ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD) Q4 2008 Earnings Call March 9, 2009 5:00 PM ET
Uli Hacksell - Chief Executive Officer
Roger Mills - Executive Vice President of Developments
Tom Aasen - Chief Financial Officer
Lisa Barthelemy - Director of Investor Relations
Charles Duncan – JMP Securities
Alan Carr – Needham
Christopher James – Rodman & Renshaw
Good day, ladies and gentlemen, and welcome to the ACADIA Pharmaceuticals' fourth quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. We will facilitate 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.
Good afternoon and welcome to ACADIA Pharmaceuticals’ fourth 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 March 23, 2009.
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 future 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 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. Additionally, certain of the information discussed today reflects preliminary financial results, as we have not yet filed our annual report on Form 10-K for the year ended December 31, 2008.
I will now turn the call over to Dr. Uli Hacksell, our Chief Executive Officer.
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 covering some recent highlights. I will then ask Tom to briefly review our financial results for the third quarter, and following these remarks, Roger and I will review our clinical programs in more detail. We will then open the floor to your questions.
During the last quarter, we continued to make important strides in advancing our pipeline of product candidates. We remain focused on developing a portfolio of our four most advanced product candidates, consisting of two internal compounds including our lead product candidate, pimavanserin, as well as two partner compounds that are fully funded by Allergan.
Our top priority is to advance our Phase III program with pimavanserin in Parkinson disease psychosis toward registration with a near-term focus on the successful and timely completion of our first Phase III pivotal trial. I’m pleased to report today that this trial continues to progress well, and we anticipate reporting top line results in the third quarter of this year, consistent with our earlier guidance.
In addition to our lead program with pimavanserin, we have continued to advance two other clinical programs through our collaborations with Allergan—the Phase II program in chronic pain and a Phase I program in glaucoma. Most notably, Allergan has indicated that it plans to complete Phase II studies in the chronic pain program in mid 2009 to enable selection of doses and the indications for late stage development.
Behind these three clinical programs, we are conducting initial IND enabling studies for ACP106, an internally discovered compound from our research and development program. With this portfolio of product candidates, we believe that Acadia is well positioned with multiple products and commercial opportunities. We have an exciting and important year ahead of us that provides potential for a number of value-driving catalysts including clinical data in our two most advanced programs.
Let me now turn the call over to Tom to discuss our recent financial results.
Let me start by providing a brief overview of our fourth quarter financial results, which were reported in our press release issued earlier today. We reported a net loss of $14.0 million or $0.38 per common share for the fourth quarter of 2008, compared to a net loss of $17.0 million or $0.46 per common share for the fourth quarter of 2007. As expected, we have begun to see the effects of the disciplined actions we implemented last August to streamline our cost structure, focus our resources on our most advanced product candidates, and strengthen our financial position.
Let’s briefly look at some of the components of our fourth quarter results. Revenues totaled $325,000 for the fourth quarter, and as expected, decreased relative to the comparable quarter of 2007 largely due to completion of our agreement with Seprecor in early 2008.
Research and development expenses decreased to $12.1 million for the fourth quarter of 2008 from $17.3 million for the fourth quarter of 2007. This decrease was largely driven by cost savings of approximately $3.5 million resulting from our restructuring last year as well as lower external service costs. External service R&D costs totaled $8.7 million for the fourth quarter of 2008 and were primarily comprised of clinical expenses for pimavanserin.
General and administrative expenses decreased to $2.4 million for the fourth quarter of 2008 from $3 million in the comparable quarter of 2007, primarily due to cost savings from our restructuring.
Finally, let me turn to our cash position and expected outlook. We closed 2008 with $60.1 million in cash and investment securities. Following the streamlining of our organization, costs associated with our internal R&D and support organizations have been reduced significantly. To give you additional color on our cost structure, for the fourth quarter of 2008, our operating expenses totaled appearance $14 million excluding $548,000 in non-cash stock-based compensation. Of this total, approximately $4.1 million was costs associated with our internal organization, while the remaining costs represented external costs largely related to our clinical costs.
