Earnings Call Transcript - DFTX Q2 2023

Operator, Operator

Good afternoon, and welcome to the Mind Medicine Second Quarter 2023 Financial Results and Corporate Update Conference call. Currently, all participants are in listen-only mode. This call is being webcast live on the Investors and Media section of MindMed's website at mindmed.co and a recording will be available after the call. For opening remarks, I would like to introduce Rob Barrow, CEO of MindMed. Please go ahead.

Rob Barrow, CEO

Thank you, and good afternoon, everyone. Welcome to our second quarter 2023 financial results and corporate update conference call. The press release reporting our financial results is available in the Investors and Media section of MindMed's website and our quarterly report on Form 10-Q for the quarter ended March 31, 2023, will be filed today with the Securities and Exchange Commission. Joining me today is Schond Greenway, our Chief Financial Officer; Dr. Dan Karlin, our Chief Medical Officer; and Dr. Miri Halperin Wernli, our Executive President. During today's call, we'll be making certain forward-looking statements including without limitation, statements about the potential safety, efficacy and regulatory and clinical progress of our product candidates, financial projections and our future expectations, plans, partnerships and prospects. These statements are subject to various risks such as changes in market conditions, difficulties associated with research and development and regulatory approval processes that are described in the filings made with the SEC, including the most recent annual report on Form 10-K and quarterly report on Form 10-Q. Forward-looking statements are based on the assumptions, opinions, and estimates of management at the date the statements are made, including the non-occurrence of the risks and uncertainties that are described in the filings made with the SEC or other significant events occurring outside of MindMed's normal course of business. You are cautioned not to place undue reliance on these forward-looking statements which are made as of today, August 3, 2023. MindMed disclaims any obligation to update such statements, even if management's views change, except as required by law. We are very excited to be providing this financial and business update as we rapidly approach an exciting and critical period for MindMed. Over the past year, we have made significant progress on our R&D pipeline which has positioned us for a series of important milestones in the coming quarters. Our most advanced lead program, MM-120, or generalized anxiety disorder, or GAD, has seen extraordinary enthusiasm and execution over the past 12 months. In August 2022, we dosed the first patient in our Phase IIb study of MM-120 for GAD. And with the significant momentum we have achieved, we are on track to complete enrollment in patient dosing by the end of the third quarter with topline data on the primary endpoint through week four to be reported in the fourth quarter of this year. It is worth a moment of reflection on the significance of this upcoming milestone, given the historical importance and compelling opportunity for lysergic acid diethylamide, or LSD. LSD is the most studied, storied and perhaps most stigmatized drug in the psychedelic class. And it is our aim that with compelling clinical data from our Phase IIb study, our proprietary form of LSD, MM-120, will become one of the leading candidates, if not the leading candidate in the psychedelic drug class. Before we dive further into our R&D and financial updates, I would like to highlight the current backdrop of brain health disorders, which has experienced increased visibility due to worsening epidemiology and recognition of its significance on overall well-being with a particular appreciation for the breadth and magnitude of impact that anxiety plays in driving brain health disorders. We've been heartened by the recent comments from the President regarding the need to improve access to mental health care and remain supportive of broad and concrete steps to do just that. Given that the annual healthcare costs for people with a behavioral health condition are 3.5x higher than for those without a behavioral health condition, the need for better access to mental healthcare is clear. We believe the reemerging potential of LSD as a pharmaceutical candidate is also mirrored by the growing appreciation of the core nature of anxiety and psychiatric disorders, including GAD in particular. GAD is an often debilitating mental health disorder associated with excessive anxiety and persistent worry, which can lead to significant impairment, including less accomplishment at work and reduced labor force participation as well as significantly higher rates of other comorbid conditions. And unfortunately, the problem has grown significantly over the past several years. A recent mental health prevalence study that was prepared for the Substance Abuse and Mental Health Services Administration, or SAMHSA, found that 10% of U.S. adults report having a generalized anxiety disorder diagnosis, making it the second most common mental health disorder among adults. In comparison to historical studies of the prevalence of GAD, the condition appears to have tripled in the last two decades. The reality is reinforced by the recent emphasis on anxiety screening as last year, the U.S. Preventive Services Task Force, or USPSTF, issued a recommendation to screen for anxiety in all children and adolescents age 8 to 18 years and issued a draft recommendation to screen all adults under the age of 65. This growth in prevalence and focus on anxiety disorders has unfortunately not been matched by innovative treatments, with the treatment landscape remaining dominated by SSRIs, SNRIs, benzodiazepines and in more limited cases, antipsychotics. In fact, the last original approved marketing application that was focused on the treatment of GAD was obtained for Cymbalta in 2004. And despite their broad use, which represents approximately $3 billion in annual U.S. revenues, available therapies suffer from a variety of efficacy, safety and tolerability challenges that lead to low rates of compliance and remission. The simple reality is that for many years, GAD has been an overlooked indication precisely because the most used treatment options, such as common pharmacotherapies, appear to be less well equipped to treat anxiety symptoms and depressive symptoms. This presents both in the relatively lower response to SSRIs in GAD versus MDD, but also in the fact that MDD patients with heightened anxiety typically respond less well to current standard care. Quantitatively, this is displayed by the fact that current therapies for GAD have demonstrated a standardized effect size of around 0.4 in clinical trials with some demonstrating a considerably lower response. The research we have conducted with patients and health care practitioners in the U.S. and Europe tells us that there is a significant demand for a new pharmacological class that could offer faster, more profound and more durable efficacy responses as well as favorable safety and tolerability. This is particularly true in the segment of patients who despite having tried currently available therapies continue to experience intolerable anxiety. We believe this is a major contributor to the high degree of enthusiasm we consistently hear from patients, providers and payers on the revolutionary potential of MM-120 in psychiatric disorders. As one prominent psychiatrist recently put it, the days of SSRIs and the like are limited. On a related note, in June, FDA released draft guidance for developing drugs in the psychedelic drug class. Notably, this guidance highlights the reality that dose response is not well understood for the drug class and emphasizes the need for elucidation of dose-response relationships exactly as we are doing. The draft guidance also notes the importance of establishing a stand-alone drug effect that is in the absence of psychotherapy, which is exactly how we designed our controlled trial over two years ago. In our view, our approach is clearly in line with the FDA guidance, and importantly, allows for consistent study design and treatment delivery paradigm, as we