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ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD)

Q3 2008 Earnings Call

November 05, 2008 at 5:00 pm ET

Executives

Uli Hacksell - Chief Executive Officer

Roger Mills - Executive Vice President of Developments

Tom Aasen - Chief Financial Officer

Lisa Barthelemy - Director of Investor Relations

Analysts

William Ho - Banc Of America Securities

Charles Duncan - JMP Securities

Jason Napodano - Zacks Investment Research

Operator

Good day, ladies and gentlemen, and welcome to the ACADIA Pharmaceuticals' third quarter 2008 financial results conference call. My name is Noella and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. (Operator's Instructions)

I would now like to turn the presentation over to Ms. Lisa Barthelemy, Director of Investor Relations at ACADIA, who will review the Company's forward-looking statements. Please proceed.

Lisa Barthelemy

Thank you. Good morning and welcome to ACADIA Pharmaceuticals third quarter 2008 financial results conference call. This call is being recorded, and an archived copy will be available on our website at www.acadia-pharm.com through November 19.

Before we proceed, I would first like to remind you that during our call today, we will be making a number of forward-looking statements, including statements regarding our research and development programs and our financial results. These forward-looking statements are based on current information and expectations that are inherently subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors and other risks associated with our business can be found in our filings made with the SEC, including our annual report on Form 10-K for the year ended December 31, 2007 and subsequent filings. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date. ACADIA disclaims any obligation to update these forward-looking statements.

I will now turn the call over to Dr. Uli Hacksell, our Chief Executive Officer.

Uli Hacksell

Thank you, Lisa, and let me take this opportunity to thank all of you for joining us on today's conference call. Also joining from ACADIA today are Dr. Roger Mills, our Executive Vice President of Developments and Tom Aasen, our Chief Financial Officer.

I will begin today by reviewing our strategy and recent highlights. I will then ask Tom to briefly review our financial results for the third quarter, and following these remarks we will review our clinical programs in more detail. We will then open up the floor to your questions.

Our third quarter was highlighted by continued advancement of our four chief product candidates. As you recall, we implemented the strategic restructuring in early August to focus our resources on our most advanced product candidates, reviews our expenses and provide us with added financial flexibility. Our strategy and our priorities remain very clear. We have focused on developing a portfolio of our four most advanced product candidates consistent with two internal compounds as well as two partnered compounds that are fully founded by Allergan.

Our top priority continuous to be advancing our Phase III program with Pimavanserin for Parkinson's Disease Psychosis or PDP towards registration. Our near term focus in this program is the successful and timely execution of the first Phase III pivotal trial. Once again, I am pleased to report today that we remain on track with study and expect to report top earning results in the third quarter of 2009 consistent with our previous guidance.

We also continued to advance other components of this Phase III program including our second Phase III pivotal trial and supporting NDA-enabling studies. In addition to Pimavanserin, we are pursuing two exciting clinical programs through our collaborations with Allergan. We think it was a product candidate in Phase II for chronic pain and the product candidate in Phase I for glaucoma. In particular, we look forward to Allergan completing the ongoing Phase II chronic pain trials in the mid 2009 timeframe.

Finally, we are also progressing the IND-enabling studies for our fourth product candidate, ACP-106 and plan to advance it to the clinic in 2009. With this portfolio of product candidates, we believe that ACADIA is well positioned with multiple product and commercial opportunities and with the opportunities with ACP clinical milestones over the next year.

Lt me turn over to Tom to discuss our recent financial results.

Tom Aasen

Thank you, Uli, and good afternoon. Let me start by providing a brief overview of our third quarter 2008 financial results, which we reported in our press release and Form 10-Q issued earlier today.

We reported a net loss of $15.6 million or $0.42 per common share for the third quarter of 2008, compared to a net loss of $16.0 million or $0.43 per common share for the third quarter of 2007. As expected, the results for the third quarter of 2008 included charges of $2.1 million in connection with workforce reductions from ACADIA's restructuring announced in August. Despite these charges, our net loss decreased during the third quarter primarily due to lower operating expenses.

Looking briefly at some of our components of third quarter results. Revenues totaled $282,000 for the third quarter and as expected, decreased relative to the comparable quarter 2007 primarily due to completion of our agreement with Seprecor as well as lower revenues from our ongoing collaborations with Allergan and agreements with other parties.

