy Goodwin, our Chief Medical Officer; and Mike Falvey, our Chief Financial Officer. The call is being recorded and will be available on the COMPASS Pathways Investor Relations website shortly after the conclusion of the call. Before we begin, let me remind everyone that during the call today, the team will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. You should not place undue reliance on these forward-looking statements. Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties, and other factors including those risks and uncertainties described under the heading Risk Factors in our quarterly report on Form 10-Q filed with the U.S. Securities and Exchange Commission and in subsequent filings made by COMPASS with the SEC. Additionally, these forward-looking statements represent our views only as of today and should not be relied upon as representing our views of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements even if our estimates or assumptions change. And with that, I will now hand the call over to Kabir Nath.

Kabir Nath, CEO

Thank you, Steve. Good day, everyone, and thank you for joining us. During this past quarter, COMPASS Pathways has continued to make excellent progress with our COMP360 Phase 3 pivotal program in treatment-resistant depression, or TRD, with patients being treated in both trials. You may recall that on our fourth quarter conference call, we said that we expected the FDA to come back to us with comments on pivotal trial design amendments by March the 20th. We’ve now received comments for both the 005 and 006 trial designs. While I won’t go into the details of our interactions with the FDA, I will say that the comments reflected an active and thoughtful dialogue. As you would expect, with a drug development program that has breakthrough designation, we will have ongoing engagement with the FDA more broadly over the whole course of the development program. The upshot is that we are continuing to execute both the 005 and 006 trials as described in our February conference call and, importantly, with no changes to the trial design. We also continued to expect top line results for the six-week primary endpoint for 005 in summer of 2024 and for 006 in mid-2025. On the reimbursement front, the American Medical Association has accepted a current procedural terminology, or CPT III code, for psychedelic therapies. This was a very welcome development and the result of a collaboration between COMPASS Pathways and MAPS Public Benefit Corporation. Once effective, the CPT code will provide physicians and other qualified healthcare professionals with a means to track the work involved and ultimately seek reimbursement for delivering psychedelic therapies. Existing codes can provide coverage for the preparation and integration sessions, but the new code will fill a gap and cover psychological support during administration. The full details of the code are expected to be released by the AMA in July this year, and the code will go into effect when it’s published on January 1, 2024. Currently, clinicians are forced to use various different codes cobbled together to gain reimbursement for approved medicines that require observation or support during administration. This tracking code is a crucial step toward a single code that covers psychological support for therapies like COMP360, subject to FDA approval, and it’s a critical step toward obtaining reimbursement. This helps enable broad and equitable access to psychedelic therapies. This ensures that FDA-approved psychedelic therapies could be integrated into healthcare systems, reimbursed by payers, and made available to the people who need them. Finally, we’ve continued our active engagement with biotech specialist investors. We’ve continued to communicate the depth and the progress of our programs and the strength of our value creation proposition in an area of significant unmet medical need. Since the beginning of this year, we’ve raised roughly $28 million from sales under our ATM facility, including a large block trade in April. With that, let me now hand the call over to Dr. Guy Goodwin to provide further clinical updates.

Guy Goodwin, Chief Medical Officer

Thank you, Kabir, and good day, all. Let me begin with a review of our COMPASS-sponsored clinical programs. In TRD, as you heard from Kabir, the Phase 3 program is progressing as planned, and we are actively treating patients in both trials. We are pleased with the rate of opening of clinical sites. This is a significant achievement as it’s a complicated process to ensure that clinical sites that are cleared to handle a Schedule 1 compound are appropriately trained and can recruit suitable patients. This level of infrastructure is unprecedented and one that we believe represents a significant competitive advantage for COMPASS, both in this and future programs. Once sites surpass this stage, they are better able to concentrate on recruitment and patient management. I would, therefore, expect to see continued progress and acceleration on those fronts. Beyond treatment-resistant depression, our Phase 2 studies in PTSD and anorexia nervosa continue to progress well and are on track. In the anorexia nervosa study, we told you on our last call that we had encountered some challenges in getting patients into and through the screening process. I’m pleased to report that we are now making excellent progress after amending and adjusting our procedures to enable recruitment more in line with our expectations. We look forward to updating you on future calls regarding expected timing. Looking beyond our sponsored trials to investigator-led studies, we continue to see encouraging data coming from these programs. In March, data on the use of COMP360 with psychological support in 12 patients with treatment-resistant body dysmorphic disorder, or BDD, were published in the Journal of Psychiatric Research. Individuals with BDD are preoccupied by aspects of their appearance that they misperceive as defective or ugly. In this study of a single 25-milligram dose of COMP360, primary treatment effect was measured with the BDD-YBOCS score, which improved significantly over the 12 weeks of follow-up, with a large effect size and significant changes from baseline seen at week one and persisting through week 12, the duration of the study. At week 12, seven participants, or 58%, were considered responders. Secondary measures of BDD symptom severity, conviction of beliefs, depression, negative effects, psychological insight, and disability all similarly showed significant improvement. Tolerability and safety were evidenced by completion of all study visits by all participants and that no serious adverse events or occurrences of suicidal ideation were reported. The signals we see in this BDD study align with the hypothesis that difficult-to-treat disorders with preoccupying thoughts or fears represent potential target indications for COMP360 psilocybin therapy. This comes on the heel of another IIS we told you about in February that evaluated a single 25-milligram dose of COMP360 psilocybin therapy in 14 patients with type II bipolar depression, another condition for which treatment options are limited. This study produced very compelling data with 12 of 14 patients, or 86%, achieving remission at 12 weeks after administration without a resumption of antidepressant medication. It is this kind of information that these studies were designed to generate, understanding the potential of COMP360 in other indications with significant unmet need. These data sets also reinforce our confidence in our Phase 3 program. I would expect to see additional interesting data from such studies as we move through this year. I will now hand the call to Mike for the financial overview.

