ACADIA Pharmaceuticals Inc. (ACAD) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to ACADIA Pharmaceuticals Fourth Quarter 2011 Financial Results Conference Call. My name is Amicia, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to Tom Aasen, Executive Vice President and Chief Financial Officer at ACADIA. Please proceed.

Thank you. Good afternoon, and welcome to ACADIA Pharmaceuticals' Fourth Quarter 2011 Financial Results Conference Call. This call is being recorded, and an archived copy will be available on our website at www.acadia-pharm through March 20. Joining me on the call today from ACADIA are Dr. Uli Hacksell, our Chief Executive Officer; and Dr. Roger Mills, our Executive Vice President of Development. Uli will begin our call today with some introductory remarks. I will then briefly comment on our financial results for the fourth quarter. Following these remarks, Roger and Uli will provide you with an update on our development programs, and we will then proceed to open the floor to your questions. Before we proceed, I would first like to remind you that during our call today, we'll be making a number of forward-looking statements, including statements regarding our and our partners' research and development programs and plans, including the timing, design and results of clinical trials and partnering activity, the benefits to be derived from and the commercial potential for our product candidates in each case including pimavanserin, benefits to be derived from changes to clinical trial designs, plans regarding the development of pimavanserin, and our future expenses, collaboration payments, cash position and financial performance. These forward-looking statements are based on current information, assumptions 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, 2011, and other 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'll now turn the call over to Uli, our Chief Executive Officer.

Thank you, Tom, and good afternoon. Let me first take this opportunity to thank all of you for joining us on today's conference call. During 2011, we established a strong foundation that positions us to build substantial value in our pipeline of product candidates led by pimavanserin. We look forward to building on this momentum during what we expect will be an exciting and value-driving 2012. As you will hear from Roger later on in the call, we continue to make solid progress in the ongoing pivotal trial in our P3 program with pimavanserin for Parkinson's disease psychosis or PDP, and remain positioned to complete this study later this year. Importantly, we have remain convinced that the study design for this trial should significantly improve the likelihood of achieving a successful outcome. And we continue to be encouraged to see that the design enhancements being implemented appear to be operating as planned. We believe pimavanserin has the potential to be the first safe and effective drug that will treat PDP without compromising motor control, thereby significantly improving the quality of life for patients with Parkinson's disease. PDP is a large unmet medical need and represents what we believe is an ideal lead indication for pimavanserin. We are focused on advancing our Phase III program toward registration for this indication. Meanwhile, we continue to be excited with pimavanserin's potential to be broadened to a range of other neurological and psychiatric disorders that are forwardly served by existing antipsychotics. While pimavanserin is clearly our primary focus, I want to remind you that our pipeline now includes 4 product candidates in clinical development as well as 2 additional preclinical programs. In addition to pimavanserin, we have 2 clinical programs in the areas of chronic pain and glaucoma, in collaboration with Allergan. And the product candidate for schizophrenia that entered Phase I development late last year in collaboration with Meiji Seika Pharma. On the financial front, following our successful equity financing in early 2011, we have continued to demonstrate financial discipline and carefully managed our cash resources. Overall, our progress last year and our pipeline of product candidates, led by our Phase III PDP program with pimavanserin, positions ACADIA with multiple products and commercial opportunities and significant growth potential. Before we review our development programs in a bit more detail, let me ask Tom to briefly comment on our fourth quarter results.