Research and development expenses decreased to $13.4 million for the third quarter of 2008 compared to $16.9 million for the comparable quarter of 2007. R&D expenses for the third quarter of 2008 included a charge of $1.7 million in connection with our restructuring. Despite this charge, R&D expense has decreased during the quarter primarily due to $3.1 million in lower external service cost and lower internal cost resulting from our restructuring.

External service R&D cost decreased to $6.6 million for the third quarter of 2008 from $9.7 million for the comparable quarter of 2007 primarily due to reduced clinical cost following completion of our trial with ACP-104. Cost associated with our internal R&D organization were comparable quarter to quarter as the $1.7 million restructuring charge incurred during the third quarter of 2008 was offset by cost reductions.

General and administrative expenses totaled $3.0 million for the third quarter of 2008 and were comparable to expenses for the third quarter of 2007 as the restructuring charge of $454,000 incurred in G&A expenses during the third quarter was offset by cost reductions.

Finally, let me turn to our cash position and expected outlook. We closed the third quarter with cash and investment securities of $72.7 million. Through our strategic restructuring, we have focused our resources on our most advanced product candidates and reduced our workforce by about 50% providing us with added financial flexibility to advance our clinical pipeline. Following the streamlining of our organization, costs associated with our internal R&D and support organization have been reduced significantly. We expect this to contribute to lower cash usage in the fourth quarter of 2008 relative to the first nine months of this year.

We expect to see the full effect of the expense reductions from our restructuring as we begin the 2009 year. As a result, we anticipate that cash used in our operating activities during 2009 will be below our 2008 level and we continue to anticipate that our existing cash resources and payments from our collaborations will be sufficient to fund their operations into the first half of 2010.

Finally, the committed equity financing facility that we put in place during the third quarter may provide us with added financial flexibility and leverage.

I will now turn the call back over to Uli.

Uli Hacksell

Thank you, Tom. As I mentioned earlier, we are firmly focused on our most advanced product candidates. My remarks today will largely focus on our lead Phase III program with Pimavanserin. We believe that Pimavanserin provides a major pharmaceutical opportunity. We have conducted a number of clinical trials to date both in patients with PDP and in patients with schizophrenia and throughout this study, Pimavanserin has exhibit and attracted clinical profile into antipsychotic efficacy, outstanding tolerability and the long duration of action.

We believe these attributes make Pimavanserin ideally suited to address broad range of CNS indications with large unmet medical needs. This includes PDP, schizophrenia and other neurological and psychiatric indications that are only served by currently marketed antipsychotic. The recent focus on problems resulting from the use of existing antipsychotic drugs undoubtedly highlights the unmet medical needs in this rapidly growing market segments.

Current antipsychotic drugs have a black box warning for use in elderly patients with dementia-related psychosis due to increase mortality and morbidity. They also lead to side effects that can especially problematic in these elderly patients and can worsen cognitive competence. We believe that Pimavanserin's potentially favorable safety and tolerability profile will allow it to differentiate itself from current antipsychotic drugs use of label and compete effectively in this market sectors.

Our program with Pimavanserin for PDP provides ACADIA with an attractive development path and considerable commercial opportunity as well the potential entry to this broader segment of the market for the elderly. PDP is a rehabilitating neuropsychiatry disease in patients with Parkinson's disease and is characterized by disturbing hallucinations and delusions. It occurs in up 40% of patients with Parkinson's disease. The typical patient that is diagnosed with PDP may have suffered from Parkinson's disease for several years, maybe in his or her early 70s in frail health and is normally taken care of by spouse or other family member.

The development of psychosis often severely disrupts the patient's ability to perform manual activities of daily living that keep him or her active and independent. But currently there is no drug approved in the US for the treatment of PDP. The modern antipsychotic drugs block dopamine receptors which may counteract to dopamine therapy normally used to treat Parkinson's disease itself. Therefore this antipsychotics are generally not well tolerated by patients with Parkinson's disease at doses that will require to receive antipsychotic effects.

The paucity of effective and save therapeutic options and the increasing difficulties for the caregiver to care for a patient off the onset of PDP are key reasons for these patients to enter a nursing home. In fact PDP is the leading cause for patients with Parkinson's disease to enter nursing homes and is associated with greater caregiver burden and increased mortality. We believe that Pimavanserin is well positioned to be an important, first in class treatment for PDP and may enable neurologist and some other physicians to effectively treat the psychosis in patients with Parkinson's disease without impairing motor function.