If you compare this level of internal expenses to the fourth quarter of 2007 and to earlier quarters during the 2008 prior to our restructuring, our internal expenses were at $8 million per quarter. Thus the savings that occurred during the fourth quarter of 2008 following our restructuring equates to an annualized cost savings of approximately $16 million. We expect to see the full cash effect of the expense reductions from our restructuring during 2009. As a result, we expect that cash used in operations during 2009 will be below our 2008 level, and we continue to anticipate that our existing cash resources will be sufficient to fund our operations into the first half of 2010.
I will now turn the call back over to Uli.
We will now review our clinical programs in more detail. As I mentioned earlier, our focus at Acadia is on our most advanced product candidates, including our lead product candidate pimavanserin. Our remarks today will focus largely on our Phase III program with Pimavanserin for Parkinson disease psychosis or PDP. This debilitating disorder affects up to 40% of Parkinson disease patients and is characterized by disturbing hallucinations and delusions. Patients with PDP may see, feel, or hear things that are not really there. These patients also are often in frail health and must be taken care of by a spouse, family member, or other caregiver.
The symptoms of PDP are a significant cause of distress to patients and their caregivers, and are associated with greater functional impairment, caregiver burden, nursing home placement, and increased mortality. Currently, there is no approved therapy in the US to treat Parkinson’s disease psychosis, and the problem is only expected to grow as our population ages. Managing PDP is often a major challenge for neurologists. Due to the lack of an approved treatment in the US, physicians may try to decrease the dose of dopamine replacement therapies, the drugs that are used to manage motor symptoms of Parkinson’s disease. However, this approach often worsens the motor function of these patients and is generally not effective in alleviating psychotic symptoms.
Physicians may also attempt to use current antipsychotics off label to treat patients with PDP. Because antipsychotics block dopamine receptors which may counteract the dopamine therapy used to manage motor symptoms of Parkinson’s disease, these drugs are generally not well tolerated by patients with Parkinson’s disease at doses required to achieve antipsychotic effects.
Current antipsychotic drugs also are associated with numerous side effects, which can be especially problematic for elderly patients with PDP. In addition, antipsychotics have a black box warning for use in elderly patients with dementia-related psychosis due to increased mortality and morbidity. We believe that Pimavanserin is well positioned to be an important first in class treatment for PDP, which may effectively treat the psychosis in these patients without impairing motor function, thereby significantly improving the quality of life for patients with Parkinson’s disease.
Let me now turn the call over to Roger Mills who will review our PDP program in more detail.
Our Phase III program in Pimavanserin for PDP continues to be the highest priority for the whole organization. We’re currently conducting a number of studies in the program, including two pivotal trials and an open label safety extension together with supporting NDA enabling studies. Currently the primary focus is on the successful and timely execution of the first pivotal Phase III trial.
Let me take a moment to review the design and key objectives of the ongoing trial. Each of the pivotal trials is a double-blind placebo-controlled study designed to evaluate the safety and efficacy of Pimavanserin in approximately 240 patients with PDP. We are continuing to enroll patients in both of these trials. Patients in each of these studies are randomized to three different study arms, two different doses of Pimavanserin and one placebo arm. Patients receive oral doses of either Pimavanserin or placebo once daily for 6 weeks in addition to stable doses of their existing dopamine replacement therapy.
The primary endpoint of the Phase III trials is antipsychotic efficacy, as measured using the scale for the assessment of positive symptoms or SAPS. Psychosis in Parkinson’s disease is manifested mainly by hallucinations and delusions. The SAPS is supported by experts as an appropriate scale to measure the psychosis in Parkinson’s disease.
Motoric tolerability is an important secondary endpoint in the Phase III studies and is measured using the Unified Parkinson’s Disease Rating Scale or UPDRS. The sample size of about 240 patients or 80 patients per arm is designed to allow statistical significance to be detected on both the primary endpoint using SAPS and the key secondary endpoint using UPDRS.
For the primary endpoint, the trial is powered to the standard level for pivotal study of 90% in order to provide statistically significant antipsychotic efficacy as measured using the SAPS scale for each treatment arm versus placebo, a change from baseline to day 42. We are using a non-inferiority analysis to assess motoric tolerability as a key secondary endpoint using the UPDRS scale. As I mentioned, our near term focus is on the successful and timely execution of the first Phase III study. We’re very pleased with the progress of this trial, which is being conducted at over 60 clinical sites located in the US and also internationally. We are on track to complete enrolment in this trial in the second quarter and report topline results during the third quarter of this year.