potentially advance into pivotal clinical trials. To our knowledge, our Phase 2b study of MM-120 in GAD is the largest controlled study of LSD ever conducted and will guide the dose selection and development strategy for MM-120 in GAD as well as deepen our scientific understanding of its clinical effects and its underlying functional mechanisms of action. It's important to point out that we dosed our first patient just under one year ago in August of 2022 with activation of all of our clinical sites only occurring at the beginning of 2023. The ability of our team to execute a study of this size so seamlessly and efficiently stands out within the field and also speaks to the quality of the organization we have built at MindMed. It also reinforces our high degree of confidence in our team's ability to launch and enroll future studies in a very efficient manner. Patient dosing enrollment for our Phase 2b trial in GAD is progressing well across our 20 active sites and we expect to complete study enrollment in the third quarter of this year, with topline results to be reported in the fourth quarter of this year. Patients in the trial are randomly assigned to receive a single administration of either 25, 50, 100 or 200 micrograms of MM-120 or a placebo and then followed for up to 12 weeks. The primary objective of this study is to determine the dose response relationship of MM-120 across the four active dose arms as measured by the change in Hamilton Anxiety Rating Scale, or HAM-A, at four weeks post dosing. The statistical analysis being employed in the study is a multiple comparison procedure modeling, or MCP-Mod, approach — a sophisticated statistical approach to dose-response modeling which is especially well equipped to demonstrate dose response and optimize dose selection. This statistical approach, which has received qualification opinions from both FDA and EMA, has superior power and lower estimation errors compared to more traditional designs, which we believe bolsters the probability of success of our approach. As we finalize the statistical analysis plan for our Phase 2b study, we have also made a determination that due to the high powering of our approach, a reduction in the minimum sample size is warranted. And as a result, we are reducing the enrollment target by 10% from 200 patients to 180 patients. We believe this change maintains the statistical power of approximately 90% to achieve the study's objectives. And based on our internal modeling, this gives us a high degree of confidence in obtaining statistically positive results — if we observe an effect size that represents even a marginal improvement over the standard of care. As we rapidly approach conclusion of our Phase 2b study, we are also excited to share our plans for the ultimate formulation we intend to advance for MM-120 product candidate, specifically utilizing Catalent's Zydis ODT technology, as we announced earlier today. Over the past years, we explored numerous advanced dosage forms, with the aim of enhancing pharmaceutical performance and intellectual property protection, creating a product that is difficult to replicate and has the opportunity to demonstrate more attractive pharmacokinetic performance characteristics, such as faster absorption, better bioavailability, reduced variability and as a result, the potential for reduced duration of perceptual activity. Towards this end, we entered into an exclusive license agreement with Catalent that covers all forms of LSD across all major pharmaceutical markets. Catalent is the global leader in enabling biopharma, cell and gene and consumer health partners to optimize development, launch and supply of better patient treatments across multiple modalities. With our agreement, MindMed has gained access to Catalent's patented Zydis orally disintegrating tablets, or ODT, technology for use with MM-120. Catalent's proprietary Zydis technology is a unique freeze-dried oral solid dosage form that disperses almost instantly in the mouth without the need for water. We believe that the Zydis ODT delivery technology when incorporated into our MM-120 product candidate represents an optimized pharmaceutical product that has the potential to enhance our competitive advantage in the marketplace. We continue to expand our intellectual property estate with the first relevant patent application not expiring until 2042, assuming our patent application claims are issued and granted. To further support this transition, we are also planning to initiate a Phase 1 pharmacokinetic bridging study to support the advancement of MM-120 ODTs into pivotal clinical trials. We believe this will allow for precise dose selection for Phase 3, and provide invaluable data to bolster our intellectual property position. Additionally, we have either completed or are in advanced planning to complete all prerequisite studies that we believe will enable an efficient transition from the conclusion of our Phase 2 clinical program into the pivotal Phase 3 studies. In addition to the session-based delivery of MM-120 in GAD, we are investigating the direct neuropharmacological activity of MM-120 as a serotonin agonist in an innovative treatment regimen. One such exploratory approach is our Phase 2 proof-of-concept study of MM-120 for ADHD. This study is being conducted in collaboration with University Hospital Basel in Switzerland and Maastricht University in the Netherlands and is designed to evaluate the therapeutic utility of repeated low doses of MM-120 in adult patients with ADHD. Notably, this is the first study in which MM-120 has been administered outside of a clinical setting. To date, no serious adverse events have been reported, suggesting the real-world potential of this treatment regimen as well as demonstrating our ability to deliver MM-120 with innovative dose and frequency combinations. We expect to enroll a total of 52 participants, who will receive a 20-microgram dose of MM-120 or placebo twice weekly for six weeks with the primary endpoint for this study being the mean change from baseline in ADHD symptoms as assessed by the AISRS after six weeks of treatment. Enrollment in the study has continued to progress with over 80% of enrollment complete. However, due to controlled substance importation challenges at our Netherlands site, we now anticipate reporting topline results in either the fourth quarter of 2023 or the first quarter of 2024. Our second line program is MM-402, which is the R(-)-enantiomer of MDMA. We believe MM-402 holds promise for its potential pro-social effects and favorable tolerability profile versus racemic MDMA. The focus of MM-402 development is to develop a regularly administered product that treats the core symptoms of autism spectrum disorder, or ASD, in particular social communication difficulties. Remarkably, despite the significant and increasing prevalence of ASD, there are currently no approved therapies specifically targeted at its core symptoms. MDMA, often referred to as an entactogen, is a synthetic molecule known to enhance feelings of connectedness and compassion. The R(-)-MDMA in particular is believed to boost serotonin and other neurotransmitter levels in the brain leading to increased sociability and interpersonal emotional warmth. Preclinical studies of R(-)-MDMA have shown acute pro-social and entactogenic effects while reduced dopaminergic activity suggests it might exhibit fewer neurotoxicity, hyperthermia and abuse-related effects compared to racemic MDMA or the S-enantiomer. With robust preclinical evidence supporting our approach, we're excited to launch the Phase 1 clinical trial of MM-402 later this year. This trial aims to assess MM-402's tolerability, pharmacokinetics, and pharmacodynamics and we are actively exploring all possibilities to generate early indications of efficacy during development. We expect to gather such data both from neurotypical healthy volunteers and otherwise healthy individuals diagnosed with ASD. Currently, we have collaborated with University Hospital Basel to conduct a comparative Phase 1 pharmacokinetics and pharmacodynamic study of R(-)-MDMA and racemic MDMA. This study involves enrolling healthy volunteers and is designed to evaluate the tolerability, pharmacokinetics, and acute