Thank you, Uli. Our financial results continue to reflect the focus on our Phase III pimavanserin program and our ongoing expense control. We reported a net loss of $5.3 million or $0.10 per common share for the fourth quarter of 2011. This compared to net income of $29.1 million or $0.74 per common share for the fourth quarter of 2010. You will recall that the results for the fourth quarter of 2010 were unusual and were driven by the conclusion of our collaboration with Biovail. Revenues totaled $588,000 for the fourth quarter, and once again were comprised of revenues from our collaboration with Allergan and Meiji Seika Pharma as well as from our grants with the Michael J. Fox Foundation and the NIH. This compared to revenues of $35.4 million for the fourth quarter of 2010, which included $34.7 million in revenue associated with concluding the Biovail collaboration. Our research and development expenses decreased to $4.4 million for the fourth quarter from $4.8 million for the comparable quarter of 2010, reflecting savings in facilities and other expenses associated with our internal organization, partially offset by an increase in external development costs. Our general and administrative expenses totaled $1.5 million for the fourth quarter and were consistent with the comparable quarter of 2010. Turning to our cash position and guidance. We closed the year with $31 million in cash and investment securities, a net decrease of approximately $6 million from our balance at the beginning of 2011. For the 2011 year, we used an aggregate of $19.9 million in cash to fund our operations which was offset by $13.9 million in net proceeds from our equity financing completed in the first quarter of 2011. Going forward, we expect that our existing cash resources and anticipated payments from our collaborations will be sufficient to fund our operations at least into the second quarter of 2013. I'll now turn the call back over to Uli.

Thank you, Tom. As I mentioned, our clinical pipeline consists of 4 product candidates, which are pimavanserin in Phase III development, 2 important clinical stage product candidates that are fully funded by Allergan, and AM-831 which we advanced into Phase I development in late 2011 with Meiji Seika Pharma. Behind our chemical pipeline, we have 2 preclinical programs that may offer innovative disease-modifying approaches to treating Parkinson's disease and other neurological disorders. Our remarks today will focus mainly on our Phase III PDP program with pimavanserin, and let me start by asking Roger to provide you with an update on this program.