Mike Falvey, Chief Financial Officer

Thank you, Guy. I’ll now recap our first quarter financial results. For the three months ended March 31, 2023, net loss was $24.2 million, or $0.57 per share, including non-cash share-based compensation of $4.1 million, compared to net loss of $21.2 million, or $0.50 per share, including non-cash share-based compensation of $3.1 million for the three months ended March 31, 2022. I will now turn to an analysis of the three months ended March 31, 2023 compared to the prior quarter ended December 31, 2022. For the three months ended March 31, 2023, net loss was $24.2 million, or $0.57 per share, compared with a net loss of $30.9 million, or $0.73 per share for the three months ended December 31, 2022. These results include non-cash share-based compensation of $4.1 million for the first quarter of 2023 and $3.3 million in the fourth quarter of 2022. Our first quarter financial results reflect our continued success in progressing our Phase 3 trial in treatment-resistant depression. In line with our expectations, cash used in operations was $27.7 million, in the middle of the guidance range we provided last quarter. R&D expenses were $19 million in the three months ended March 31, 2023, compared with $19.8 million in the three months ended December 31, 2022. The slight decrease was mainly caused by lower external development expenses due to the change in our Phase 3 design. This decrease was partially offset by increased personnel costs. G&A expenses were $12.8 million in the three months ended March 31, 2023, compared with $12.4 million in the three months ended December 31, 2022. This increase was due to increased personnel and legal costs, partially offset by decreased facilities and other expenses. Our cash balance decreased by $26 million in the first quarter of 2023 due to using $27.7 million in operating cash, partially offset by $1.1 million provided by financing activities due primarily to the sale of shares under our ATM facility and a change of $0.7 million due to exchange rates impacts. The movement in operating cash is primarily driven by our net loss, partially reduced by non-cash charges. Regarding guidance, we expect the second quarter net cash used in operating activities to be between $22 million and $30 million and the full year to be between $85 million and $110 million. The size of the second quarter range is due to the challenge in predicting the precise timing of cash outlays to support our Phase 3 program in its early stages. As the trial reaches steady-state enrollment, we expect to offer a narrower quarterly and annual range. COMPASS continues to maintain a strong financial position with cash and cash equivalents of $117.1 million at March 31, 2023, compared with $143.2 million at December 31, 2022. In addition to our first quarter cash balance, in the second quarter, we have received net proceeds of $26.9 million through the sale of shares under our ATM facility, which has further strengthened our cash position and extended our runway. We view our strong balance sheet as an important strategic asset, which we manage carefully as we invest to advance these promising potential therapies while, at the same time, continuing to create value for our shareholders. Thank you, and I’ll now turn the call back to Kabir.