subjective physiological and endocrine effects of the two molecules. Successful completion of this study is expected to expedite our understanding of MM-402's pharmacological profile as we progress in the later stage clinical development. We've been informed by UHB that they anticipate completing enrollment by the fourth quarter of this year and anticipate that data will be presented in the first half of 2024. Next, I would like to turn to our digital medicine updates. Alongside our drug development strategy, we have a suite of digital medicine programs that hold the potential to enhance the adoption, utilization, and accessibility of our drug product candidates. As we look at the potential commercial challenges, which are especially important with our product candidates being developed for session-based delivery, we believe our integrated digital applications can significantly contribute to overcoming potential barriers and position our product candidates as ones with the most efficient delivery throughout the patient journey. Similar strategies have been utilized to great success for other groundbreaking therapies, effectively overcoming similar barriers to deliver and enhance efficiency and ease of delivery. This differentiating factor could also afford us even further market protection, making our alternate products extremely difficult to replicate, while maintaining the same degree of safety, effectiveness and ease of delivery, should they ultimately be approved and marketed together. Over the course of 2023, we have seen significant progress in depth in our digital medicine programs and have successfully integrated these digital applications into certain ongoing and planned clinical studies. Our specific approach targets two primary clinical periods: activities during a treatment session or in-session and activities between treatment sessions or inter-session. Each approach is built on a platform comprising distinct components with some falling under the purview of the FDA's definition of medical devices, while others may not be regulated as such. For those that qualify as medical devices, we intend to collaborate with the FDA and other international regulatory authorities to seek guidance throughout the development process with the goal of ultimately obtaining regulatory clearance or approval. To-date, we have significantly advanced the technical, clinical and regulatory execution of our in-session monitoring application, the MindMed Session Monitoring System, or MSMS. Through multiple meetings with FDA including representatives of both the FDA Center for Devices and Radiological Health, or CDRH, and with the Division of Psychiatry within CDER, we believe we have chartered a course with the intent to further integrate into our clinical development program for MM-120, with an aim to ultimately obtaining approval for the integrated solution. The path to achieving this objective uses well-established device regulatory pathways in an efficient and unique manner. Specifically, we are leveraging a development pathway in which a version of MSMS designed specifically for use by providers and patients during Spravato treatment sessions is being advanced in pursuit of a Class II regulated software as a medical device, or SaMD, clearance via the de novo pathway. In pursuing the CDRH clearance, we are seeking to build a product that we believe will be a useful asset supporting the safe administration of Spravato and the release of patients from the clinic following Spravato treatment. We are also seeking to establish with FDA that the components of our product meet their requirements for labeling. We believe this initial approach to obtain early FDA clearance for MSMS with Spravato paves the way for a potential rapid regulatory application of an MSMS version designed for use with MM-120, subject to its potential future approval. To leverage the efficiency of this approach, as we pursue the de novo clearance for MSMS in conjunction with Spravato, we are in parallel collecting data on MSMS use in conjunction with LSD from both clinical studies being conducted through our UHB collaboration as well as studies that are part of our MM-120 development program. This strategy opens the door to potential early clinical integration of MSMS as a companion device to MM-120 and the potential subsequent pursuit of the combination product label. Given the anticipated episodic nature of treatment of MM-120 in particular, we are also continuing to conduct clinical research with our digital medicine applications to allow for ongoing patient monitoring and engagement outside of the treatment session. We aspire to have the integrated data from in-session monitoring with MSMS and out-of-session monitoring allow for a deeper understanding and prediction of patterns of response to MM-120 and potential optimization of dosing paradigms on a more individualized basis. Turning to our commercial initiatives. Over the course of 2023, we have continued to attract strong commercial leaders who have successfully launched numerous products, including in complex and highly stigmatized settings. We are continuing to see great progress in these initiatives as we seek to develop a groundbreaking market access strategy, thoroughly document the clinical and socioeconomic impact of our target indication and generate health economic and outcomes research data to bolster the value proposition of our product candidate. We recognize and embrace the challenges associated with potentially launching a new therapeutic class in a major market indication. We are also encouraged by the recent growth and uptake of Janssen's Spravato nasal spray, which similarly utilizes a session-based delivery paradigm. The lack of a durable treatment response for Spravato requires patients to spend over 12 hours in the clinic across six or more visits in the first month of treatment alone. Even still, in the most recent quarter, Spravato sales grew by 99% year-over-year with a greater than $675 million annual run rate. In light of this increasing uptake, and the demonstrated willingness of patients, providers and payers to embrace an innovative intermittent treatment model, should we be successful in demonstrating the safety and effectiveness of MM-120, we believe MM-120 could represent an even more attractive treatment option with more durable and less administratively burdensome delivery characteristics. As we continue to progress our pipeline, we remain committed to offering greater clarity on our planned commercial model and the path forward for each program aiming to maximize the impact on uptake of our innovative product candidates. With respect to our intellectual property and market protection strategies, our current patent portfolio includes 57 pending U.S. applications and 19 pending Patent Cooperation Treaty applications. These include applications covering composition, dosing, dosage formulations and methods of treatment among others, with projected expiration dates beginning in 2041. Our market protection strategy has been further strengthened by our recent exclusive license agreement covering use of the Catalent Zydis ODT technology for LSD in all its forms in all major pharmaceutical markets. We continue to retain all rights to our product candidates and we're aggressively protecting and expanding our intellectual property across our portfolio as part of our comprehensive market protection strategy. Over the course of the next several quarters, we anticipate several important intellectual property milestones that we believe will reinforce our optimism about our ability to durably protect our market position for many years. Overall, we are highly encouraged by the progress we have made at MindMed, and we are enthusiastic about the many exciting milestones in the months ahead. We are deeply committed to advancing our organization and providing new life-changing treatment options for individuals suffering from brain health disorders. As we continue our strategy to bring our lead product candidates to market, we firmly believe we are laying a strong foundation for creating enduring value for our shareholders. With that, I'll turn the call over to our CFO, Schond Greenway, to discuss our financial results.