Thank you, and good afternoon. As Uli mentioned, our primary focus is on our lead pimavanserin program, most notably the ongoing pivotal Phase III trial referred to as the -020 Study. This study builds on the wealth of clinical experience we generate in our primavanserin PDP program. -020 is a randomized, multi-center, double-blind, placebo-controlled study designed to evaluate the efficacy, tolerability and safety of pimavanserin in patients with PDP. Importantly, it incorporates several design enhancements that were guided by previous data in our PDP program. In December, we presented information regarding our optimization of the -020 Study design at the World Congress of Parkinson's Disease and Related Disorders. Let me take a minute to highlight key elements of the -020 protocol, and the study enhancements that are designed to mitigate placebo response and reduce variability. The study is being conducted exclusively in North America and is expected to enroll about 200 patients over approximately 50 clinical sites. This geographic focus allows us to use a small centralized group of highly trained, independent raters to conduct blinded assessments of the primary endpoint at all study sites. Our previous experience has shown that this centralized rating approach helped to mitigate placebo response, enhance consistency and reduce data variability. Patients initially participate in a screening phase, which includes a brief psychosocial therapy program. This program involves scripted interactions between each patient and their caregiver directed by a qualified member of the site. It is designed to help patients adapt to participating in a clinical trial setting, help manage symptoms during the screening phase and pull initial placebo responses ahead of the baseline assessment. This may also allow more severe patients to be enrolled by offering non-pharmacologic support. To participate in the study, patients are required to have moderate to severe psychosis, as measured by the Neuropsychiatric Inventory scale or NPI at the screening and the Scale for the Assessment of Positive Symptoms or SAPS at the time of the baseline assessment. Criteria for study entry were tightened based on our observation of a larger placebo response in patients with more mild psychotic symptoms in previous studies. Patients must have both adequate severity and frequency of symptoms to be included. Importantly, the baseline SAPS score is assessed independently from the NPI, which provides an important check and balance. We believe that strength and criteria for enrollment, together with the brief psychosocial therapy, have been effective in enabling sites to enroll patients with the desired clinical profile and to filter out patients with more mild psychotic symptoms, who are more likely to respond to placebo. We continue to be pleased to observe that patients enrolling in the -020 Study to date have, on average, exhibited a greater severity of psychosis, a study entry relative to patients in our earlier trials. We also have seen an increase in subjects that did not qualify for randomization at the conclusion of screening due to inadequate severity of symptoms. Upon qualifying, patients are randomized on a one-to-one basis to receive either 40 milligrams of pimavanserin or placebo once daily for 6 weeks. Patients also continue to receive stable doses of their existing dopamine replacement therapy, used to manage the motor symptoms of Parkinson's disease. The primary endpoint of the study is antipsychotic efficacy as measured using 9 items from the hallucinations and delusion domains of SAPS, which best reflect the expression of psychosis in patients with Parkinson's disease. The use of the 9-item SAPS is supported by our observation, that when we apply this scale to the data in our previous PDP studies, we saw a clear reduction in variability, enhanced sensitivity and an improved effect size relative to the use of the larger 20-item SAPS. In particular, as part of our poster presentation at the World Congress meeting in December, we highlighted results of our retrospective analysis of the U.S. data from our earlier -012 PDP trial using the 9-item SAPS, which demonstrated enhanced statistical separation of the 40-milligram pimavanserin arm from placebo. Importantly, you may recall that the FDA was supportive of the -020 Study design and accepted the 9-item SAPS as a primary endpoint in the study. This pivotal study is powered at a standard 90% to provide statistically significant antipsychotic efficacy as a measure to using the 9-item saps. Motoric tolerability is a key secondary endpoint in the trial and is measured using Parts II and III of the Unified Parkinson's Disease Rating Scale or UPDRS. Overall, we remain convinced that the optimized -020 Study design should significantly improve the likelihood of achieving a successful outcome. And we are pleased to see that design enhancements appear to be operating as planned. Additionally, we continue to make solid progress with study enrollment while maintaining our focus on ensuring that we enroll what we believe are patients with the right clinical profile to position the study for success. We also continue to be encouraged by the enthusiasm displayed by many of the investigators and sites. Based on our progress and past experience, we anticipate reporting top line results from the -020 Study near the end of the third quarter this year. Let me now turn to another important ongoing study in our Phase III PDP program, that is our Phase III open-label safety extension study, referred to as the -015 Study. This large study involves patients, who completed previous Phase III PDP trials as well as patients who complete the -020 Study, and who, in the opinion of the treating physician, may benefit from continued treatment with pimavanserin. Once again, I'm pleased to report that the overwhelming majority of patients who complete the treatment phase in the -020 Study have rolled over into the -015 Study. This study is allowing us to generate a large amount of valuable long-term safety data regarding the use of pimavanserin in patients with PDP. Overall, in our Phase III and Phase II extension studies, we've now accumulated about 650 patient years of exposure in this patient population. Importantly, we far exceeded ICH guidelines required for 1 year exposures with over 200 patients having treated for 1 year or longer. We also now have well over 100 patients that have been treated with pimavanserin for at least 2 years and our longest single patient exposure is 7 years. We're encouraged to see that many patients remained on treatment with pimavanserin for long periods of time and its growing base of clinical experience continues to increase our confidence in the program. Additionally, our experience to date suggests that a long-term administration of pimavanserin appears to be generally safe and well tolerated in this fragile elderly patient population. We believe that favorable safety profile observed to date provides support for the potential of pimavanserin to offer significant advantages relative to current antipsychotics used off-label for the treatment of PDP. Let me now turn the call back over to Uli.