We continue to make important progress in our Phase III PDP program. This program involves a number of ongoing studies including two Phase III pivotal trials and an open label safety expansion study and supporting NDA-enabling studies. Each of the Phase III pivotal study has a double- blind placebo controlled study designed to evaluate the safety and efficacy of Pimavanserin in approximately 240 patients with PDP. Patients in each study are randomized for three different turns including two different doses of Pimavanserin and one placebo group. Patients received oral doses of Pimavanserin or placebo once daily to six weeks in addition to stable doses on the existing dopamine replacement therapy.

The primary endpoint of the Phase III clinical trials is psychotic efficacy as measured using the Scale for the Assessment of Positive Symptoms or SAPS. Psychosis in Parkinson's disease has manifested mainly by hallucinations and delusions. The SAPS is supported by experts as an appropriate scale to measure the psychosis in Parkinson's disease.

Now tolerability is an important secondary endpoint given the Phase III trials and is measured using the Unified Parkinson's Disease Rating Scale or UPDRS. The Pimavanserin Phase III program continues to be the highest priority for our development organization with a key focus based on the successful and timely execution with the first Phase III pivotal trial. We are continuing to enroll patients in this trial which is being conducted at overseas to clinical sites located in the US and international. The trial is progressing in line with our plan and we anticipate reporting top line results given the third quarter of 2009.

While our emphasis is clearly on the first pivotal trial, we also continued to advance to our second Phase III pivotal trial which began enrolling patients in this grade. The second trial is also being conducted in the US and internationally. We continued to bring trial sites online and recruit patients in this study. Along with these two Phase III pivotal trials, we are conducting an open label safety expansion study. Patients who have completed either of the Phase III pivotal trials have the opportunity to load in the expansion study if the opinion of their physician they may benefit from continued treatment with Pimavanserin.

This study will provide us with important long-term safety information. We are pleased to note that to date we have experienced the high rate of rollover of patients into this long-term safety expansion study from the Phase III pivotal trials. You may also recall that we have an ongoing open label safety expansion study in connection with our earlier Phase II PDP drug. In this expansion study, we expose the Pimavanserin to date equates to about 50 patient years, and the longest durational treatment is now approaching four years for several patients. We have continued to present data from our earlier Phase II PDP drug and the related safety expansion study at international medical meetings.

In addition to the ongoing Phase III studies, we are conducting a range of supporting NDA-enabling studies as well as formulation and production growth as part of our growth to advance this program to over ready station. In all, we remain very excited at the progress in our Phase III program and believe that Pimavanserin may offer the opportunity to improve the quality of life for patients with PDP and their caregivers.

As we advance Pimavanserin toward registration for PDP, we continue to evaluate and pursue some Pimavanserin from broader market opportunities including neurological and psychiatric indications that are underserved by currently marketed antipsychotic drugs. In this context, we present a brief clinical data suggesting that Pimavanserin has antipsychotic activity in animal models of Alzheimer's disease psychosis at the AAN meeting held in Chicago in July. Our strategy is to leverage our Phase III program to develop and commercialize Pimavanserin for multiple indications. As part of this strategy, we plan to establish a partnership to enable us to broaden the market opportunities, to facilitate commercialization and to maximize the commercial potential of Pimavanserin.

As we advance our Phase III program over the next year and complete the first Phase III pivotal trial, we believe that we the opportunity to increase the value of Pimavanserin significantly. As we have indicated, we are continuing to entertain partnering discussions for Pimavanserin as we advance in Phase III but importantly, we are well positioned both with sufficient financial resources and with the strong development team to advance Pimavanserin to completion on the first Phase III to ensure that we realize the appropriate value of these assets.

Now, let me turn briefly to our two collaborative clinical programs with Allergan starting with our product candidate in Phase II for chronic pain. We continue to be excited with the progress in this program which was highlighted by Allergan at their R&D days last quarter. We believe that our collaborative antagonist provide considerable commercial potential and address large medical needs within the chronic pain market that is over $3 billion today and growing rapidly.

Following encouraging results in the area of fibromyalgia and irritable bowel syndrome, Allergan is currently completing the Phase II chronic pain trials with higher dose cohorts. Data is expected in mid 2009 to enable Allergan to select doses and the indications for late stage development. In addition to this Phase II program, we continue to advance muscarinic product candidate from our second Allergan collaboration in Phase I for the treatment of glaucoma.

Finally, we are also continuing to progress with IND-enabling studies for our fourth product candidate, ACP-106 which originated from our internal serotonin discovery efforts. In summary, we believe that ACADIA is well positioned to achieve major milestones in our advance clinical programs toward the next year and build significant shareholder value in both the near and long term.