Schond Greenway, CFO

Thanks, Rob, and thank you all for joining us today. We will now turn to our financial results for the quarter ended June 30, 2023. As of June 30, 2023, MindMed had cash and cash equivalents totaling $116.9 million, compared to $142.1 million as of December 31, 2022. We believe that our cash position allows us to accelerate our preparation for moving quickly into our pivotal program for our lead development candidate, MM-120, and will be sufficient to meet our operating requirements beyond our key development milestones in 2023 and into the first half of 2025. The net cash used in operating activities was $27.2 million for the six months ended June 30, 2023, compared to $28 million in the first six months ended June 30, 2022. R&D expenses were $14.8 million for the quarter ended June 30, 2023, compared to $9.3 million for the same period in 2022, an increase of $5.4 million. The increase was primarily due to increases of $4.4 million in expenses related to clinical research for our MM-120 GAD study, $0.8 million in preclinical activities, $0.6 million in internal personnel costs as a result of increasing R&D capacities, and $0.2 million in connection with various external R&D collaborations, partially offset by a decrease of $0.5 million in expenses related to our MM-110 program, and a decrease of $0.1 million related to our MM-402 program. General and administrative expenses were $14.4 million for the quarter ended June 30, 2023, compared to $7.6 million for the same period in 2022, an increase of $6.8 million. The increase was attributed to professional services fees and expenses related to our proxy contest in connection with our 2023 Annual General Meeting of Shareholders and additional costs to support the growth of our business. Our net loss for the quarter ended June 30, 2023 was $29.1 million, compared to $17 million for the same period in 2022. I will now turn the call back to Rob, who will provide some closing comments.

Rob Barrow, CEO

Thank you, Schond. As we come to a close, I want to extend my sincere appreciation and gratitude for the critical work and unmatched execution that has brought MindMed ever closer to realizing our mission. I'd like to thank our highly talented and deeply committed team, our research collaborators and clinical investigator teams, our investors and many other individuals who have been supportive, including especially our patients and their families. We are working tirelessly to deliver on the therapeutic potential of our pipeline, and transform the treatment landscape for many individuals with brain health disorders. With that, I'd like to thank you all again for joining us today and I'm happy to take any questions.

Operator, Operator

Thank you. We will now conduct a question-and-answer session. Our first question comes from Charles Duncan with Cantor Fitzgerald. Please go ahead.

Charles Duncan, Analyst (Cantor Fitzgerald)

Hi. Yes, Rob and Dan. Thanks for taking our questions. Congratulations on the GAD enrollment progress and the Zydis deal — that looks to be pretty interesting. I know other companies have been satisfied with working with that technology. I had just a couple of questions on the ongoing GAD study. And so we'll start with the four different dose levels and placebo. I guess I'm wondering, what do you anticipate for the dose response? And then secondarily, for moving forward, what is more important to you? Is it a certain P value, or is it a responder rate for efficacy? I guess given that this is not a pivotal study, I would anticipate that the totality of data is most important. But what are you looking for out of this study?

