Earnings Call Transcript - NERV Q2 2020

Operator, Operator

Welcome to the Minerva Neurosciences Second Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session, following today's prepared remarks. The call is being webcast live on the Investors section of Minerva's website. As a reminder, today's call is being recorded. I would now like to turn the call over to William Boni, Vice President of Investor Relations and Corporate Communications at Minerva. Please proceed.

William Boni, Vice President of Investor Relations and Corporate Communications

Good morning. A press release with the company's second quarter 2020 financial results and business highlights became available at 7:30 A.M. Eastern Time today, and can be found on the Investors section of our website. Our quarterly report on Form 10-Q was also filed electronically with the Securities and Exchange Commission this morning. Joining me on the call today from Minerva are Dr. Remy Luthringer, Executive Chairman and Chief Executive Officer; and Mr. Geoff Race, Executive Vice President, Chief Financial Officer, and Chief Business Officer. Following our prepared remarks we will open the call for Q&A. Before we begin, I would like to remind you that today's discussion will include statements about the company's future expectations, plans, and prospects that constitute forward-looking statements. We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated. These forward-looking statements are based on our current expectations and may differ materially from actual results due to a variety of factors that are more fully detailed under the caption Risk Factors in our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended June 30, 2020 filed with the SEC on August 3, 2020. Any forward-looking statements made on this call speak only as of today's date, and the company disclaims any obligation to update any of these forward-looking statements to reflect events or circumstances that occur after today's call except as required by law. I would now like to turn the call over to Remy Luthringer.

Remy Luthringer, Executive Chairman and Chief Executive Officer

Thank you, Bill, and good morning everyone. Thanks for joining us. I hope everyone is doing well. Today, I will focus primarily on Minerva’s lead product, roluperidone, which recently completed a double-blind Phase 3 trial for the treatment of negative symptoms in patients suffering from schizophrenia. With significant unmet medical need being the main reason patients with schizophrenia suffer from diminished function, it places a huge burden on patients, families, and the health care system. Today, there is no approved treatment for negative symptoms in the United States. Based on the review of the Phase 3 data, which builds on the Phase 2b data as well as additional data we have compiled over the years, we continue to believe that roluperidone has the potential to be the first drug to improve negative symptoms directly and specifically. After giving an update on roluperidone, I will also discuss the seltorexant program and our decision to opt out of the co-development agreement with Janssen Pharmaceutics. Today, I would like to begin with an update on the review of data from the recent Phase 3 trial of roluperidone. The trial evaluated two doses of roluperidone 32 milligrams and 64 milligrams over 12 weeks. The study was carried out in approximately 60 clinical sites in the U.S., Europe, and Israel, with more than 500 patients included in the trial. Following the 12-week double-blind phase, patients were offered an additional nine-month extension period of treatment with roluperidone at either 32 or 64 milligrams. I'm pleased to report that over 300 patients entered the extension, and more than 100 patients have now completed the overall one-year treatment period. I'm also very pleased to report that only a limited number of patients dropped out of the study as a result of worsening of positive symptoms, and this continues to be observed to date. Statistically significant differences were observed as the primary endpoint with a negative score proposed by Steve Marder, NSFS, negative symptoms factor score extracted from the timescale between active doses and placebo in week four for both doses, and in week eight for the 64-milligram only. Those groups receiving active treatment showed numerically superior improvements in NSFS compared to placebo in week 12, although the placebo improvement was high as well compared to the Phase 2b trial. Functional improvement, as measured by the personal and social performance scale or PSP, was statistically significantly superior with the 64 mg dose at all assessed weeks, with a nominal P value of 0.021 at week 12. We continue to explore the drivers behind the improvement of negative symptoms and consequently functional improvement by looking at the core components of negative symptoms. We suspect it is largely driven by the meaningful improvement in the patients' level of avolition, or lack of interest or engagement in goal-directed behavior. Once we complete our additional analysis of the Phase 3 data, we will be requesting a meeting with the FDA to discuss our data package and the path forward for roluperidone’s development. I would now like to address our second clinical stage program, seltorexant MIN-202. On July 1, 2020, we announced that we exercised the right to opt out of our agreement with Janssen for the development of seltorexant. As a result, Minerva will collect a low single-digit royalty on worldwide sales of seltorexant with all indications, with no financial obligations to Janssen moving forward. The decision to opt out of the agreement at this stage of the program allows us to retain a full financial interest in the future revenue stream with significant commercial potential in various indications. At the same time, the company remains obligated to make significant financial payments to fund the large Stage 3 program. Our decision to opt out will enable us to align our human and financial resources with our primary focus on receiving approval of our lead compound, roluperidone, and to help source patients for whom there is currently no effective treatment. Before handing over to Geoff to provide financial updates, I would like to restate our conviction that roluperidone has significant potential to be the first drug approved to treat negative symptoms. This conviction is based on our growing understanding of negative symptoms and the recent Phase 3 data combined with the data we have accumulated over the past few years. This encouraging data, combined with an innovative mechanism of action and favorable safety profile, gives us confidence in the future of roluperidone. Rolupermidone remains an important program with potential benefits for patients and their families and a significant commercial opportunity to effectively treat negative symptoms in schizophrenia and beyond. I will now turn it over to Geoff.