This completes our presentation and we will now be happy to answer questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of William Ho - Banc Of America Securities.

William Ho - Banc Of America Securities

I guess, first of all, I am just wondering can you provide us or just discuss the approximate cost of completing the Phase III trial for Pimavanserin in PDP and then also, I just had question, Uli, you mentioned the partnership and at this point, what would drive such a partnership? Thank you.

Uli Hacksell

So, I will ask Tom to answer the first piece of your question and I will take the second.

Tom Aasen

Sure. Will, regarding cost, we have not provided a specificity related to the program but certainly what I can tell you that is useful is following the restructuring, the vast majority of our effort and focuses on Pimavanserin and clearly, the financial resources are being devoted to Pimavanserin and as we have said, we anticipate that the current runway provide us a cash runway into the first half of 2010 and obviously that is well beyond completion of the first pivotal study. The remaining portion of the NDA package continues to move along. We have not provided specificity on timing of some of the other studies but it gives you a sense of the dollars that we have today carry us into the first half of '10 and it is principally Pimavanserin.

William Ho - Banc Of America Securities

Do you see those, can those expenses continue to decline or as you progress, you see those expanding again?

Tom Aasen

Well, clearly when you look at our cost following the restructuring, we do as we have said anticipate significantly lower internal operating cost. Those will continue into the fourth quarter and beyond. In fact, as we indicated, we had a restructuring charge of about $2.1 million in the quarter and all of that was offset in itself just by cost reductions from the restructuring so obviously going forward, we will expect to see those continue and lower cash usage in the fourth quarter and lower usage in 2009 relative to 2008.

Uli Hacksell

So turning to the second piece of your question about how we increase the value of Pimavanserin, I think it is important for you to remember that we are conducting a full Phase III program for Pimavanserin in PDP and that means that everything we are doing has the value. In particular of course, we believe that efficacy data from our first pivotal Phase III study will be particularly enhancing events for the program. Everything we do are currently increases the value of Pimavanserin. I should also say that we believe that this strategy that we have moving towards registration with Pimavanserin for PDP is an ideal one because from that kind of starting point having the Pimavanserin registered for PDP, we will have the ability to move into many different directions both in the neurology area and into the psychiatry area and thereby really maximizing the full potential of Pimavanserin.

Operator

Your next question comes from line of Charles Duncan - JMP Securities.

Charles Duncan - JMP Securities

Hi guys. Thanks for taking the question and, sorry if it has been already addressed in the call. I have been hopping back and forth between three earnings call. My question was regarding the other work that needs to be done to prepare Pimavanserin for an NDA. Can you give me some sense as to where the CMC portion of the work is and what additional studies beyond the ongoing Phase III primary efficacy studies are needed before the NDA is submittable?

Uli Hacksell

I will start out to try to answer your question and then I will ask Roger to complement what I will say but clearly, what we are doing is a very traditional Phase III program. We believe strongly about the two efficacy studies that we are conducting. It will provide us with a sufficient material to obtain registration but we are doing everything that can normally do in a clinical program to achieve a strong NDA package and then if you want to add on that, Roger.

Roger Mills

Yes, well thanks Uli and yes, Charles. So I think the bottom line is on the CMC side. We have got the full program plan and are running down the path and obviously all the supporting non clinical work that needs to go into any standard NDA and that will be complemented by clinical data that we need to generate that is such the drug interactions, etc. as we will enter them. We will do those studies in a planned manner leading into the NDA. I think the real point that as we made before that as we progress the program and as we complete these studies, really provide debates for leveraging that and then springing forward from that into different indications downstream. So we actually put together really pretty standard, solid NDA package.

Charles Duncan - JMP Securities

So just to get some clarification, the timelines of the NDA telling I am not sure, is that that you have sufficient cash to get the primary efficacy data or to get to a filing of the NDA and when do you think, how fast that could occur?

Tom Aasen

Charles, this is Tom. Thanks for the question. What we have said regarding cash guidance is again our runway with our existing cash that is into the first half of '10 that does not include any additional financing or use of the credit facility for example or other. All we have indicated in terms of guidance is the timing of the first pivotal so clearly we have well sufficient run rate that goes through that pivotal and we are marching the rest of the program for we have not yet provided guidance on the overall program and expect to as we move forward, we will continue to give more color and probably have a time when we give a lot more information in terms of the scope of the overall program.