Rob Barrow, CEO

Yes. Thanks so much, Charles for the question. So first, in terms of what we're expecting across the dose levels, certainly what we've seen from historical studies in healthy volunteers gives us some insight in terms of the acute pharmacodynamics of MM-120 or LSD. But very little — and I think it was highlighted in the FDA's recent guidance — the little that is actually known about the relative response to these different doses or really across a broad range with any of the psychedelic drugs. And so in part the statistical methodology allows for the nomination of candidate response curves. Now, I think based on historical data, particularly the data that came out of UHB last year, where we saw there was a degree of correlation between the magnitude of the acute perceptual effects and the ultimate clinical response in that study, we have an expectation that at higher dose levels in the range we're studying we would see a more robust response. But of course, the entire study is designed to ultimately elucidate what that response curve is. And that translates nicely over into the second part of your question, in terms of what's most meaningful, what's most important moving forward. Certainly, as a dose optimization study, one of the key features is to identify a dose that we can transition into subsequent confirmatory research and into pivotal studies. And in connection with that, we're looking to also quantify the magnitude of the effect size at the different doses, but also at the dose we would select to take forward. That, in terms of outcome, is really key in understanding the magnitude of the effect which, of course, will drive the patient numbers and the powering of subsequent clinical studies. And so in that context, certainly, from a clinically relevant perspective, we would certainly want to see a response that is in line with or better than the current standards of care. As I mentioned earlier in the call, an effect size of around 0.4 or above would be certainly supportive of moving forward in our view. But obviously, given the historical evidence in some of the preliminary studies of LSD, we think there is a really compelling opportunity. If we see a higher effect size, that is even more exciting about the opportunity. And of course, it would also imply either higher power or lower required patient numbers as we progress in plan.

Charles Duncan, Analyst (Cantor Fitzgerald)

That's helpful, Rob. If I could ask one additional final follow-up question regarding the phenotype of the sample or the patient sample that you're enrolling. You have a pretty broad age range, 18 to 74. I guess I'm wondering what you think about that in terms of heterogeneity — I mean some of those patients may have had generalized anxiety disorder for quite some time. Would you anticipate there to be an age interaction effect? And have you incorporated such analyses into your statistical analysis plan?

Rob Barrow, CEO

So I'll make a brief answer and then turn it over to Dr. Karlin, our Chief Medical Officer to respond further. I think high level, when we look at the study and certainly the rich data that we'll have coming out of the study, I think we'll have a lot of insight and be able to do many, many layers of analysis to understand both the activity of the molecule and the clinical response. It is not planned as a primary or secondary analysis to look at specific age effects or specific effects in terms of the duration of prior diagnosis with GAD but that said, of course, we'll be exploring exploratory analyses extensively for any of the characteristics that could be impactful in forming future decisions. Dan, do you want to take anything further?

Dr. Dan Karlin, Chief Medical Officer

Yes, I could just add and thanks for that question. GAD is interesting in that it is obviously a heterogeneous diagnosis across age, but also that there is an accumulation of disease burden over life, which makes it somewhat different than other psychiatric illnesses. And so both age as a factor of analysis and duration of illness are of interest because it's certainly possible that older patients have only recently developed the disorder as well. So we're very interested in that and interested in how both the acute effects vary with those factors, and of course, how longer-term efficacy varies with both duration of disease and age.

Charles Duncan, Analyst (Cantor Fitzgerald)

My last question is for Schond. As Dan was finishing, he tailed off a little bit. So Schond, quick question regarding the cash — and I think you mentioned it was sufficient to fund fully into the first half of '25, I think, is what you said. I guess my question is, do you anticipate being able to operationalize a Phase III study, perhaps by the end of '24? And is that cost included in your projections, or would that change depending on the design and size of that Phase II?

Dr. Dan Karlin, Chief Medical Officer

Appreciate that, Charles. I think I will kick it over to Rob to talk a little bit about aspects on the Phase III. But as it relates to guidance, we pretty much just said that we are positioned for having a run rate into the first half of 2025 and obviously, assuming success as Rob has mentioned before, the goal is to pivot and move quickly into Phase III. We haven't given any guidance as to the timeline for initiation of a Phase III study.

Rob Barrow, CEO

Yes. Thanks. As Dan said, we haven't given guidance on the specific timeline for initiation of Phase III, but certainly we're very much of the mind that we need to be fast and efficient with our development program and move seamlessly through to subsequent phases of development. So we are undertaking all of the preparations and have engaged widely to be ready to transition quickly into those later-stage regulatory discussions and the launch of those later-stage studies. As we come to data and as we start to give further guidance on these precise timelines, we'll certainly update as well the impact on financial guidance associated with any further scoping of the later-stage development program.

Charles Duncan, Analyst (Cantor Fitzgerald)

Okay. That makes sense. Thanks, Schond, for taking my questions.

Operator, Operator

Our next question comes from Brian Abrahams with RBC Capital Markets. Please go ahead.

Navin Jacob, Analyst (RBC Capital Markets) - on behalf of Brian Abrahams

This is Navin on for Brian. Congrats on all the progress that you were able to make this quarter. I was wondering if you could give me a little bit more color on the Catalent formulation deal that you had mentioned with the oral dissolving dosage and that you might be able to extend out IP protection a little bit more. If you could tell me whether you think that the dissolving dosage would be something that would appear on a potential label? And if the PK can't be replicated by like a typical LSD sublingual or standard oral solid dosing? And then as a follow-up to that as well, do you think that this formulation will be something that you end up bringing into Phase 3, or would be the go-forward formulation, or does that kind of depend on how the Phase 1 trials that you intend to run pan out?