Thank you, Roger. We look forward to completing the -020 Study and believe that a successful trial would allow ACADIA to significantly increase the value of pimavanserin and drive value for our stockholders. PDP is a serious disorder that develops in up to 60% of patients with Parkinson's disease and deeply affects their quality of life. It is associated with increased caregiver distress and burden and is the major cause of nursing home placements among Parkinson's patients. A growing number of publications and clinical journals over the last year continue to reinforce the pressing need among patients, caregivers and physicians for a new treatment for PDP that is safe, effective and well tolerated. The FDA has not approved any drug to treat PDP, and neurologists currently face very difficult challenges in managing patients with this debilitating disease. We believe pimavanserin, with its innovative and well-tolerated, non-dopaminergic profile has the opportunity to be a first-in-class therapy that will effectively treat psychosis in Parkinson's patients without compromising motor control. While our strategy currently focuses on advancing our Phase III PDP program toward registration, we also intend to use this program as a foundation to develop and commercialize pimavanserin for other neurological and psychiatric disorders that are underserved by currently available antipsychotics. We believe there is a significant commercial potential for pimavanserin beyond PDP in a range of other neurological indications, including Alzheimer's disease psychosis or ADP, and as a co-therapy for schizophrenia. In both of these indications, we have established well-defined paths forward. Given its commercial potential, we have continued to expand and strengthen our patent state covering primavanserin. We now have a total of 10 issued U.S. patents and over 50 issued foreign patents that provide coverage for pimavanserin. With ACADIA holding worldwide rights to primavanserin as we continue to advance our Phase III PDP program, we will consider potential opportunities that may allow us to accelerate and broaden the development program of pimavanserin and drive increased value for our stockholders. Let me now touch briefly on our other product candidates. Through our long-standing alliance with Allergan, we have 2 clinical stage product candidates that provide the potential for new treatments in the areas of chronic pain and glaucoma as well as an ongoing discovery collaboration. In the alpha adrenergic pain program, Allergan has conducted several Phase II trials and has announced that they are seeking a partner for further development and for commercialization in areas predominantly served by general practitioners. In the glaucoma program, Allergan has advanced to Phase I development with a selective muscarinic agonists. Earlier this week, we announced the extension of our ongoing discovery collaboration with Allergan which is focused on glaucoma and related ophthalmic indications. We're excited to continue what has been a productive scientific alliance and are grateful for Allergan's continued support. During the fourth quarter of 2011, we advanced our product candidate for schizophrenia, AM-831, into Phase I development through our collaboration with Meiji Seika Pharma. AM-831 is designed to provide a unique combination of antipsychotic and pro-cognitive activities, through antagonist of D2 and post A2A receptors, coupled with stimulation of muscarinic M1 receptors. Behind our 4 clinical stage product candidates, we have continued to advance 2 preclinical programs that may pave the way for new breakthroughs in the treatment of Parkinson's and other neurological disorders. In our ER-beta program, we discovered the compounds that exceed its neuroprotective and anti-inflammatory properties in preclinical models, and may have the ability to slow down the progression of Parkinson's disease. Our initial studies in this program have been supported by grants from the Michael J. Fox Foundation. Our ER-beta compounds also may address symptoms of chronic, inflammatory and neuropathic pain. Ongoing studies in this area are being pounded by grant awarded June 2011 from the National Institute on Neurological Disorders and Stroke. In our second preclinical program, we discovered compounds that selectively activates Nurr1-RXR complexes and promote viability of dopamine containing neurons. We are examining the effects of these compounds on neuro protection and neuro degeneration in preclinical models of Parkinson's disease under a separate grant from the Michael J. Fox Foundation. Before I close, I would like to take a moment to thank our employees for their contributions this past year and for their continued dedication. I know they share my enthusiasm regarding the future of ACADIA. Finally, I would also like to welcome Bill Wells, who recently joined our Board of Directors. We look forward to working with Bill and expect to benefit from his experience in establishing a CNS specialty pharmaceutical franchise more like Biovail. In closing, our pipeline of product candidates, led by our Phase III primavanserin program, positions ACADIA with multiple product and commercial opportunities and significant growth potential. With a well-designed Phase III program for pimavanserin and a strong foundation in place, we believe we are well-positioned to advanced this late-stage product candidate and drive value for our stockholders. We will now be happy to answer questions that you may have.

[Operator Instructions] And the first question comes from the line of Charles Duncan with JMP Securities.

Okay. Uli, I just want to check a few facts. I'm not sure if I heard it. I think you said that your baseline psychosis levels are higher than you saw previously. What did you assume them to be and what are they now if you could just rough order magnitude?

We don't provide specific numbers, but let me give Roger the opportunity to answer that question and give you some feedback on that.

Yes, I think it's in the -- just to outline, Charles, the -- we obviously don't give specifics regarding the ongoing study data. However, obviously as we purposely designed this study to ensure that we had adequate psychosis in the patients coming into the study, not only are they able to show a meaningful improvement, but also as you remember, that the patients with the mildest psychosis in the previous studies are the ones most likely to respond to placebo. And we've been very pleased to see that the design features we built into the -020 Study have been effective in increasing the baseline of severity both on the NPI and on the SAPS. And is in -- right in the ballpark that we were, in fact, looking for. And so we -- it's not only just the design that we did, but importantly also, it also -- it does reflect that the investigators have listened to the message that we've given them, and they really are trying to work to build a population that gives the drug the best chance of success.