Kabir Nath, CEO

Thank you, Mike. In closing, let me say that now as a Phase 3 company, COMPASS Pathways leads the way in the development of psychedelic therapies. We believe these therapies represent the next generation of mental health therapeutic options. There’s a significant and growing number of people across the world suffering from serious mental illness who are not helped by existing standards of care. We must act with urgency on their behalf. Most programs in this area of science today are unproven, early stage, and risky. We’ve established a high bar for evidence regarding safety and efficacy. Many of those early stage clinical studies will likely fail to meet their primary endpoints, as we have seen with news from some other studies earlier this year. As Guy noted, we’re progressing as expected in our Phase 3 program in treatment-resistant depression. While we ultimately expect to leverage our extensive data set to expand the development of COMP360 into a range of areas of unmet need, TRD is our first target indication and our clear focus. To this end, we continue to advance our commercial strategy on a number of fronts as we move through the Phase 3 program toward an NDA submission with the FDA. The CPT III code, as discussed earlier, is a prime example of a successful step forward with our commercial approach and a clear indication that it can translate to significant value creation. As Mike noted, we continue to be in a solid financial position with a strong balance sheet to help us advance these promising therapies. We are making strong, meaningful progress in our work to develop and deliver new therapeutic solutions to patients who suffer from difficult-to-treat mental health conditions. Thank you again for your participation on today’s call. We’ll now turn to Q&A, so I’ll hand this back to the operator.

Operator, Operator

Our first question comes from Elemer Piros from EF Hutton. Your line is open.

Elemer Piros, Analyst

Yes, good morning. Congratulations on putting in the temporary CPT code, Kabir. Maybe one question about that is, how precedented or not having a code established one to two years before either MAPS or you are going to launch a psychedelic therapy? And maybe if you could contrast this to the situation with J&J’s Spravato, which may have – J&J may have not been as prepared as you may be. And if you wouldn’t mind comparing the treatment regimen with COMP360 to Spravato, especially considering that a patient would have to spend eight times two hours in a clinic in the first month to receive that treatment. And – and just your take on J&J’s first announcement of after, I think, four years of recording an annualized $500 million or so in revenue with that drug. I was wondering if you could provide a little comparison between the two.

Kabir Nath, CEO

Thanks, Elemer. The question – just to check, you can hear us clearly.

Elemer Piros, Analyst

Yes, I can.

Kabir Nath, CEO

Okay, great. Thank you. So, no, thank you for the question. And I think, yes, you raise a couple of very important points here around the CPT code. So, I think, first, let’s understand that, as I said, there are existing codes that can account for preparation and integration. Those fall within the normal range of psychotherapy sessions. But we recognized a long time ago that in terms of a six to eight-hour administration session, or, in the case of MAPS, multiple sessions of therapy associated with MDMA, that there were not the appropriate codes to cover that. And it, therefore, became a priority for us, working together to establish that. Recognize this is a CPT III code, but this enables physicians and other HCPs to track the work that’s involved, the activities that are required, and it’s really a central precursor to converting that ultimately into a CPT I code that can be reimbursed. And I think for – for Johnson perhaps the recognition that the Spravato sessions under the REMS would require this monitoring period, which was different from anything else that was available at the time, was something that came a little later in the process. And again, we – we’re grateful to have had the opportunity to learn from that. For the second part of your question, as you said, esketamine does require multiple administrations in the first month and, thereafter, at regular intervals. And that’s not surprising given the relatively short duration of effect. Obviously, during our Phase 3, we’re going to generate evidence around durability, around the impact of retreatment, and that will give a sense also of when retreatment might be expected. But certainly, we saw from the Phase 2B a lasting effect for a significant number of patients even at 12 weeks, and we have some modest data that suggests it can go longer than that. So, we would expect a much less frequent administration for COMP360 than you need to see for esketamine. And we believe that that will also translate into a lower burden not only for patients critically, but also for providers and treatment centers as well. And finally, yes, as you – as you mentioned, Janssen broke out for the first time Spravato sales this year, a few years into the launch. Let’s recognize, though, the launch did come just ahead of the pandemic, which put all sorts of challenges into pharmaceutical drug launches. But I think the fact that you saw over $100 million of sales in the U.S. in the first quarter with a strong growth trajectory is very encouraging for us in a couple of different ways. It shows, first, that despite some initial skepticism about the efficacy and clinical trials, physicians have become very used to working with esketamine and are actually seeing real-world evidence of efficacy. That’s perhaps the patient acceptance that’s strong. I think, critically, it speaks to the fact that the infrastructure has developed significantly since the launch, not just in terms of interventional psychiatry centers, and we’ve talked in the past about some of those standalone centers, but also in the fact that other psychiatry practices, other academic, and hospital settings have become much more used to the fact that this is a treatment paradigm that’s here to stay. And we would expect much of that infrastructure to be relevant to us at COMPASS for psilocybin as well. So, overall, I think we take strong encouragement from that and the fact that they’ve identified that as a growth driver.