Rob Barrow, CEO

Yes. Thanks so much for the question. So in terms of our dose selection, it is certainly our intent to take the ODT formulation forward in subsequent clinical trials with MM-120, in particular, assuming a successful Phase 2 study, to take it forward in the pivotal clinical trials and to commercialization — if approved. In terms of the performance characteristics and predictability, one of the key features of the Zydis technology is the rapid rate of disintegration and with drugs that have acute perceptual activity that we anticipate in development and certainly later downstream would result in a period of time in the clinic. Every interval of time is important and the ability to have a dosage form that disintegrates almost immediately in the mouth and then gives an opportunity for pregastric absorption to drive faster uptake and absorption in the body could be quite important in terms of differentiating the product from historical products and certainly from an oral capsule or a solid oral dosage form that is subject to gastric dissolution, disintegration and subsequent absorption. So our view is that it offers a compelling opportunity to differentiate potentially on the pharmacokinetics and certainly in terms of the dosage form. Based on all that we know and the proprietary information we have about the performance of LSD by modern pharmaceutical standards, this technology and the manufacturing process are things that we've been able to take additional steps to protect from an intellectual property perspective. Also, we think it would be very difficult, if not impossible, to replicate. The ability to differentiate that product on these grounds, particularly when it comes to things that would potentially have an impact on the safety or the performance of the molecule, often can potentially differentiate a product. You can look at some other products as precedent, such as Biohaven's NURTEC ODT success which has been taken to market and is now marketed by Pfizer.

Navin Jacob, Analyst (RBC Capital Markets) - on behalf of Brian Abrahams

Thank you. I appreciate that. And if I can ask a follow-up as well. So as you're thinking about actually designing some of the pivotal studies moving forward, based upon the FDA's new release guidance on how to run trials for psychedelics where they recommended placebo-controlled trials as well as low and high dose studies or using blinded raters and dual monitors — how has that newly released guidance impacted your thinking about designing these trials moving forward?

Rob Barrow, CEO

It's a great question. This is a conversation and an intellectual discussion we've been having with FDA and I've been a part of similar discussions at other organizations over the past several years. There's obviously a dynamic with the psychedelic drug class where the acute perceptual effects, particularly at high doses, create a risk for functional unblinding. The phenomenology of an administration session of a psychedelic is quite unique and quite profound. But it's also really important that we don't lose sight of the fact that almost every potent CNS drug ever developed, particularly some of the recent ones such as Spravato itself, has dealt with a similar challenge. Functional unblinding is not unique to psychedelics. Spravato has associated perceptual and adverse event differences that are observable in adverse event tables for Spravato versus placebo. Placebo-controlled research is the gold standard in demonstrating effect. As we've approached and explored all of the available potential options for control conditions, placebo is the most robust control condition that could be taken forward into any study and is one of the significant challenges in this field. I would note that the FDA guidance certainly discusses this but leaves room for subsequent discussions and agreement with the division in terms of the path forward and appropriate controls. When we think about the intent of a control condition, it is both going to aid in the interpretation of safety data — that is noted in the guidance — and it will be nearly impossible without a placebo condition to determine the attributability of adverse effects or any safety findings and therefore for safety interpretation a placebo is absolutely paramount. Also, if we're actually trying to mitigate functional unblinding, a control condition other than a placebo that is intended to mitigate that potential functional unblinding would have to be perceivable. Giving someone a sub-perceptual dose of LSD, for instance, that doesn't rise to the level of having perceptual effects doesn't really mitigate the risk of functional unblinding while it does hamper the ability to adequately interpret safety conclusions. So in our view, using a sub-perceptual dose of a psychedelic is one of the most challenging to argue for because it doesn't aid in the thing we're trying to overcome and it creates challenges in terms of interpretation of the study results. So our view is that the appropriate control in studies with psychedelics and our MM-120 program is to use placebo-controlled research, which again is the gold standard for all clinical research. And it's something that we certainly will be putting forward and feel quite strongly about as we move forward in development.

Navin Jacob, Analyst (RBC Capital Markets) - on behalf of Brian Abrahams

Okay. Thank you so much for taking my question.

Operator, Operator

Our next question comes from Elemer Piros with EF Hutton. Please go ahead.

Elemer Piros, Analyst (EF Hutton)

Yes. Good afternoon. Rob, can you hear me, please?

Rob Barrow, CEO

I can. Thanks. Hi, Elemer.

Elemer Piros, Analyst (EF Hutton)

Yes. Hi. So, coming back to the Zydis technology. Obviously, there are a number of precedents you referred to at least one, and the improvement in onset of action and bioavailability. Can we extrapolate specifically to MM-120, what magnitude of improvement could be estimated based on historical data, and the number of actual product candidates that have been tested with the technology itself?

Rob Barrow, CEO

Yes. Thanks, Elemer. It's a great question. In terms of extrapolation from other molecules, there are a number of physicochemical and other performance properties that dictate the rate of pregastric absorption for any molecule, and certainly, one of the strong reasons for proceeding with a Phase 1 study is to characterize exactly that — to characterize the rapid nature of onset, the time to onset of absorption and the time to onset of the perceptual activities. That study will give us the specific insight. As we progress through that study very quickly and have the data become available, I think we'll be able to give much more precise guidance and it would be premature for me to extrapolate from other molecules. But certainly, some of the initial in silico modeling we've done has given us confidence that we would see an opportunity for enhanced performance and an enhanced PK profile that will both potentially be differentiated and could be more attractive. That was one of the motivating factors for taking that product forward. As we obtain PK data with that formulation compared to our Phase 2 formulation, we will have direct insights and can provide a much more extensive answer on the exact difference.

Elemer Piros, Analyst (EF Hutton)

And hearing your commitment to move forward once you better characterize in Phase 1, it certainly appears that it cannot make things worse; it won't reduce bioavailability. Is that correct or safe to say?

