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ACADIA Pharmaceuticals, Inc. (ACAD)

Q3 2009 Earnings Call

November 9, 2009 17:00 p.m. ET

Executives

Tom Aasen - CFO

Dr. Uli Hacksell - CEO

Dr. Roger Mills - EVP of Development

Analysts

Charles Duncan - JPM Securities

Allen Carr - Needham & Company

Jason Napodano - Zacks Investment Research

Operator

Good day, ladies and gentlemen and welcome to the ACADIA Pharmaceuticals Third Quarter 2009 Financial Results Conference Call. My name is Peggy 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 Tom Aasen, Chief Financial Officer of ACADIA who will review the company's forward-looking statements.

Tom Aasen

Thank you. Good afternoon and welcome to ACADIA Pharmaceuticals third quarter 2009 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 23. 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 and our partners' research and development programs and plans, potential payments pursuant to our collaboration agreements and our future expenses, cash position and financial performance.

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 others 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, 2008 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 those forward-looking statements. I would now turn the call over to Dr. Uli Hacksell our Chief Executive Officer.

Dr. Uli Hacksell

Thank you Tom and let me take this opportunity to thank all of you for joining us on today's conference call. Also joining us from ACADIA today is Dr. Roger Mills, our Executive Vice President of Development. We will begin today by reviewing our strategy and recent developments. I will then ask Tom to briefly review our financial results for the third quarter and following these remarks Roger and I will provide you with an update on our development programs. We will then open the call to your questions. Clearly, we experienced a major disappointment during the third quarter with the advancement of the top line results from our first Phase III trial, which we referred to as the -012 Study with Pimavanserin in Parkinson's disease psychosis or PDP.

Following analysis of the data from the -012 Study, we were however encouraged to see that the 40 mg Pimavanserin consistently demonstrated signals of efficacy across a number of measures. We have also observed a favorable safety and tolerability profile for Pimavanserin as well as several timings from the -012 study, which we believe can be applied to help mitigate the placebo response in new type Phase III products.

Together with our partner Biovail, we established a development strategy that we believe we will strengthen the PDP program while at the same time providing the opportunity to explore the clinical and commercial potential of Pimavanserin in two, other indications we launch are met medical needs.

These indications are first adjunctive therapy for schizophrenia and second standalone therapy for Alzheimer's disease psychosis or ADP. Importantly, both ACADIA and Biovail remain enthusiastic about Pimavanserin's prospects and are committed to advancing Pimavanserin to the market as quickly as possible. As we pursue this collaborative development program for Pimavanserin, we took decisive action to further streamline our operations and reduce our operating expenses. As a result of these actions, we anticipate that we have extended our cash run rate through the 2011 and positioned ACADIA to pursue multiple clinical programs. Our strategy and priorities are very clear. We have focused on developing a portfolio of our four most advanced product candidates, all of which are supported by our collaborative partners.

In addition to Pimavanserin, we have 2 clinical programs in the areas of chronic pain and glaucoma in collaborations with Allegran. And we are in IND-track development with AM-831, a proved coordinative and pro-cognitive antipsychotic product candidate through our collaboration with Meiji Seika, which we have established earlier on this year. We believe that our focus on this portfolio of four product candidates led by broad based development program with Pimavanserin, firmly positions ACADIA with multiple products and commercial opportunities and significant growth potential.

Let me now turn the call over to Tom to discuss our recent financial results.

Tom Aasen

Thank you Uli, let me start by commenting briefly on our third quarter results, which were reported in our press release issued and Form 10-Q issued earlier today. We reported a net loss of $8.7 million or $0.23 per common share for the third quarter 2009, compared to a net loss of $15.6 million or $0.42 per common share for the third quarter 2008. The financial results reflect the effects of the cost saving measures we implemented in August 2008 to streamline our cost structure.

Let's look at some of the components of our third quarter results. Our revenues increased to $2.4 million for the third quarter of 2009 from 282,000 in the comparable quarter of 2008. The increase was primarily driven by $1.9 million in revenues recognized under our collaboration with Biovail.

Research and development expenses decreased to $9.2 million for the third quarter of 2009, from $13.4 million for the third quarter 2008. This decrease was largely driven by cost savings of approximately $3.6 million resulting from our August 2008 restructuring and by lower external service costs. External R&D costs totaled $6.1 million for the third quarter of 2009 and were comprised nearly entirely of expenses related to Pimavanserin.