Once our emphasis was on the first trial, we also continued to advance our second pivotal study which was initiated about one year after the first. The second trial is also being conducted at over 50 clinical sites located in the US and internationally.
In addition to these two trials, we are conducting an open label safety extension study. Patients who have completed either of the Phase III trials have the opportunity to enroll in this study if in the opinion of their physician they may benefit from continued treatment with Pimavanserin. We continue to be pleased to see that a high percentage of patients that participated in the pivotal studies have elected to roll over into the open label safety extension study.
We also continue to conduct another open-label safety extension study in connection with our earlier Phase II PDP trial. To date, the exposure to Pimavanserin in this study equates to over 50 patient years. The longest duration of treatment is now over 4 years for several patients. We now have considerable clinical experience with Pimavanserin over a wide range of clinical trials involving over 500 subjects. Pimavanserin exhibited an attractive clinical profile including antipsychotic efficacy, tolerability, safety, and a long duration of action. We believe these attributes will allow Pimavanserin to differentiate itself from current antipsychotic drugs used off label to treat PDP.
Let me now turn the call back to Uli.
We remain very excited with the progress in our Phase III program with Pimavanserin and believe that PDP provides Acadia with a very attractive commercial opportunity. With the growing body of evidence demonstrating the safety risks associated with current antipsychotic drugs, we believe that Pimavanserin is well positioned to address the large unmet medical need associated with PDP as well as with a range of other CNS indications.
Acadia recently completed an international market research study that enlightened and confirmed a number of aspects about the diagnosis and treatment of Parkinson’s disease psychosis. For example, due in part to the lack of an approved therapy, many physicians are not proactive in identifying psychotic symptoms in their PDP patients until they are severe, virtually leading to institutionalization. This finding in conjunction with other indicators suggests that the PDP market is underserved and poised for a new solution.
Generally, physicians feel they have to sacrifice either motor control or psychotic symptoms when treating PDP. Frequently physicians are reluctant or hesitant to treat PDP patients with off label antipsychotics. Therefore, either delaying treatment or keeping the lowest possible dose due to side effects on the black box warning associated with these agents, as well as the potential loss of motor symptom control.
Finally, we’re please to see that physicians reacted very favorably to the profile of Pimavanserin and its potential to effectively treat the psychosis in patients with Parkinson’s disease, without impairing motor function.
Our commercial strategy for Pimavanserin has two primary components. First, we intend to advance our Phase III program to registration, as the potential first in class treatment for PDP. We believe that this represents an attractive development path and an ideal potential entry into what may be a border market opportunity for elderly patients suffering from psychosis. Second, we intend to leverage our Phase III program to develop and commercialize Pimavanserin for multiple neurological and psychiatric indications, initially focused on psychosis in elderly patients which are underserved by currently marked antipsychotics.
As part of this strategy, we plan to establish a partnership to enable us to broaden the market opportunities, to facilitate commercialization, and to maximum the commercial potential of Pimavanserin. As we advance our Phase III program toward completion of the first pivotal trial, we are pleased to see a growing level of interest in Pimavanserin on the part of potential partners. We believe that this trial will represent another inflection point which provides us with the opportunity to increase the value of Pimavanserin.
Currently, we are thoroughly updating and engaging in partnering discussions with potential partners as we advance our Phase III program. Meanwhile, we continue to be well positioned both with sufficient financial resources and a strong development team to advance Pimavanserin through completion of the first pivotal Phase III trial to ensure that we realize the appropriate value for this asset.
Let me now turn briefly to our collaborative clinical programs with Allergan. Our novel alfa-adrenergic agonist in Phase II provides the potential for significant breakthrough in the treatment of chronic pain. Allergan has reported preliminary data from its Phase II program including positive proof of concept in the visceral pain trial in patients that had hypersensitivity of the esophagus. They also reported a efficacy signals in two chronic pain trials in the areas of fibromyalgia and irritable bowel syndrome after completing the low-dose cohorts. Allergan is expected to complete the Phase II trials with higher dose cohorts in 2009 to enable selection of doses and indications for late stage development.