Rob Barrow, CEO

Well, it's certainly one of the features of a molecule that is highly potent and permeable and that we know when we give a solid oral dosage form such as a capsule that then requires a dissolution time, a product that is administered in the mouth and then swallowed, for instance, with water, presumably would have a similar profile upon entering the stomach. While we certainly need to demonstrate this and want to characterize the response, we feel like there is a limited downside risk in terms of worsening outcomes for the formulation — but again, that is subject to confirmation and why we're moving forward with the PK bridging study.

Elemer Piros, Analyst (EF Hutton)

Sure. And my second question is about the draft guidance and the nature of inclusion of placebo and a low dose of the active drug. Do you think that you will have done enough work in this Phase IIb to at least partially satisfy that, or do you think that you would have to continue exploration of identifying what is the true safety profile of MM-120, and what is the differential between the low dose and the presumably most effective dose in terms of clinical effect?

Rob Barrow, CEO

So in terms of selection of a dose, that will be informed by the results from our Phase II dose optimization study, which is worth reiterating is the most extensive and rigorous exploration of dose response in a patient population, certainly with LSD, and to our knowledge with any drug in the entire class. We'll have a very rich data set and a lot of information that we can use to support decision-making and proposals for subsequent clinical trials. In terms of characterization of safety, it's really a function of the doses that a sponsor would be intending to move forward and ultimately bring to a marketing application. So as we identify those doses and see the response, it certainly will inform subsequent development. One of the questions a program can ask is to characterize the lowest effective dose — that is quite different from using a sub-perceptual dose that presumably does not have a robust clinical response. That's where we really focus and with respect to the guidance, I feel that it's appropriate to bring forward placebo-controlled research into clinical trials.

Elemer Piros, Analyst (EF Hutton)

Understood. Thank you very much, Rob.

Operator, Operator

Our next question comes from Francois Brisebois with Oppenheimer & Co. Please go ahead.

Francois Brisebois, Analyst (Oppenheimer & Co.)

Hi. Thanks for taking the question. Just a couple here. In terms of the PK for the Zydis ODT formulation, do you share when you would expect that data to come out? And is that data that you'll share or just use internally to figure out how to use it in a pivotal trial?

Rob Barrow, CEO

Yes. We haven't given guidance to the exact date when it would be available and the extent of the dissemination of those results. That data may be used primarily for internal decision-making to support dose selection and transition into pivotal trials. But at that point in time, once we have sufficient data and clarity on the results of that study and the implications for dose selection, we'll certainly be in a position to share more about the outcome of that study.

Francois Brisebois, Analyst (Oppenheimer & Co.)

Understood. And in terms of the digital efforts, is this something that you'll share? Is it something that you intend to use in Phase III or anything that we should expect to see in the Phase IIb, or is there any color there on when we can expect to see data on the digital effort here?

Schond Greenway, CFO

Yes. So the digital medicine program — and I'll ask Dr. Karlin to speak a little bit further to it — is not being used currently in our Phase 2b study. But certainly, as we continue to explore and align with the agency, both CDRH and CDER, on the path forward and the inclusion of our digital medicine applications in clinical research, we want to be sure we have alignment there before we make any commitments to exactly when it would be used in our development program. Our intent as we progress is to integrate it into clinical research with MM-120 at some point. In parallel, we have a number of opportunities through our collaborations to conduct local research with our MSMS in conjunction with LSD and also more extensively with other administrations, which gives us the ability to be really effective and efficient in our development approach for the MSMS product that we could ultimately then leverage into a product that we aim to be labeled for use with MM-120.

Dr. Dan Karlin, Chief Medical Officer

I would add that we are currently in the process of collecting data. Prior to inclusion in a pivotal clinical program, we want to be sure that we are confident that we can interpret and understand any data coming from a software medical device product and that CDRH and CDER are also comfortable with the interpretability of those data. So that would be an ongoing conversation as we approach the pivotal program as we continue to develop the MSMS product.

Francois Brisebois, Analyst (Oppenheimer & Co.)

Okay. Great. And then just lastly, can you just remind us of how understood is the potency difference maybe when you compare psilocybin to LSD? And if it's — the amount that it's different, how understood is that just as we're trying to gauge the dose response and the different doses of your Phase 2b? Thank you.

Schond Greenway, CFO

Yes. So there are some studies, including with our collaborators at University Hospital Basel, that have looked at the comparative effects — the perceptual effects at least — of various doses of LSD and psilocybin. When we look at that collectively, generally the approximation — and it is just an approximation — is that a 100-microgram dose of LSD would correspond more closely to about a 20-milligram dose of psilocybin in terms of acute participant-rated magnitude of perceptual effect. By extrapolation, a 200-microgram dose would be something more along the lines of 40 milligrams of psilocybin. So when you think of the potency of the molecule, LSD appears to be about 200 times more potent than psilocybin on a microgram-to-milligram basis, which of course means that the dose range we're testing covers a substantial range of perceptual intensity. Whether those acute perceptual magnitudes correlate with clinical outcomes is a separate question and one of the things we're asking in the study — which of those doses produces the clinical response in the disease population.

Francois Brisebois, Analyst (Oppenheimer & Co.)

Great. Thank you very much.

Operator, Operator

Our next question comes from Jonathan Aschoff with ROTH MKM. Please go ahead.

Jonathan Aschoff, Analyst (ROTH MKM)

Thank you. Hi, guys. I was curious if you could just answer a little housekeeping question. This G&A — how much of this 2Q was related to the annual meeting? And so kind of what might we not expect to see recurring?