Geoff Race, Executive Vice President, Chief Financial Officer, and Chief Business Officer

Thank you, Remy. Earlier this morning, we issued a press release summarizing our operating results for the second quarter ended June 30, 2020. A more detailed discussion of our results can be found in our quarterly reports on Form 10-Q filed with the SEC earlier today. Cash, cash equivalents, restricted cash, and marketable securities as of June 30, 2020, were approximately $35.3 million. We currently expect that the company’s existing cash and cash equivalents will be sufficient to meet its anticipated capital requirements into early 2022 based on our current operating plan. The assumptions upon which this estimate is based are routinely evaluated and may be subject to change. Research and development expenses were $5.8 million in the second quarter of 2020 compared to $8.3 million in the second quarter of 2019. For the six months ended June 30, 2020, R&D expenses were $13.8 million compared to $19.9 million for the same period in 2019. The decreases in R&D expenses during the quarter and six months reflect lower development expenses for the Phase 3 clinical trial of roluperidone and the Phase 2b clinical trial of MIN-117. We expect R&D expenses to decrease further during 2020 as we have completed the MIN-117 clinical trial and the 12-week, double-blind portion of the Phase 3 clinical trial of roluperidone. General and administrative expenses were $5.9 million in the second quarter of 2020 compared to $4.6 million in the second quarter of 2019. For the six months ended June 30, 2020, G&A expenses were $10.1 million compared to $9.3 million for the same period in 2019. The increases in G&A expenses during the quarter and the six months ended June 30, 2020, were primarily due to increases in non-cash stock-based compensation expenses and severance benefits. Net income was $29.5 million for the second quarter of 2020 or net income per share of $0.75 and $0.73 basic and diluted, respectively, as compared to a net loss of $12.5 million or a loss per share of $0.32 basic and diluted for the second quarter of 2019. Net income was $17.4 million for the first six months of 2020, or net income per share of $0.44 and $0.43 basic and diluted, respectively, as compared to a net loss of $28.3 million or a loss per share of $0.73 basic and diluted for the first six months of 2019. As a result of opting out of the agreement with Janssen, the company recognized $41.2 million in collaborative revenue during the second quarter of 2020, which had previously been included on the balance sheet under deferred revenue. This amount represents the $30 million payment made by Janssen in 2017 and $11.2 million in previously accrued collaborative expenses waived by Janssen upon the effective date of the amendment. The company does not have any future performance obligations under the agreement and will recognize any future royalty revenues in the periods of the sale of products related to the agreement. Now, I'd like to turn the call over to the operator for any questions.

Operator, Operator

Our first question comes from Joel Beatty with Citi.

Shawn Egan, Analyst

Hi, this is Shawn Egan calling in for Joel. Thank you for taking my questions. A few for me today. Maybe a little bit more on your decision to opt out of the seltorexant program, why you think that was the right decision at the time, and can you provide any color on whether Janssen still plans to develop this effort going forward? And then I have a follow-up question on roluperidone as well.

Remy Luthringer, Executive Chairman and Chief Executive Officer

So thank you for the question. It is Remy speaking. Clearly, I think this molecule is a very interesting and important molecule, and obviously, we cannot speak in detail. But I think this program is really moving forward. I really hope that this molecule is going to patients who need this kind of treatment. For the first part of the question, maybe Geoff, you can take it.

