ACADIA Pharmaceuticals Inc. (ACAD) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the ACADIA Pharmaceuticals Third Quarter 2018 Financial Results Conference Call. My name is Christie, 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-session towards the end of today’s call. [Operator Instructions] I would now like to turn the presentation over to Elena Ridloff, Senior Vice President of Investor Relations and Interim Chief Financial Officer at ACADIA. Please proceed.

Thank you, Christie. Good afternoon, and thank you for joining us on today’s call to discuss ACADIA’s Third Quarter 2018 Financial Results. Joining me on the call today from ACADIA are Steve Davis, our President and Chief Executive Officer; Michael Yang, our Chief Commercial Officer; and Dr. Serge Stankovic, our Head of Research and Development. I’d also like to point out that we are using supplemental slides, which are available on the Events & Presentations section of our website. Before we proceed, I would like to remind you that during our call today, we will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including goals, expectations, plans, prospects, growth potential, timing of events or future results, 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. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today’s date. I’ll now turn the call over to Steve Davis, our President and CEO.

Thank you, Elena. Good afternoon, everyone, and thank you for joining us today. On today’s call, I’ll provide a brief overview of our recent announcements, our pipeline opportunities and financial performance. Following my remarks, Serge will discuss our pipeline progress; Michael will provide updates on our commercial initiatives with NUPLAZID; and Elena will review our third quarter financial results. We’ll then open the call up for questions. Turning to Slide 5. I want to highlight our third quarter and recent achievements that will serve as important foundations to deliver on our key priorities. First, on September 20, the FDA issued a clear public statement reaffirming the positive benefit-risk profile of NUPLAZID. We were very pleased to see the FDA come to this conclusion following their thorough evaluation, and we were well prepared to quickly educate the Parkinson’s disease community about this statement. Second, we launched the 34-milligram capsule in mid-August. The launch is going very well, and we have successfully engaged physicians regarding the benefits of a 34-milligram capsule form. Third, we delivered on our Q3 financial performance. Revenue for the third quarter was $58.3 million, a 64% increase in revenue year-over-year. In addition, we are increasing the lower end of our full year 2018 revenue guidance to the new range of $220 million to $225 million from the previous range of between $210 million to $225 million. And fourth, we were very excited last week to announce positive top line results from our Phase 2 CLARITY study evaluating pimavanserin as an adjunctive therapy in major depressive disorder. We have now demonstrated that pimavanserin has an antidepressant effect in the clinic in addition to its proven efficacy to treat hallucinations and delusions associated with Parkinson’s disease psychosis. As we head into 2019, we will be advancing a total of 4 Phase 3 programs during the course of the year. These include our studies with pimavanserin in dementia-related psychosis, schizophrenia and MDD and our planned Phase 3 study with trofinetide in Rett syndrome. I’d like to take a moment to describe the unmet need in major depressive disorder and why we are so excited for the potential of pimavanserin based on the study results we announced last week. Please turn to Slide 6. Today, the standard of care in MDD is to start the first patients on SSRI or SNRI therapies. However, a majority of MDD patients do not adequately respond to these initial treatments and continue to experience significant depression. As a consequence, for approximately 2.5 million people in the U.S., physicians then add other drugs as adjunctive therapy. Today’s approved treatments for both first-line and adjunctive therapy in MDD can carry significant side effect burdens, leading to high unmet needs and sometimes difficult treatment decisions. Based on our market research and available medical literature, we believe there is a significant need for greater and faster efficacy without the troublesome side effects associated with current treatment options, which can include sexual dysfunction, unwanted weight gain, daytime sleepiness and negative impact on motor functions, including rare but serious tardive dyskinesia. Based on the results of our Phase 2 CLARITY trial, we believe pimavanserin has the potential to be a differentiated adjunctive treatment for patients with inadequate response MDD. One of the things we find most compelling is that the results we see in this Phase 2 study align closely with the unmet needs we see in our market research. In this study, pimavanserin showed statistically and clinically significant efficacy, as assessed by the primary and key secondary end points. The positive improvements were achieved immediately starting in week one, reflecting early efficacy. Importantly, we observed improvement in sexual function, no meaningful weight gain, reduced daytime sleepiness and no impact on motor function. These results significantly expand pimavanserin’s potential commercial opportunities in a disease state with large unmet needs. With that, I will now turn the call over to Serge to discuss our data in a little more detail and provide the pipeline update.