In collaboration with Allergan, we are also developing AC-262271 for the treatment of glaucoma. Allergan is conducting Phase I development with this compound. Beyond these two collaborations with Allergan that have led to clinical stage product candidates, we have a third collaboration that involves joint research efforts in the area of pain that has been expanded to include additional discovery efforts in the area of ophthalmology. We are proud of our longstanding and highly productive alliance with Allergan, and we remain grateful for the opportunity to work closely with Allergan’s high quality R&D organization.
We are also conducting initial IND-enabling studies for ACP-106, while at the same time carefully controlling our investment in this program. This compound provides us with additional flexibility and may allow us to pursue a broad range of CNS indications in the areas of psychiatry and sleep.
While our current priority is on our most advanced assets, we also have used our discovery platform to discover several additional product candidates that we may elect to develop in the future in partnerships or independently. We are currently exploring opportunities to monetize these early stage programs, to broaden our pipeline, and provide us with additional sources of funding.
Recently, we were awarded a grant from the Michael J. Fox Foundation for the development of Novel ER-beta agonists for the treatment of Parkinson’s disease. Acadia researchers will examine the efficacy of ER-beta agonists in preclinical models, focusing on neuroprotection, motor performance, cognition, and sensory and motor gaiting. Our programs with ER-beta and Pimavanserin show our deep commitment to the advancement of care in patients with Parkinson’s disease.
In closing, we look forward to an exciting and productive year ahead. Our priorities and key objectives are clear. They include continuing to advance our Phase III PDP program with Pimavanserin toward registration, reporting topline results from our first Phase III PDP trial in the third quarter this year, executing on our strategy to develop and commercialize Pimavanserin for multiple indications together with a strategic partner, continuing to advance our collaborate clinical programs with Allergan with Phase II studies in chronic pain anticipated to be completed mid year, and exploring opportunities to monetize our early stage programs.
This completes our presentation, and we will now be happy to answer questions that you may have.
(Operator Instructions). Your first question comes from Charles Duncan with JMP.
Charles Duncan – JMP
I had a quick question for Roger. Can you run through your assumptions in terms of powering for the primary efficacy endpoint? You said 90%, I believe, for each treatment arm. Can you help us understand the magnitude of the effect that you base that on?
We clearly have powered the study and it provides there is a significant antipsychotic efficacy, and we’re obviously using the SAPS scale and basing it for each treatment versus the placebo over a 42-day period, so from baseline to day 42. The primary endpoint is powered. It’s a standard level of 90%, and the power calculation is based on a couple of aspects. One is the margin of efficacy that we would expect to see, and we base that on what we saw in the Phase II study, but also it takes into account the variability that was observed in the study, so it’s a factor of the two of those in order to be able to be powered around the probability of finding that a difference between the arms does exist, and that would be at 90%.
Charles Duncan – JMP
Can you help me understand a little about the types of patients that you are enrolling in these trials? Are they very similar to the Phase II? That was your aim, but do you anticipate the variability to increase or decrease it? It makes sense to me that with more patients, the variability would actually decrease.
You covered a couple of points there. The first thing is that in enrolling patients into the study, the criteria used are very similar to those seen in others we used in the Phase II. We would expect to see similar patient population between the Phase III study and the Phase II studies. The aim for a number of things, one obviously we’ve increased the sample size quite considerably here, but also in the way we manage the patients in terms of oversight of the study, the aim is to actually decrease the variability compared to the Phase II, and therefore we are comfortable with the powering of the study.
Charles Duncan – JMP
Thank you for that added color. Uli, quick question regarding the Phase III data for the first trial versus the second trial. Is it your belief and I understand that’s pretty imprecise science, but is it your belief that that data from the first trial may be sufficient to reduce the risk and knock on 103 to perhaps complete partnering discussion?
Clearly we have already taken this program through a number of derisking events. Clearly with the increasing safety data base on that we have with the proof of concept data from Phase II and an additional positive Phase III clinical trial, there is very little risk left in the program, and I think that at that point, if not sooner, we should be able to realize the kind of value that we expect from Pimavanserin to weigh partnerships.
Your next question comes from the line of Alan Carr – Needham.
Alan Carr – Needham
Thanks for the update. Regarding the Allergan Phase II program in pain, you mentioned that there should be some data in the middle of ’09. Are there any milestones associated with that? Can you give us a sense of that if there are some?