General and administrative expenses decreased to $2 million for the third quarter of 2009 from $3 million in the comparable quarter of 2008. This decrease also was primarily due to cost savings resulting from our August 2008 restructuring. Let me take a moment to review the terms of our collaboration with Biovail as it relates to the future funding of the various development programs with Pimavanserin. Under the agreement, Biovail is responsible for future costs associated with the development, manufacturing and commercialization of Pimavanserin for all indications with the exception of specified PDP study cost and a planned initial ADP study, which will be funded by ACADIA.

Beginning with the PDP indication, we expect to share the cost of this development program. ACADIAs responsibilities include the second ongoing Phase III trial, the -014 study which is being concluded at its existing enrollment level and an open label safety extension study. We are currently planning for new Phase III, PDP trial which is expected to start in the first half of 2010. This new trial will be funded by Biovail provided however that if the study does not meet its primary end point we would reimburse Biovail one half of the study costs.

We estimate that the amount of this potential reimbursement would approximate the savings to ACADIA from the early conclusion of the -014 study. When it comes to the schizophrenia indication, Biovail is responsible for fully funding this Phase III clinical program with Pimavanserin. Finally, with regards to the ADP indication, ACADIA would be responsible for funding an initial feasibility study in this program. However the study is successful, Biovail will reimburse us 100% of the cost of this study.

Biovail would then be responsible for the remaining development costs that may arise following the initial PDP trial. Let me now comment briefly on the restructuring that we implemented in October, to further streamline our operations, reduce our internal operating expenses and extend our cash runway. This restructuring involved a reduction in our workforce of about 50% to a total of 28 employees. We estimate that we will record charges of approximately $1.3 million during the fourth quarter for employment termination cost in connection with these workforce reductions.

Going forward, we anticipate that the cost associated with our internal R&D and support organization will be reduced significantly and this will result in a considerable extension of our cash runway. To put this in with perspective let me close by reviewing our cash position and updated guidance. We ended the third quarter with $54.9 million in cash and investment securities. Following our recent restructuring we now anticipate that our cash and investment securities will be in the range of $43 million to $45 million at December 31, 2009 and that our existing cash resources and anticipated payments from our collaborations will be sufficient to fund our operations through the end of 2011.

I will now turn the call back over to Uli.

Dr. Uli Hacksell

Thank you, Tom. As I mentioned, we remained focused on our most advanced product candidates which are Pimavanserin in collaboration with Biovail as well as two partnered clinical stage product candidates that are fully funded by Allergan and the program in IND-track developments in collaboration with Meiji Seika.

Our remarks today will focus on Pimavanserin and then we will briefly summarize our other development programs.

Let me start by asking Roger to provide you with an update on our Phase III program with Pimavanserin in PDP and our plans for ADP.

Dr. Roger Mills

Thank you, Uli and good afternoon. Let me begin by reviewing the findings, from our analysis of the data from the -012 Study. While the -012 study did not meet its primary end point antipsychotic efficacy and have larger than expected placebo response. The 40 mg Pimavanserin arm consistently demonstrated signals of efficacy, across the number of measures including the scale for the Assessment of Positive Symptoms, or SAPS. The CGI scale, the scope nighttime sleep measure and caregiver burden scale. These signals are most prominent in the United States portion of the study, which comprised nearly one hall for the patients.

Pimavanserin met the key secondary endpoint of motoric tolerability is measured using the Unified Parkinson's Disease Rating Scale or UPDRS and were safe and well tolerated in the study. We also observe several findings from the -012 study that we and Biovail, believe can be applied to refine the design of future PDP trials to help mitigate the placebo response and to increase the chances of success. These findings included dose selection use of the 40 mg Pimavanserin dose as well as the method and application of ratings and other study design elements.

Based on these findings we implemented a development strategy that we believe we will strengthen the PDP program and provide the best likely hood of success. It involves using the findings from the -012 study together with those from the second on-going Phase III the -014 study derived to arrive at an enhanced study design the use of a new Phase III trial. We are concluding the -014 study at its current enrolment level without a 120 patients and more minor data when available in order to apply any additional learning's to further refine our new study design.

Meanwhile we are planning for a new Phase III PDP trial using the 40 mg dose of Pimavanserin, which is expected to start in the first half of 2010. We expect it to provide more information on the design and nature of this trial once the -014 study is concluded and we finalized our study plans. In addition we continue to conduct an open label safety extension study, which includes the significant number of patients who have completed the -012 and -014 studies.