Thank you, Steve. I’m extremely pleased with our recent R&D progress. Let me start by discussing the positive results of our Phase 2 CLARITY study. Moving to Slide 8. As a reminder, CLARITY was a Phase 2 randomized, double-blind, placebo-controlled, multicenter, 2-stage sequential parallel comparison SPCD study that evaluated the safety, tolerability and efficacy of pimavanserin 34-milligram once daily. Subjects received pimavanserin or placebo as an adjunctive treatment for up to 5 weeks in each stage. All study subjects were MDD patients who had an inadequate response to a stable dose of standard antidepressant therapy with either a selective serotonin reuptake inhibitor, SSRI, or serotonin norepinephrine reuptake inhibitor, SNRI. We assessed efficacy using the Hamilton Depression Rating Scale as the primary end point. We also assessed improvement using multiple additional relative -- relevant and clinically meaningful secondary end points, including the key secondary end point of Sheehan Disability Scale, or SDS, a measure of disability which reflects impairment on work, family and social activities, a major burden on patients. Let’s review the top line trial results on Slide 9. Pimavanserin met the prespecified primary end point by significantly reducing the 17-item Hamilton Depression Rating Scale compared to placebo with a p-value of 0.039. In Stage 1, all 207 study participants were randomized to pimavanserin or placebo for a parallel comparison. The positive improvements on HAMD were achieved immediately starting at week one and were sustained through the five week treatment period, reflecting an early and sustained effect. Stage 1 showed convincing antidepressant effect of pimavanserin across several independent end points. Our criteria for entering Stage 2 were a bit stringent and likely resulted in the selection of a small subset of difficult-to-treat patients where we did not see separation from placebo. As a result, only 58 patients entered Stage 2, which was only about half of what was originally anticipated. On Slide 10, I would like to take a moment to address the relative importance of Stage 1 and Stage 2 in an SPCD trial design. Last week, as part of an Advisory Committee to discuss a drug for adjunctive treatment of MDD, the FDA indicated while they have not endorsed at this time a specific analytical method for the SPCD trial design, they consider efficacy data from Stage 1, which is a traditional parallel comparison design to be most informative. So moving on, let’s take a look at the efficacy results we observed in Stage 1 of our SPCD trial. Turning to Slide 11. In addition to the robust positive results observed on the primary and key secondary end point, positive results were also observed for seven additional secondary end points, including improvement in sexual function, reduction in daytime sleepiness and responder rate, all of which provide us additional confidence that pimavanserin has the potential to be a truly differentiated antidepressant. Before leaving this slide, I would just like to also point out that in Stage 1, we saw a more than doubling in the percent of patients who achieved the response and remission. Approximately 53% of patients on pimavanserin were responders versus 25% on placebo, and approximately 24% of patients achieved remission on pimavanserin versus 11% on placebo. As you can see on Slide 12, in Stage 1, significant separation from placebo was achieved for the primary end point, the HAMD total score, starting immediately at week 1 and was sustained at all visits through week 5, where we see a p-value of 0.0003. The observed effect size from baseline to week 5 was 0.626. As a reminder, an effect size of approximately 0.3 is considered clinically meaningful in depression. The robustness of the results we observed in Stage 1 gives us confidence as we plan for our Phase 3 program because Stage 1, in essence, represents what would be a traditional randomized parallel comparison study of pimavanserin and placebo treatments that include all study participants. The key secondary end point in this study was Sheehan Disability Scale, which measures impairment in work, family and social activities. Looking at the Slide 13, in Stage 1, significant separation from placebo was achieved starting immediately at week 1 and was sustained at all visits through week 5, where we see a p-value of 0.0036. The observed effect size from baseline to week 5 was 0.498. In addition, we followed 174 patients who, in accordance with the protocol, received either pimavanserin or placebo continuously throughout the 10-week study period. This was prespecified evaluation with inferential statistics to derive p-value computed post hoc. As shown on Slide 14, the comparison between patients continuously receiving either pimavanserin or placebo over the entire 10-week period also yielded meaningful separation with positive p-values from week 2 through week 10 in favor of pimavanserin. We observed separation at a significant level of 0.0076 for the primary end point, HAMD total score; and an observed effect size of 0.497. In addition, we observed, at 10 weeks, a responder rate of 59% versus 35% for placebo, a delta of 24% with a p-value of 0.0037 and a remission rate of 41% versus 23% for placebo, almost double with a p-value of 0.014. Looking at the same analysis on the key secondary endpoint of SDS score on Slide 15, we achieved a p-value of 0.0094 and observed effect size of 0.469. These results support durability of response. On Slide 16, we note that in the study, we had a very low number of serious adverse events and adverse events leading to discontinuations throughout the entire 10 weeks of treatment. Looking at overall safety on Slide 17, pimavanserin was generally well tolerated with no adverse events reported in more than 10% of patients. In addition, we did not see any meaningful weight gain in the study. Turning to Slide 18. We are highly encouraged by these results in MDD and believe that this study could serve as 1 of the 2 pivotal studies necessary to submit as an sNDA for pimavanserin for the indication of adjunctive treatment for MDD. We plan to meet with the FDA to discuss the Phase 3 program at an end of Phase 2 meeting. Based on the robust positive CLARITY results, our plan is to initiate 2 Phase 3 parallel placebo-controlled studies in the first half of 2019. The MDD data also reinforces our confidence in the potential of pimavanserin to benefit patients in multiple disease states, representing significant unmet need and sizable commercial opportunities. Another large unmet need in CNS is dementia-related psychosis, which we discuss on Slide 19. We are very pleased with the advancement of the Phase 3 HARMONY study as enrollment continues to progress well. As previously shared, we expect to reach the prespecified number of events for the interim analysis in the HARMONY study in the second half of 2019. As a reminder, there is very high statistical threshold set for this interim analysis. Now let’s turn our focus to schizophrenia inadequate responder study on Slide 20. The Phase 3 ENHANCE study recently passed its prespecified futility analysis, and we expect top line data in mid-2019. On Slide 21, we highlight our schizophrenia negative symptom study. We anticipate completing enrollment in the Phase 2 ADVANCE study in the second half of 2019. Turning to Rett syndrome and trofinetide on Slide 22. Rett syndrome is a debilitating neurodevelopmental disorder that occurs predominantly in females following apparently normal development for the first 6 months of life. Currently, there are no approved medicines for this rare disease. We are progressing our manufacturing activities to support initiation of Phase 3 randomized, double-blind, placebo-controlled study evaluating trofinetide in the second half of 2019. This study will evaluate trofinetide and placebo in approximately 180 girls with Rett syndrome. We look forward to initiating this study as we know the Rett community is eager for the new treatment options. If our Phase 3 trial is positive, there is a potential to submit an NDA in 2021 based on this single Phase 3 study. I will now turn the call over to Michael to discuss our commercial performance.