Geoff Race, Executive Vice President, Chief Financial Officer, and Chief Business Officer

Yeah, thanks for the question, Shawn. The decision to opt out was really based on a return on investment. We were looking at the benefits of this program, the European rights that we had as part of our agreement with Janssen, and the royalty rate compared to the size of the investment we would have to make in the Phase 3 program. We felt that it was a better return for Minerva and its shareholders to opt out of the program and take the smaller royalty, as described by Remy in his updates earlier today.

Shawn Egan, Analyst

Perfect, thank you. And then on roluperidone, how and when do you plan to share kind of the additional details of the Phase 3 publication? When that data is presented, what are the most important data metrics for investors to be focusing on?

Remy Luthringer, Executive Chairman and Chief Executive Officer

It's a great question, and it's one we are getting quite often. What I can say is that we've done a lot of additional analysis. Even if we did not hit a P value at week 12, all the data and additional analysis are showing that it translates into a functional improvement for the patients. I had hinted that the avolition improvement is really the key driver, as shown in the Phase 2b results. Improvement in avolition was crucial to improving overall negative symptoms. We will provide a complete update with all the details, but I think the most important thing is that we are preparing to be ready for the meeting with the FDA. We will submit a request for that meeting in the next few days because we have most of the data together. It's now a matter of fine-tuning everything, and I think the best moment to give you the update will be after we have had the meeting with the FDA. We are becoming more convinced that this drug is doing what it was supposed to do.

Shawn Egan, Analyst

That’s it, thank you very much.

Operator, Operator

Our next question comes from Biren Amin with Jeffries.

Unidentified Analyst, Analyst

Yes, good morning guys. This is Jeet on for Biren. Thanks for taking our questions. Maybe just two from us, Remy. I guess it looks like you're going to be scheduling this meeting with the FDA in the next couple of days. Any idea when that meeting might possibly take place, and when you'll come back with the feedback in hand? And second, do you believe the FDA may be willing to accept post hoc analysis data, and are there any examples of the FDA accepting such data in the neuropsych space for regulatory approval? Thank you.

Remy Luthringer, Executive Chairman and Chief Executive Officer

Concerning the timing, if we submit the document very soon, which will be the case, there is usually a timeframe of 60 or 75 days to get a meeting granted, depending on the type of meeting we request. We definitely expect the meeting to receive feedback in the last quarter or at the end of the third quarter, and we might get the feedback one month later. Regarding your question about post hoc analysis, our package is not solely based on post hoc components. We have performed many post hoc analyses to quantify the effect on the PSP and other aspects. However, we have a lot of a priori analysis as well, which we hope will convince the FDA. There have been examples, maybe not directly in the CNS space, but instances where the FDA has approved sponsors based on data that includes post hoc analysis.

Unidentified Analyst, Analyst

I appreciate the color. Thank you.

Operator, Operator

Our next question comes from Thomas Shrader with BTIG.

Unidentified Analyst, Analyst

Hi, good morning. This is Julian on for Tom. Thanks for taking our questions. First, just keeping in mind it's still early, can you possibly talk about what an additional Phase 3 study for roluperidone would likely look like if that's ultimately in your best interest? Would it likely just be one dose, and could we expect a shorter study duration? Any other differences you could comment on at this time?

Remy Luthringer, Executive Chairman and Chief Executive Officer

What I wanted to say is that if we have to do another study, it would be ideal to go with one dose and not have an extension like in this study. I think a Phase 3 study would be without the extension, simply a one-dose versus placebo study. We will reduce the number of sites and ensure we choose the right ones that scored appropriately in relation to the trial. All these elements will help ensure a better separation from placebo and a successful study.

Unidentified Analyst, Analyst

Okay, got it. Thanks, that's very helpful. And then last on seltorexant, are you aware of any plans in the broader insomnia market beyond major depressive disorder? Is that something you have any visibility on?

Remy Luthringer, Executive Chairman and Chief Executive Officer

I think we see value in opting out of the program while taking our royalties. The patient population for this program includes those with major depressive disorder who also suffer from insomnia, which is a significant driver of depression. The insomnia aspect is already covered in the trials that will be run with the MDD population.

Unidentified Analyst, Analyst

Okay, great. Thanks very much.

Operator, Operator

Our next question comes from Jason Butler with JMP Securities.

Jason Butler, Analyst

Hi, thanks for taking the question. Just a quick one for me. How are you thinking about partnering priorities for roluperidone now with this data on hand? Is it more of a priority? Have there been discussions about partnering? Thanks.