This open label study coupled with a similar study in connection with our earlier Phase II PDP trial, that generated a considerable amount for the long term safety data on Pimavanserin. In fact our total exposures now equate to over 180 patient years. Let me now turn briefly to a second indication that we and Biovail intend to pursue with Pimavanserin. And that is Alzheimer's disease, psychosis or ADP. Similar to Parkinson's disease, Alzheimer's disease is a progressive neuro degenerative disorder; around 5.3 million people have Alzheimer's disease in the USA alone. And it is estimated that 25% to 50% of these patients may have psychosis consisting of hallucinations and delusions. There is a similar phenomenology in both ADP and PDP. Moreover as is the case with PDP the psychotic symptoms in ADP progress, physicians may resolve to off label use of antipsychotic medicines for these patients.

However, current antipsychotic or associates with numerous side effects and have a black box warning for use in elderly patients with dementia-related psychosis due to increased mortality and morbidity. We believe that Pimavanserin may be ideally suited to address the need for new treatment for ADP to be safe, effective and well tolerated. Planning is now underway from initial feasibility study in ADP. ACADIA will take a lead on this initial study after which Biovail will be responsible for any further studies pursued by the proxies first indication. Let me now turn the call back over to Uli.

Dr. Uli Hacksell

Thank you, Roger. Let me first take a moment to highlight the third indication that we are pursuing in the Pimavanserin in our collaboration with Biovail, that is adjunctive therapy and schizophrenia. Biovail will take the lead in this program. This is an indication that we have been very excited about following the positive results from a large Phase II trial that we reported in 2007, in which we showed that the adjunctive therapy with the 20 mg dose of Pimavanserin together with a low sub maximal dose of Risperidone, was just as effective as a high dose of the Risperidone backed with a better safety profile including a statistically significant difference with the respect to weight gain.

Biovail's intension is to build on the foundation of our Phase II schizophrenia trial and demonstrates similar results in the Phase III program. They anticipate discussing development plans for Pimavanserin and that's an adjunctive therapy in schizophrenia with the FDA. Hopefully, in the first quarter of 2010, depending on the outcome of those interactions Biovail believes that this schizophrenia program may represent the quickest route to market for Pimavanserin.

Overall both ACADIA and Biovail remained enthusiastic about Pimavanserin's prospects and are strongly committed to advancing Pimavanserin to market as quickly as possible. We are excited with the broad development strategy we are pursuing which provides the opportunity to explore the clinical potential of this product candidate over 3 different indications and to maximize the commercial value of Pimavanserin in North America.

While this collaborative effort clearly represents the core of our Pimavanserin program. I want to remind you that we have retained all rights to Pimavanserin in the rest of the world. This provides ACADIA with the opportunity to run additional value for our stockholders. While Pimavanserin is our most advanced product candidate, ACADIA also has other important programs in its pipeline through our collaborations with Allergan we have 2 clinical stage product candidates that provide the potential for new treatment options in the area of chronic pain and glaucoma.

And to our collaborations with Meiji Seika, we are progressing with IND-track development of AM-831 a compound we discovered that offers new approach to treating schizophrenia that may address coordination untreated third dimension of this disease. While Acadia also has earlier stage absence, behind these product candidates in order to reduce our operating expenses and expand our cash runway. We have limited our earlier R&D activities to only selected programs that are directly funded. As a result we currently are not proceeding with further development to two other chemical products candidates ACP-105 and ACP-106.

Our earlier stage efforts do include our Estrogen Receptor beta or ER beta program for Parkinson's disease that we are exploring through a grant from Michael J. Fox Foundation and an ongoing discovery alliance with Allergan focused on ophthalmology. Importantly while we recently have gone through the painful yet essential process of reducing our work force we remain positioned with a strong core organization that we are convinced will enable us to deliver on our key objectives.

In closing we believe that our focus on the portfolio of four product candidates, capital with the steps that we are taking to expand our cash run way firmly positions ACADIA with multiple product and commercial opportunities and a significant growth potential.

We will now be happy to answer questions that you may have.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Charles Duncan from JPM Securities. Please proceed.

Charles Duncan - JPM Securities

I had a question regarding the schizophrenia disease and adjunctive therapy trial you mentioned Uli that that might be the quickest route to the market, I am wondering if you could expound on that and really kind of compare and contrast that to the other programs that you have ongoing and what gives you confidence that could be first.

Dr. Uli Hacksell

Well there are multiple reasons for that hypothesis, one of them is that we have conducted several schizophrenia trials, similar to the ones that we believe that Biovail will conduct here and we know that is pretty straight forward to recruit patients, there are many patients available, in schizophrenia research.

And we have our previous time lines that we used in our previous studies to try to get a brief on how long it takes to conduct the schizophrenia study. We know also by experience that PDP studies are slower than schizophrenia studies, we expect and I had mentioned that ADP also may be faster than PDPs studies simply because of the larger availability of ADP patients.