Thank you, Serge. I would like to add my excitement for the positive Phase 3 -- Phase 2 results that Serge discussed with the CLARITY trial. As we think about differentiation, the important findings from this study are robust and statistically significant improvements on the Hamilton Depression and Sheehan Disability Scale as adjunctive treatment for MDD; early and sustained separation from placebo; and observed improvement in sexual function, reduction in daytime sleepiness and no meaningful weight gain. If approved, we believe our commercial footprint uniquely positions ACADIA to deliver this important potential new treatment to the millions of patients suffering from MDD who don’t adequately respond to first-line treatments. Please turn to Slide 24. As you can see, it’s been an incredibly busy time with our NUPLAZID commercial activities. We have been very proactive in our outreach to educate the medical community, patients and families. When the FDA statement was released on September 20, our field team was able to take immediate action as we were all well prepared for this outcome. We, at ACADIA, and the physicians we have spoken with were pleased but not at all surprised by the conclusion by the FDA. In addition, in support of their patient community, many advocacy organization shared the FDA news on their websites. We are executing on multiple, exciting growth initiatives that build on the foundation of our efforts to ensure that physicians understand the safety and efficacy data contained with a NUPLAZID label. We are enthused with the opportunity to improve the patient experience with the recent 34-milligram launch. While 34 milligrams has always been the only approved dose for NUPLAZID, the availability of 17-milligram tablets has resulted in a significant portion of patients starting on 17 milligrams and then titrating over time to 34 milligrams. We have employed a physician and patient-centric approach. Our strategy is largely focused on having physicians transition their patients to the 34-milligram capsule at their next regularly scheduled visit. Importantly, we are seeing a vast majority of our new patients be initiated on 34-milligram capsules. Our field team is energized and well positioned to execute on this transition strategy. Following the launch of the 34-milligram capsule and the FDA’s recent statement on NUPLAZID, we recently completed market research across our physician target universe. The findings are good indicators that we are on the right track with our commercial execution. 80% of the respondents were aware of the 34-milligram capsule. Of these respondents, about 50% stated they expect to see an increase in the future use of NUPLAZID over the next three months. The principal reasons listed for moving patients to the 34-milligram capsule were decreased pill burden, improved compliance, patient convenience and ease of administration. During this research, 75% of the respondents also indicated that they were aware of the FDA statement reaffirming the positive benefit-risk profile for NUPLAZID. Of the 75% who were aware, over 50% anticipated increasing their use over the next three months. Looking ahead, we plan to launch a new branded, direct-to-consumer campaign to further stimulate patient and caregiver conversations with their physicians about hallucinations and delusions associated with Parkinson’s disease and NUPLAZID. This targeted campaign will be introduced in the fourth quarter with television commercials featured in programs commonly viewed by our patients and their caregivers. Our previous direct-to-consumer disease awareness campaign was very successful. This awareness was converted into a large increase in new patient starts on NUPLAZID in the first quarter of this year. We believe that this is the right time to initiate a branded campaign. As you recall, last quarter, we provided several metrics on a temporary basis to share current business trends. We will reiterate a few of these metrics with you today to give you an idea of how the business has stabilized and why we are optimistic about future growth. Please turn to Slide 25. We are confident in the actions we’re undertaking to accelerate growth. However, it’s important to remember that it will take more time for the benefit of these actions to achieve their full impact. Typically, when patients are prescribed NUPLAZID at their next regularly scheduled visit, they start with a sample period. This results in a lag to when they are counted as a new patient start. In addition, as with all commercial initiatives, it takes repetition of messaging and it takes physicians time to see their patients, many of whom they see at a 3- or 6-month interval. As you can see, on the left side of the slide in the specialty pharmacy channel, which represents two thirds of our revenue, the slowdown we saw in new patient starts has stabilized and we’re starting to see very early signs of sequential growth. In addition, as we disclosed last quarter, our refills have remained stable. Turning to the long-term care channel on the right side. You can see that we’ve seen continued growth in bottle demand through the third quarter. Our long-term care business tends to respond sooner to our initiatives given that it’s a more contained channel with a quicker feedback loop between physicians, patients and caregivers. The growth observed here and the initiatives we have deployed, including the 34-milligram launch and the upcoming branded DTC campaign, gives us confidence in NUPLAZID’s long-term opportunity in PD Psychosis. I’ll now turn the call over to Elena to discuss our financial performance.