First, we mentioned it earlier. We have three different collaborations with Allergan. This relates to the first collaboration. What we have said about that is that this provides an addition to an initial equity investment about $21 million in total payments. We received about 11 of that to date, so there is an additional $10 million on the table with respect that particular collaboration, plus of course royalties. We’ve not given the specificity of what triggers milestones, but that gives you a sense, and I can tell you that it is traditional based collaboration, and that as program reaches additional stages of development through to obviously approval, those trigger milestones as you would expect.
Alan Carr – Needham
That $10 million doesn’t have a commercialization? Those are all development milestones?
Yes. We have said those are all development through approval.
Alan Carr – Needham
Regarding ACP-106, you’ve been doing some IND-enabling studies for a little while. What does the schedule look like in terms of bring that into Phase I, and what can you tell us about how it is differentiated from Pimavanserin?
Again, 106 is a product candidate that emanates from the same basic platform that generated Pimavanserin, but it has a completely separate IP and a very different chemical structure. Still it has about the same kind of pharmacological characteristics as Pimavanserin in that it is a selective 5-HT2A inverse agonist. It has some different pharmacokinetic properties. I think that’s important to mention, but it still should be very suitable as a once daily pill in the end. Now, we see the great opportunity with 106 as a way of really opening up the full opportunity to explore this mechanism of action throughout the different opportunities in the CNS space. Clearly with Pimavanserin, we are now focusing initially on PDP. With the follow on to move it into other neurology indications where psychosis is a problem and also having the opportunity to explore adjunctive usage actually in psychosis. With ACP-106, we receive the opportunity to explore other areas in the CNS space where we believe that this mechanism is really interesting.
With respect to the second part of your comment, as we did indicate in the call, clearly our resources are focused heavily on Pimavanserin, and we through restructuring and all our cost containment are making sure that we remain focused with our funds on that, so we are doing on the initial parts of the IND tracks. We are moving forward, but I would say that at this point we don’t want to comment specifically on the timing because we are really controlling the costs around 106 and other programs and making sure we devote all resources as necessary to have as much financial strength as possible through our catalysts in Pimavanserin.
Alan Carr – Needham
Is it safe to say that this one won’t be in the clinic until after some other funds become available to the company through partnership or something like that, right?
Yes. I think it’s reasonable conclusion of what I just said, and certainly right now as Roger indicated the primary focus in Pimavanserin is clearly on that first trial, and that’s what has major resources, plus we are advancing the remainder of that program, so we are just being very mindful to make sure that we reduce spending everywhere we can, so we are advancing it without major thrust forward.
Your next question comes from the line of Christopher James with Rodman & Renshaw. Please proceed.
Christopher James – Rodman & Renshaw
Could you comment on the quarter over quarter rollover rate into the open label study 3Q versus 4Q? I think you said it was high, but has it changed quarter over quarter?
We’ve not given guidance of rollover figures, but I’m very comfortable in saying that we have a high rollover of patients who are in the Phase III studies into the open label study.
I think we can add to that the open label extension study is a great asset for us because it provides an incentive for patients to enroll into the initial efficacy studies as well.
It’s very similar to what we saw with Phase II, in that patients like to roll over into that study. I think as Uli said, it’s a nice benefit to patients to be able to have that option, and also for us, it does provide the additional safety data in the long term.
Christopher James – Rodman & Renshaw
How do you view this continued consolidation on the pharma side as affecting deals, particularly in the biotech space? I think in the past you’ve said that you’re in discussions with up to 10 potential global partners or regional partners. Has this changed with all this consolidation?
Let me take a shot at that question to start with, and maybe Tom and Roger, you can add to that after it. We’ve never said that we were in discussions with 10 global potential partners at the same time. What we have said and this is still our strategy is that we see global partners with CNS experience or regional partners with CNS experience in successfully commercializing CNS drugs. Those are the kind of strategic partners that we’re interested in. Coming back to the initial part of your question how consolidation is affecting Acadia, what we see is that all of these companies regardless of whether they have consolidated or not need more products and late-stage products to build their pipeline for the future. These companies are hungry for great opportunities with commercial and medical potential, and we think that Pimavanserin really provides such an opportunity
(Operator Instructions). Dr. Hacksell, please proceed with closing remarks.
Thanks again to every for joining us on today’s call and for your continued support. We look forward to the opportunity to update you in the future on our ongoing process.
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