And that seems like it would be helpful in terms of enrollment but also how about completion rate, how do you feel about that, and relative to maybe your expectations. And then I think that you also said that the majority of those completed have gone into the extension study. Could you give me a rough order of magnitude of what that number is, and why patients would go into the extension study but for a continued drug effect? Is there some other ancillary benefit?

So let me sort of take those one at a time. I think the -- in terms of -- just to clarify, under the intent-to-treat analysis, using the last observation carried forward, we need actually 2 assessments of baseline, the post baseline assessment for patient to be included in the ITT population. However, we have seen that the -- again, we're not giving specific details, but by far, the majority in most patients are completing the 6-week study, and that includes patients with recently severe disease as well as those with sort of moderate to severe. And we're actually seeing some patients with a fairly marked baseline psychosis really go right to the study and then progress through into the -015 Study. I think the couple of issues why patients go forward, obviously, they go through the 6 weeks, as a placebo-controlled. And they have a 50-50 chance of being an active or placebo and in the -015, all patients get active drugs so there is a draw for that. But also I think it really reflects that the -- in terms of numbers moving out of -020 into -015, it's almost all the patients are -- who are rolling over into that study. Again, not giving specific numbers but it is almost all the patients who do that. And I think it really reflects the confidence of the investigators now have with the drug and the support that they're giving to patients to move into that -015 Study and it really reflects just a number of anecdotal reports that we've been able to get from as we interact on a regular basis with investigators. And I qualify that by saying they are anecdotes but at the same time, you see -- you hear very similar messages but from different investigators. And many of these investigators are not only experienced with the drug, but also are very experienced in treating PD and PDP. And we hear time and time again from these different sources, similar reports of how patients improve and really how different the patient appears compared to patients who they've previously had on the off label -- with the off label use of the atypical agents. So the -- I think, across the board, the investigators do seem to be very pleased with the results that they get, especially as they know that patients are on active drug in the -015 Study.

Okay. And then my last question is regarding the next steps in terms of the Phase III program. What would you anticipate the next study to look like in terms of the size and timing? Is it possible that you would start the next study before this study is completed? And then the final question is, would you perhaps seek a partner for that study or would you conduct that yourselves?

So I'll take that, Charles. So first of all, we are very much focused now on moving forward and completing the -020 Study as part of the ongoing Phase III program. And we believe that successful -020 Study really will drive significant increased value of primavanserin. Now following the -020 Study, we will seek to capitalize on that successful outcome and drive increased value from our pipeline. First, this is very important, we want to make sure that we can start the next pivotal Phase III study in such a way that we utilize and maximize synergies between that study and the -020 studies, that we get to test upstart and the good synergy between the 2 studies. Second, we clearly want to look for all kind of opportunities that open up for us here. We certainly want to drive additional value from our pimavanserin asset. We're clearly interested in accelerating development in geographic regions outside the U.S, and we'll have the opportunity to consider partnering to facilitate that. Also, I think it's important to remember that we see other opportunities beyond PDP for pimavanserin. So we clearly want to look at the possibility of broadening the program towards Alzheimer disease, psychosis or ADP and schizophrenia to further drive increased value with the pimavanserin programs. Now remember, we have worldwide drives retained for pimavanserin, and all options are open to us so we are very excited about this opportunity.

And the next question comes from the line of Jason Napodano with Zacks.

You mentioned screening a number of subjects, so looking specifically for the severe or moderately severe patients with PDP. Can you give us a sense of what percent of the PDP population is considered severe or moderate to severe?

Roger, do you want to take an attempt on that?