Thank you, Michael. Today, I’ll discuss our Q3 results and our financial outlook. Our year-to-date financial results are available in the press release we issued this afternoon. Please turn to Slide 27. In the third quarter of 2018, we recorded $58.3 million in net sales, an increase of $22.7 million or 64% growth compared to the $35.6 million of net sales in the third quarter of 2017. The gross-to-net discount rate for Q3 was approximately 13%. Our inventory in the channel at the end of Q3 was unchanged from Q2. Moving down the P&L. Total operating expenses, including cost of goods sold, were $119.6 million in the third quarter of 2018 compared to $101.2 million for the same period in 2017. These amounts included $20.2 million and $19.7 million of noncash stock-based compensation expense, respectively. R&D expenses increased to $53.1 million in the third quarter of 2018 from $36.4 million in Q3 2017. The increase was related to increased clinical trial costs and a $10 million upfront payment to Neuren Pharmaceuticals for the North American rights to trofinetide. SG&A expenses are flat at $61.1 million in Q3 2018, compared to $61.6 million in the third quarter of last year and below our guidance of $70 million. The lower-than-anticipated expense was largely the result of a change in timing of costs incurred related to our planned DTC campaign, which will commence in the fourth quarter. Turning to Slide 28. We are increasing the low end of our full year revenue guidance to a new range of $220 million to $225 million from the prior range of $210 million to $225 million. On the expense side, for Q4, we expect R&D expenses to be in the mid-$50 million range, which includes the continued investment in additional pipeline opportunities for pimavanserin, the preparation for the trofinetide Phase 3 program, and the preparation for our Phase 3 program in MDD. SG&A expenses for Q4 are expected to be in the low $70 million range, which includes investments related to our branded DTC advertising campaign for NUPLAZID. Moving on to cash. Our net operating cash burn for Q3 was approximately $42 million compared to approximately $58 million in the third quarter of 2017. We ended the third quarter of 2018 with $214 million in cash and investments on our balance sheet. We anticipate that our cash balance at the end of the year will be between $160 million and $170 million. And with that, I’ll turn the call back over to Steve.