Charles Duncan - JPM Securities

Okay and then with regard to the measurement of efficacy in those trials, do you intend to use a central reviewer mechanism and how might you limit the impact on those trials or the Parkinson's trials of geography effect?

Dr. Uli Hacksell

Roger may be you can answer that.

Dr. Roger Mills

Sure. So the schizophrenia would be assessed using the trial. There is a difference with schizophrenia to the Parkinson's studies and as much as the investigator of basic schizophrenia studies or psychiatrists they are used to administering that the various psychiatric scales. But obviously in PDP, the SAP or the psychiatric scale which were the investigators are essentially neurologists. As of the central rating was clearly applicable in PDP due to the fact that many of the investigators weren't as comfortable perhaps a psychiatrist might have been using psychiatric scales. With ADP we haven't said what the end point of that study will be yet and we haven't finally defined that. However it is likely to be a scale which is commonly used in the assessment of Alzheimer's patients and is likely to be very well validated in the investigations that we will be using, we will be comfortable using that scale.

Charles Duncan - JPM Securities

And in future studies in PDP how will you limit the geography effect or will you require central reader's for all of them?

Dr. Roger Mills

I think the first thing is it is where possible it would be preferable to have how much of this patient group and clearly that cuts across cultural and healthcare provision in a particular geography. In terms of the raters I think the idea of centralized and importantly independent rater is important because it brings some degree of objectivity to what is otherwise potentially subjective end-point.

Charles Duncan - JPM Securities

And may be a question for Tom, quickly, I am wondering about your year end 2011, in terms of extending the cash I know it's full of lots of assumptions in terms of milestone paid but could you give us some sense as to the R&D spend goal and the SG&A spend goal for 2010 at least?

Tom Aasen

Thanks Charles when it comes to the expenses we have not provided the specific guidance but I would once again refer you to the overall guidance on the cash usage and as we said we expect to end this year in the range of $43 to $45 million and that does at the end of the year as we have said represent a two year runway so I think that gives you a pretty good sense of the overall kind of amount if you sort of back into spend what we'd anticipate over those two year period and I think that clearly just looking at a couple of factors you can consider first is as we mentioned in October we just implemented the restructuring, that will result in a charge in the fourth quarter we said the charge related to the employee reduction work force reduction will be about $1.3 million, then going forward we do expect the internal expenses to reduce considerably hence you will see the ability to move the burn rate down to that sort of it fits into that two year runway for the $43 to 45 million.

Charles Duncan - JPM Securities

And then in terms of other input does that include cash from any other new deals or is that just milestones from Biovail and perhaps Allergan.

Tom Aasen

It does not include any cash from any new sources and also I can mention that this is based on the existing collaboration agreements we have on the terms of those, that does not include any potential milestones that could be generated but it would assume the expense reimbursement that is pursuant to those collaborations. So this is actually a runway we are quite comfortable with that does not include a projection of major milestone that would be dictated by even the success in a particular study.

Operator

Our next question comes from the line of Allen Carr with Needham & Company. Please proceed.

Allen Carr - Needham & Company

Thanks for outlining before the structure around reimbursement for trial costs and for the Pimavanserin trials with Biovail I am wondering about the converse situation around the milestones and royalties that schizophrenia indication, my recollection of that wasn't specifically outlined in the original agreement which was focused on PDP and Alzheimer's. What's the milestone in royalty structure look like for that third indication?

Tom Aasen

Sure, Allan. Actually there was if you may recall when we announced the deal, it provided for us three indications. We just have not specified what the third might be and that was subsequently we came out in October and that was when Biovail announced that they wanted to pursue the adjunctive therapy as the third indication. Just to give you sort of quick overview again of the specifics what we did say is that we are eligible for up to $205 million in milestones associated with the development, submission and approval of Pimavanserin and $160 million of that $205 million related to PDP and ADP. So the third indication was a $45 million level of milestones that is reachable with respect to the third indication which is now schizophrenia.

Allen Carr - Needham & Company

And then these milestones change after this failure in the first trial though right?

Tom Aasen

The milestones do not change. I can point you to one aspect that relates to the agreement with PDP and that is that in connection with the PDP indication, subsequent studies which includes the study that we are planning to start in the PDP area, Biovail would have the opportunity to offset 50% of the cost of that study against the specific milestone that is earned on the completion of that clinical trial successfully. That offset only relates to PDP, there are no similar offsets as it relates to the other indications at all so fundamentally the economics from a big sense essentially stay as same as what we had announced.