Remy Luthringer, Executive Chairman and Chief Executive Officer

Jason, I’ll hand it over to Geoff in a minute, but we have always been open to discussions with pharmaceutical companies within the bounds agreed upon. Many companies are aware of roluperidone and our development progress. We will continue to provide updates as needed. Geoff, would you like to add more color on this?

Geoff Race, Executive Vice President, Chief Financial Officer, and Chief Business Officer

There isn’t much more to add. We will have our discussions with the FDA, which should provide additional information to potential partners, and we will initiate those discussions after our meeting with the FDA.

Jason Butler, Analyst

Okay, great. Thank you.

Operator, Operator

Our next question comes from Myles Minter with William Blair.

Myles Minter, Analyst

Hi guys, thanks for the questions. Just the first one on the potential differences between the placebo response in the Phase 2b and the Phase 3. I had the data for some time now, and I'm just wondering whether there's anything in this additional data analysis that points to the reasons why a difference was seen. Was it primarily the quality of the clinical sites, or was there something else in the patient demographics? This is something you'll be formulating an argument with the FDA about, so just wondering for any additional color.

Remy Luthringer, Executive Chairman and Chief Executive Officer

This is a great question. We've worked hard to understand what happened. The quantity of scoring at some sites definitely influenced the data. However, the expectations after positive studies is an important factor. The patient characteristics, levels of negative symptoms, duration, and stability have not changed between the two studies. We're also likely seeing the impact of patients showing significant improvements by the end of the study. There were also reports from sites regarding those patients who improved and returned to work, which we will have on hand when we present to the FDA. We have a thorough understanding of the reasons behind the placebo effect, and in demonstrating improvement, this all fits the narrative that our drug has a specific effect on negative symptoms and functioning.

Myles Minter, Analyst

That's helpful. One final one from me, just in terms of the small number of patients that discontinued the open-label extension study due to positive symptoms relapse. In a real-world perspective, how might these patients be managed with adaptive therapy? Or were there specifics regarding these patients that led to their withdrawal from roluperidone treatment?

Remy Luthringer, Executive Chairman and Chief Executive Officer

There is nothing specific about these patients. We've included more than 500 patients overall, and only a handful dropped out during the double-blind phase and the extension. Looking at trials with antipsychotics, regardless of generation, you will see relapses. The numbers we see are very much in line with what you see in trials with antipsychotics. Our data will show the FDA the extent to which our drug allows a significant number of patients with schizophrenia to prevent the need for antipsychotics. We do have prescribers who are interested in using our drug in monotherapy, which could take time to establish, but the evidence is stacking up that this approach can work well.

Myles Minter, Analyst

Fantastic. Thanks for the questions.

Remy Luthringer, Executive Chairman and Chief Executive Officer

You are welcome.

Operator, Operator

Our next question comes from Douglas Tsao with H.C. Wainwright.

Douglas Tsao, Analyst

Hi, good morning. Thanks for taking the questions. Just a couple for me. How are you now prioritizing some subsequent work that you were considering in terms of preventing onset of the disease, or treating patients in the future? Are you prioritizing it over some of the other assets in the pipeline, or is it really focused on getting roluperidone across the finish line?

Remy Luthringer, Executive Chairman and Chief Executive Officer

Concerning your first question, we absolutely want to address prodromal patients to prevent full-blown schizophrenia, especially those experiencing negative symptoms prior to their first episode of positive symptoms. However, this will occur post-approval because it requires a specific study and the right subjects. The highest priority is to ensure we have a positive result from the FDA regarding roluperidone. After that, we will be able to move forward with our other assets.

William Boni, Vice President of Investor Relations and Corporate Communications

Is your line muted, Remy?

Remy Luthringer, Executive Chairman and Chief Executive Officer

Can you hear me now? Sorry about that.

Douglas Tsao, Analyst

Yeah.

Remy Luthringer, Executive Chairman and Chief Executive Officer

Thank you, Doug. Thank you to everyone for the questions. We are all looking forward to updating you soon about our progress, particularly regarding our upcoming meeting with the FDA, and the data we will provide to them. Thank you all.

Operator, Operator

Ladies and gentlemen, this concludes today’s presentation. Thank you once again for your participation. You may now disconnect and have a great day.