Charles Duncan - JMP Securities

And then back to follow up kind of from previous question regarding partnering and the strategy for optimizing the shareholders value around Pimavanserin, would you consider a certain geographic deals in advance of data or perhaps in advance of the second tranche of data? Is that a possibility on the table or it is only a worldwide deal being considered?

Uli Hacksell

Charles, we are not really saying from the strategy front from what we have performed earlier. We have always considered partnership both with global partners and with regional partners and as you heard, we are continuing to entertain partnership discussions. What I have always said is that when we are thinking about partnerships, we see partnership with a global partner as simper than multiple regional partnerships but that has not exclude the possibility that we conduct for several regional partnerships.

Charles Duncan - JMP Securities

Is there a demand? Are there discussions that have been initiated or do you anticipate really data is a key gate factor on that?

Uli Hacksell

Well as I said, we are continuing to entertain partnership discussions but as we also said, meanwhile. It is very important from a strategic point of view that we continue to move forward full speed with the PDP program and as I also mentioned previously today, we believe that the Phase III efficacy data that come from the first Phase III study will be really valuing section point and we provide added value for Pemavanserin.

Charles Duncan - JMP Securities

And my final question is what about publications that could come out on used maybe pharmacological type studies and use Pimavanserin with other drugs beyond risperidone?

Uli Hacksell

We will continue to give some data coming from our internal research on Pimavanserin but for all kinds of different indications that is in fact part of the strategy that we have to start to provide the foundation for line expansion opportunities with Pimavanserin and at the same time, Roger and his people will continue to provide presentations on the clinical side as well.

Charles Duncan - JMP Securities

Okay thanks for the added color, folks and congrats on some progress.

Operator

(Operator's instruction) Your next question comes from line of Jason Napodano - Zacks Investment Research.

Jason Napodano - Zacks Investment Research

In the past, you guys have gone some discovery deals with Sepracor or Stanley or even what you got with Allergan. I am wondering if you got an opportunity to do some early stage research deals maybe in the next few quarters to help raise cash and keep your R&D discovery wheel going, where do you think that you will remain pretty squarely focused on Pimavanserin in '09?

Uli Hacksell

I will ask Tom to take that question.

Tom Aasen

Sure. Jason, it is a really good point I think, a couple of things that you may have noted in the restructuring strategy, we have clearly well we are focus in our resources and financial resources to boot on Pimavanserin. We do and retain the core discovery capability and we have a number of assets we have created that are in earlier stages that maybe ready for moving into development. Part of our strategy is clearly to look at monetizing some of those areas and that could help provide just added flexibility for ACADIA. Well we focus resources, we have today on Pimavanserin. So it is clearly part of our strategy. We continue to have our Allergan relationship that consists of three different collaborations but clearly part of our strategy is to look to monetize some of the earlier assets we have. We would not provide specific timing on such but we are active in that effort.

Jason Napodano - Zacks Investment Research

Okay. One of the things that always intrigued me is the open label program that followed the Phase II trial in Pimavanserin with PDP. You have got patients in that trial that are approaching for years and I know in the past you talked about how survival rate for patients with being diagnosed wit PDP is rather low and entering hospitalization I believe it can drop below that is even two years and I am wondering if you could comment on the survival rate in that open label Phase II program and whether or not those patients are demonstrating either quality or life benefits or survival trend that would suggest Pimavanserin is having a positive effect.

Uli Hacksell

Thanks, Jason. It is the point. I think just to put that study in context, obviously you raised a really good point but a lot of the, there is not comparator agent in here so open labels are typical to actually draw conclusions unless one has strong historical data in which to try and relate the data to. That is not easily accessible in this area but we are very encouraged by the longevity of the timing that some of these patients are actually spending on the study. And also, what we see in terms of the safety profile of the drug when used chronically in this condition and that is what will be the aspect in the marketplace is obviously not a key piece but actually chronic use. So in some respects, although they are not designed to have longitudinal efficacy data within this, it is encouraging that patients remain on the study and one of the key factors is that both the patient and the physician feel that the patient is benefiting from continued therapy.

So we do not have clear data of to that but clearly it is a good sign that the patients are still there. We can see the safety data and that looks, we have presented that safety data at a number of meetings this year. We will continue to present updated data from that study and meetings in [32.58] through beginning of next year.

Operator

Sir, you have no questions at this time. Dr. Hacksell, please proceed to closing remarks.

Uli Hacksell

Thank you again to everyone for joining us on today's call and for your continuous support. We look forward to the opportunity to update you in the future on our ongoing progress. Thank you so much.

Operator

Thank you for you participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.

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