Allen Carr - Needham & Company

And that's only for the third study?

Tom Aasen

With respect to the PDP trials again does not relate it all to the other indications.

Allen Carr - Needham & Company

Okay back to schizophrenia, can you guys provide any guidance on what that trial might look like in terms of design who's it going to be against or on top of several different A-typical what can we expect there, what do you know now?

Dr. Uli Hacksell

What we can say again is that this trial and this area will be the responsibility of Biovail to move forward with that but once again thought about so far is essentially to try to build very much on the positive date in Phase II that is establishing firmly in Phase III similar advantages of using conjunctive Pimavanserin on the top of a little dose of Risperidone.

Allen Carr - Needham & Company

Okay one last item when can we expect results from the second PDP trial?

Dr. Uli Hacksell

Roger do you want to comment on that that is a figure referring to this study that we call -014.

Dr. Roger Mills

We anticipate that we will complete the analysis with that study in the first quarter of 2010, we will then empower will be looking at using the findings in that study along with those from the first study I want to refine the design of the new Phase III study of the PDP which we intend to start in the first half of 2010.

Operator

Our next question comes from the line of Jason Napodano with Zacks Investment Research. Please proceed.

Jason Napodano - Zacks Investment Research

When you start that third study or I guess when Biovail starts that third study in the first half of next year you think that will just be one program or do you think they will do two kind of parallel programs.

Dr. Uli Hacksell

What we have said is that we intend to start a third study in PDP when we have analyzed the results both from the -012 and the -014 PDP studies. We have not yet provided information on when we intend to start an additional PDP study.

Jason Napodano - Zacks Investment Research

Okay so its we should consider that you will need at least two I mean lets assume that -014 the same problems that happen with -012 happened with -014, you will still need probably two studies that need an end point before you will go ahead or before Biovail will file an NDA.

Dr. Uli Hacksell

Yeah, that has been our belief but and that's what we expect that we will need two PDP studies to get the registration for PDP.

Jason Napodano - Zacks Investment Research

Okay and those you are only going to focus on the 40 mg.

Dr. Uli Hacksell

Yes. We think that will be appropriate dose. The next study will be a two armed study 40 mgs and placebo.

Jason Napodano - Zacks Investment Research

Okay so may be in terms of a number of patients may be smaller than that -012 study because you are only enrolling a few arms.

Dr. Uli Hacksell

Yeah Roger perhaps you can comment on that.

Dr. Roger Mills

Yes, that's correct. Two arms instead of three so, there is just a basic proportional difference. Further more you don't take the physical head of having two active arms versus placebo. So, gain a lot of weight there as well.

Jason Napodano - Zacks Investment Research

So, it will be 0.5 will be essentially what you are looking for in terms of. On the initial ADP study that you planned to move forward in you said it's a 100 I guess reimbursable by Biovail if its successful, can you kind of give us a sense on what success is for an initial study, I mean its just is there going to be a statistical efficacy endpoint? Or do you think it will be mostly just kind of safety, kind of a peak hang analysis?

Dr. Uli Hacksell

We expect to have an efficacy on point, the success will be related, if we can reach that endpoint.

Jason Napodano - Zacks Investment Research

So, like a Phase II B kind of design?

Dr. Uli Hacksell

No, I mean we are still talking about that we are planning a feasibility study in ADP and I think that's important to remember here.

Jason Napodano - Zacks Investment Research

Okay. But large enough that you will have tower to hit a statistical endpoint?

Tom Aasen

Or define the parameters around signals.

Jason Napodano - Zacks Investment Research

And then actually one more question. As well as AM-831 with Meiji Seika is there a milestone for that entering the clinic?

Tom Aasen

I can take that; first of all the arrangement there is that our partner Meiji covers the initial $15 million of the development expenses there. So, they will be covering from a cost basis substantial portion of the development as we progress forward. The milestones that we are eligible for relate to development in the Asian territory because you recall at the end of the day we retain the rest of world rights and Meiji would have the rights in Japan and the areas of Asia, so we would only receive the milestones related to that development we would not receive one specifically to enter in the clinic in this path.

Operator

We have no further questions; I would like to turn the call back over to Mr. Hacksell.

Dr. Uli Hacksell

Alright, thanks again to everyone for joining us on today's call and for your continued support. We look forward to updating you in the future on our ongoing process. Thank you.

Operator

Ladies and gentlemen that concludes today's conference thank you for your participation, you may now disconnect. Have a great day.

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Source: ACADIA Pharmaceuticals, Inc. Q3 2009 Earnings Conference Call
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