Elemer Piros, Analyst

Yes, thank you very much. At what point – I know it’s too early in the launch, but at what point would you be able to project enrollment rates? And for now, you reiterated the previous guidance for completion of both of those – both of the pivotal trials. Shall we expect that towards the end of this year or when you have a little more confidence on the trajectory?

Kabir Nath, CEO

Yes, it’s a fair question. I would just say definitely not yet, and I don’t want to give a commitment to when we would do that. As I said, we have patients dosed in both trials. As Guy mentioned, the fact that we are well on the way to building the trial infrastructure with more sites coming on board and so on is very encouraging. But I don’t want to promise a date at which we will actually give enrollment numbers or percentages enrolled. But for now, given where we are, we are confident as we did in reiterating those timings for the primary endpoints.

Charles Duncan, Analyst

Hey, good morning, Kabir and team. Thanks for taking the question and congrats on the progress. I did have a question regarding the ongoing Phase 3s. So, maybe you’re not going to be able to answer them, but I’m wondering if you could provide more color on the FDA interactions. You said they’re active, thoughtful dialogue, but I guess I’m assuming no modification in the primary or secondary endpoints. And then, perhaps if I could speak to the pacing of the trial, great to see that you’ve made some progress in terms of patient enrollment. But I’m wondering if the biggest, call it, rate limiter for this trial is site opening or is it patient access and availability of appropriate patients? Thanks.

Kabir Nath, CEO

Thanks, Charles. And I’ll actually ask Guy to take both of those parts if that’s okay.

Guy Goodwin, Chief Medical Officer

Yes. We, as you know, Charles, there’s no change in primary outcomes, and there’s no fundamental change in the design of the studies as a result of our to and fro with the agency. We’re well on track, as far as we’re concerned, with recruitment at the moment. You ask an interesting question because it falls into different Phases of the studies. At the beginning, the limiting step is simply a site initiation. That takes time. It takes things to happen which are quite beyond anyone’s control, well, beyond the control of us and of the investigators, which are things like EMA licenses. We are obviously plotting and we have modeled the rate at which patients will be recruited. And I would simply say that, as far as our simulations of the future go and as far as we can be confident in the way we’ve achieved opening so far, we’re looking very good. Obviously, we expect that once all the sites are open, then there will be different considerations around what limits recruitment. But we anticipate the demand for entry into the studies to be unusually positive for most – compared to most depression studies. And we know from feedback we have had from the site, that’s certainly true in some centers. So we look forward to seeing the results of that. We’ll be tracking it very carefully. And of course, it’s the key metric for us over the next 12 months to see that rise in recruitment. And we’re happy that we’ll be able to do that, and give you some indication of our happiness with it. But we’re going to be careful about numbers because they can be misleading and they can be misunderstood.

Charles Duncan, Analyst

Yes, absolutely. Fair on that and appreciate it. Regarding anorexia nervosa, quite intrigued with that, happy to hear that it’s kind of back on track. Can you provide any additional information on the actual amended procedures or how they were amended or what is perhaps changed – change of vector on that trial versus last quarter?

Guy Goodwin, Chief Medical Officer

There were quite minor amendments to the protocol. I mean, unfortunately, that takes time. They were really to do with the – the visit burden on patients and just the preparedness of patients to participate in the study. You’ll appreciate that randomized clinical trials are not like ordinary practice. They place unusual demands on the subjects who participate. And I think that the need for in-person visits, in particular, was something that was too demanding in the initial stages. And we felt no reason for not changing because it didn’t materially affect how the study would run or the results. So, it’s been a simplification of the trial design. It’s not a fundamental change in the actual objectives or the questions that it will answer.

Charles Duncan, Analyst

Okay, that’s helpful. Last question for Mike, quickly on the ATM that was noted a large block trade, you may not be able to fully answer this. But I’m wondering if you could characterize the investor, obviously, not a certain identity, but maybe an investing type or whether or not they had previously held a position. Any additional information that you could provide there? Thanks.

Mike Falvey, Chief Financial Officer

So – because the investment came in through the ATM, I’m a little bit limited on the information that I can provide. I would point out that if you go back and look at trading volumes earlier in the quarter, it’s pretty clear when that happened, and the size of it. And I can characterize the investor. We’ve spoken on prior calls that we’ve been working pretty intensively to bring biotech specialists, sophisticated investors into the register, not only to support us with our current financing needs, but investors who are going to understand the fact that we’re going to be coming back additionally in the future as we get closer to commercialization and as we build for a successful launch. So, those conversations continue, and we continue to make progress. And I’d say that this investor would fall into that realm of the investing universe that we’ve been working closely with.