Yes. In terms of percentage, I actually don't have that with me. PDP is a condition that arises in late-stage Parkinson's disease. And initially, it's mostly characterized by hallucinations that occur at the early-onset, and are not overly disturbing the very early stage of the patient. And often -- traditionally, they were categorized as benign hallucinations. That view has now changed. And it's really, the accepted view, is that as you develop psychosis then it continues, more or less, on unabated, albeit you get fluctuations but it doesn't go away and worsens over time. And I think as we've outlined before, it gets to the point at which it becomes fairly critical in patients -- some of the leading cause of patients going into nursing homes and institutions. In terms of the population, and there is no absolute cutoff between we call it a continuum in sort of clear this is mild, this is moderate, severe. There's no definitions for that. What we've done in the study is to really reflect the data that we had in the earlier study. And I think importantly, there's no, in terms of the usage of the drug, when it's on the market, there is no any a priori reason, that there's going to be any difference in the effectiveness of the drug versus the severity of the condition. The way we've constructed the study is purely for the clinical trial, not for how you would use the drug in clinical practice. And I think in terms of some of the market research we've done, it's very, very clear that as physicians get a feel for the drug, they'll start to use it earlier and earlier in the disease. As with any other -- of these chronic conditions in medicine, it's really -- it is always been and continues to be better to treat in earlier stage to prevent symptoms worsening than to try and really push back the tide at the end. So I think in terms of the market, it will be very well taken up and will increasingly be used for patients with milder disease to really get in at an earlier stage to try and prevent the more severe symptoms occurring later.

What I can add also to what Roger said is that, the literature tells us that -- up to 60% of Parkinson's patients develop psychosis, not about 40% of the Parkinson's population has psychosis. So these numbers give you an idea about the totality of the PDP population. Remember that we have about 1 million Parkinson's patients in the U.S. and somewhere between 4 million to 5 million Parkinson's patients worldwide. And that these numbers are increasing with the aging population, rapidly increasing, in fact. And also, the fact that the longer Parkinson's patients live. And today, Parkinson's patients live longer than they used to, the more likely they are to develop psychosis. So these are just some facts that we can give you. Okay?

[Operator Instructions] And the next question comes from the line of Alan Carr with Needham & Company.

A couple actually about the earlier stage candidates. Can you give us an update on AM-831 and when that -- when you might have some data from that, it sounds like you're in your collaboration Phase I. And then also with Allergan, the extension here for another year, is that -- does that relate work around the existing clinical candidates or is that directed towards finding some new candidates?

Yes, so let me start out with the AM-831. So this is our product that we believe has both antipsychotic and pro-cognitive properties, which we just took into Phase I development with Meiji Seika Pharma late last year. We haven't presented any timelines on when we expect to move from Phase I and into more advanced developments. So this is a traditional Phase I program with traditional kind of activities ongoing in the program. What I can say about the project itself, is that we are excited about the potential profile for the simple reason that existing antipsychotics that are on the market today only deal with a part of the problems in schizophrenia. They effectively treat the positive symptoms in schizophrenia, they may treat some of the negative symptoms, but they don't treat the cognitive impairment in schizophrenia. What we hope with AM-831 is that it may have the ability, not only to be effective on positive symptoms and on some of the negative symptoms, but also in fact, help the cognitive impairment in schizophrenia. So this is something completely new that may open up the AM-831.

Alan, I'm happy to just comment on your second question which related to Allergan. You're referring to the third collaboration that we have that's in the discovery stage. This collaboration is focused on glaucoma and related ophthalmic conditions. Part of it does relate to and help support some of the activities we have in the clinical program glaucoma, but we also have a broader perspective in this discovery collaboration as well. We haven't gotten into a lot of the specifics but it's joint research that we're conducting together with Allergan.

Any changes to -- I'm wondering about the financial terms around this. Is there any -- is it consistent with the cash flow to ACADIA consistent with the past years?

Yes, this doesn't change the terms of the alliance at all. It just, in fact, extended the existing discovery collaboration for additional years. So we expect to continue to realize revenues from this collaboration. Those can change from a period-to-period, but as we look at it now we expect to continue in a general kind of range that we have seen with this alliance.

Okay, and then the last question's around enrollment for the study -020, how is that -- what are the trends there for that trial? Do you still expect to finish enrollment in the second quarter?

Well, we don't provide interim recruitment updates. But what we had said is that we expect to complete enrollment in time to report on-time results near the end of the third quarter. And that means that we will essentially have completed enrollments around 3 months earlier to receive that. So that's consistent with our previous expectations.

Dr. Hacksell, please proceed to closing remarks.

Well, 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.

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