Dr. Dan Karlin, Chief Medical Officer

Appreciate that question. We haven't actually broken that out separately, but if you're looking for a forward cadence on operating expenses in general, I think the way to look at that is we're getting into the tail end of our Phase II enrollment for MM-120 and also we're on the back end with our ADHD program and advancing our MM-402 program. So if you look at the general cadence, the back half of the year the expenses would likely be higher relative to the first half of the year given the progression of these programs.

Jonathan Aschoff, Analyst (ROTH MKM)

So I mean, G&A should progress at this level, it shouldn't come down, you're saying?

Dr. Dan Karlin, Chief Medical Officer

We haven't given any specific guidance on the G&A line item. It's more prudent to look at it as the overall operating expense line for the company. We haven't given hard guidance on specific components, but directionally the back half of the year could see higher operating expense.

Jonathan Aschoff, Analyst (ROTH MKM)

Okay. 2H over 1H higher than 1H — got it for OpEx. Thanks. So the onset for MM-120 as it is now, what is it? And what are you looking for out of ODT MM-120 for onset?

Bryan Bergin, VP, Clinical Development

So when we look at historical studies of LSD in various forms, the Tmax has been reported somewhere between 60 and 90 minutes. Anything that reduces that time to onset could be quite differentiated. It is really important that this is a unique drug class with unique considerations around safety and effectiveness, including the time to onset of perceptual activity, the duration of the perceptual activity and standard PK metrics such as Tmax, AUC, etc. Anything that brings faster absorption could impact the time to onset of perceptual activity and potentially the duration of the overall response. Even a relatively small change in that time course could be impactful from a clinical and competitive standpoint. So we're looking to observe faster absorption than what we've seen with the prior oral capsule and to characterize the differentiation between the formulations in those PK and PD characteristics.

Jonathan Aschoff, Analyst (ROTH MKM)

Okay. And you were mentioning pregastric absorption — is there much of a food effect or not really?

Dr. Dan Karlin, Chief Medical Officer

Well, a food effect could potentially be impacted by the extent of pregastric absorption. A formulation that absorbs primarily pregastrically would be at lower risk for a food effect, so the formulation choice can influence both gastric retention impact and speed to absorption and thereby the timeline to first onset of any PD effects.

Jonathan Aschoff, Analyst (ROTH MKM)

Okay. And can we assume that the dropping of enrollment was overwhelmingly due to you're going to go forward with an ODT and you still have close enough to 90% power. So why bother with 20 more?

Dr. Dan Karlin, Chief Medical Officer

That decision was informed as we finalized the statistical analysis plan, looked at the likelihood of obtaining our primary study objectives and understood the likelihood of seeing a statistically positive result if we observe a clinically meaningful result. As I mentioned, even if we see a marginal improvement over the standard of care with an effect size around 0.4, we have high confidence in the ability to detect a statistically and clinically meaningful effect with 180 patients. So when we look at savings and efficiencies we can build into the program, this was an opportunity to do exactly that without having to sacrifice power or the likelihood of success.

Jonathan Aschoff, Analyst (ROTH MKM)

Yes. Sounds totally rational. Thank you, guys.

Operator, Operator

Our next question comes from Patrick Trucchio with H.C. Wainwright. Please go ahead.

Luis (on behalf of Patrick Trucchio), Analyst (H.C. Wainwright)

Hi. Good afternoon. This is Luis signing in for Patrick. I'm trying to model the patient population for GAD, and there has been a recent study saying that according to the increased prevalence rates of GAD and other mood disorders, it might be that 20 million suffered from GAD in the past year. Can you provide some context on this data specifically — are we looking at a new normal with about 10% prevalence in this post-pandemic era, or do you think this will plateau and then come down?

Dr. Dan Karlin, Chief Medical Officer

It's, of course, difficult to predict epidemiological changes precisely, but anecdotally as we're out engaging with payers, providers and patients, we hear repeatedly about the magnitude of the problem. We often say that we solved for an infectious disease pandemic, but we have an ongoing epidemic in mental health. Anxiety as a symptom cluster and generalized anxiety in itself has been grossly overlooked and new data shows how significant the issue is. The lack of innovative treatments targeted to GAD over the past decades and the tripling in prevalence relative to historical data suggests the need has increased. To us, that signifies a continued significant unmet need to target GAD patients. Our study is coming at a time when the need has never been greater.

Luis (on behalf of Patrick Trucchio), Analyst (H.C. Wainwright)

Thank you. If I'm allowed, I'll just ask a quick question on your MM-402 program. When is the Phase 1 trial expected to start and are you looking at any specific biomarkers or meeting data to determine target engagement? And what will be your target population here? Thank you.

Rob Barrow, CEO

Thanks. Our Phase 1 study is intended to be initiated by the end of 2023. We also have the parallel study ongoing through our collaboration with University Hospital Basel, which we've been informed will likely report results in the first half of 2024. As we progress further in design, we will provide more detail on the specific population and endpoints. Our intent is to characterize safety, PK and PD of MM-402 in healthy volunteers, and as early as possible to bring in participants diagnosed with ASD to ascertain acute response to MM-402 administration — to understand PK, safety, tolerability, PD effects and to potentially gather early indications of activity.

Luis (on behalf of Patrick Trucchio), Analyst (H.C. Wainwright)

That was great. Thank you.

Operator, Operator

There are no further questions at this time. I would like to turn the floor back over to Rob Barrow for closing comments. Please go ahead.

Rob Barrow, CEO

Thank you. Thank you, operator, and thanks, everyone. Thanks, everyone, for the questions today. We appreciate you joining us and look forward to providing further updates.

Operator, Operator

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a good day.