Frank Brisebois, Analyst

Hi, Thanks for taking the question. Just in terms of the reimbursement, can you just – we – in a prior question, Spravato was brought up quite a bit. And I’m just wondering, just for those that might not be aware, what coding do they use? Is it – and this G code that – is that – how different is that from a CPT I? And just maybe understanding the – for investors here, the difference here between the G codes, CPT I, and CPT III, and then maybe what kind of additional color could we be expecting in July here? Thank you.

Kabir Nath, CEO

Yes, no, thank you, Frank, it’s a great question. So, the first thing I will say is since these codes are only going to be published in July, we’re actually not going to talk in very much detail about what we expect to see in them or what they will actually cover until after that because the AMA would not like us to do so. I think what I would focus on is what we have done here, which is acknowledging that, for psilocybin specifically, this six to eight-hour administration is a unique model of psychological support for which nothing existed. And the idea of stringing together multiple codes to do that would clearly be unappealing to providers not necessarily feasible and also would not give any consistency. That’s the reason that we actually focused, therefore, on obtaining this code. I think what Janssen is doing is using a variety of different codes. It is a different model of support as you’re aware. It is post-administration monitoring as opposed to support during administration, and they have been able to use a number of different codes. I think more we would like to hold till after the summer when we can talk more about the CPT code and then get into some of the different mechanisms for payment because, obviously, there are some areas where we’re seeing bundled payment across the drug and provision of services, some areas where we’re seeing that separated. And I think we’re very happy to get into more discussion around that once the details of the code are out and published.

Joshua Schimmer, Analyst

Thanks for taking my question. For – just coming back to the CPT codes. They go into effect January 1st, that means that is when the resource consumption analysis will begin. And over what time does that occur? And when do final codes and reimbursement likely go into place? And then, if it’s going to be done for both MAPS and COMPASS, how do the codes reconcile differences between the resource consumption that may exist between the two products? Thank you.

Kabir Nath, CEO

Thanks, Josh, for the question. So, on the latter part once we see details of the code, I think that will make it clear some of the answers to the second part of the question. For the first part, there is no fixed timeline from which the CPT III code grows up, shall we say, to become a CPT I code. What happens is that from January the 1st, it will be available to be used for tracking activities. And what’s important is that there is adoption, that there is good experience, there also that the data that we continue to generate through the trials. The data that MAPS may start to generate in the real world supports strong evidence of efficacy and so on. And again, there is a process of building that body of evidence, as you say, starting to actually construct the value elements of it. But there is no fixed time frame for this becoming reimbursable. Obviously, by doing this well in advance of where we may be able to launch, it is our hope and expectation that we will be able to have something that is reimbursable at or very close to launch, but that’s going to depend on continuing efforts by us, by MAPS, and potentially, others from January of next year.

Guy Goodwin, Chief Medical Officer

I think, to be honest, that we based this on a recruitment curve. We’re still at the stage of developing that curve to see where it will saturate, where it will get to the required numbers, so it would be premature to give a date just at this minute. But we’re confident that we’re on track to complete the study and the exact timing we will release when we’re more confident about it.

Kabir Nath, CEO

Thank you, Guy. In closing, let me say that now as a Phase 3 company, COMPASS Pathways leads the way in the development of psychedelic therapies. We believe these therapies represent the next generation of mental health therapeutic options. There’s a significant and growing number of people across the world suffering from serious mental illness who are not helped by existing standards of care. We must act with urgency on their behalf. Most programs in this area of science today are unproven, early stage, and risky. We’ve established a high bar for evidence regarding safety and efficacy. Many of those early stage clinical studies will likely fail to meet their primary endpoints as we have seen with news from some other studies earlier this year. As Guy noted, we’re progressing as expected in our Phase 3 program in treatment-resistant depression. While we ultimately expect to leverage our extensive data set to expand the development of COMP360 into a range of areas of unmet need, TRD is our first target indication and our clear focus. To this end, we continue to advance our commercial strategy on a number of fronts as we move through the Phase 3 program toward an NDA submission with the FDA. The CPT III code, as discussed earlier, is a prime example of a successful step forward with our commercial approach and a clear indication that it can translate to significant value creation. As Mike noted, we continue to be in a solid financial position with a strong balance sheet to help us advance these promising therapies. We are making strong, meaningful progress in our work to develop and deliver new therapeutic solutions to patients who suffer from difficult-to-treat mental health conditions. Thank you again for your participation on today’s call. We’ll now turn to Q&A, so I’ll hand this back to the operator.

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a good day.