Great. Thank you, Elena. In closing, we achieved a great deal in the past few months. With the very exciting positive Phase 2 CLARITY trial results in MDD, a clear statement from the FDA of reaffirming the positive benefit-risk profile of NUPLAZID, a successful 34-milligram launch and the continued advancement of our late-stage pipeline, we see great opportunities to build on our commercial and R&D momentum as we look towards the future. With that, I’ll now open up the call for questions. Operator?

[Operator Instructions] Our first question is from Cory Kasimov with JPMorgan.

This is Matthew on for Cory. Just one quick one on the commercial front. I’m wondering if you can provide any qualitative color in terms of patient perceptions or dynamics for NUPLAZ following the FDA safety review announcement in late September.

As I mentioned, we did a physician survey, and those results were quite positive. We believe and we have seen that the FDA statement has been very helpful for both patients and caregivers as it builds awareness for NUPLAZID as the only approved medication for hallucinations and delusions. And the advocacy community has really picked this up, put it on the websites and had a number of grassroots conversations with local caregiver and patient groups.

And then sorry if I missed this, but did you guys say how many patients taking the 17-milligram pills converted to the 34 capsule?

We did not. I would say that the majority of the new patient starts, which is the cleanest opportunity when we have a new patient start, a high percentage in the high 80s are starting on the 34 milligram, and we’re converting the 17 existing patients as they come into the office on a regular basis.

Our next question is from Ritu Baral with Cowen.

Serge, you mentioned a couple of times on the previous call and this call that you had very stringent criteria for re-randomizing patients in CLARITY, and that’s why you ended up with so few patients in Stage 2. Can you talk about what those requirements were? And where will you sort of put the screws on conservatism and how that might have changed the patient profile? And I have a follow-up.

Different SPCD trials that are done use a different criteria for re-randomization into Stage 2. Essentially, they fall into 2 categories. One is for patients that have less than 50% improvement on the Hamilton Depression Scale as a single criterion and then they are re-randomized into Stage 2 as they are labeled nonresponders; or the other category is a dual criterion where we say less than 50% reduction on the Hamilton Depression Scale and a minimum threshold of 14 or more on the Hamilton Depression Scale at week 5. So we use this second criteria that is more stringent and resulted in a smaller group of patients that are actually randomized -- who were re-randomized in the second stage.

I’m sorry, Ritu. I know you’ve got another question, but just to clarify, we use both a 50% reduction in HAMD and you have to be 14 or higher on HAMD in order to be re-randomized.

And then do you have any concerns about, I guess, designing and running a couple Phase 3 programs when I guess, the paradigm for depression, especially severe refractory depression, may be changing over the next couple of years if with ketamine, if nothing else?

No, not at all actually. First of all, we will be doing this continued development program for people that inadequately responds to a current background SSRI or SNRI. From that perspective, the hospital intervention with the short-term treatments, such as ketamine in very severe suicidal patients or a Sage compound potentially, would not really affect the patient population that we are targeting in our Phase 3 trial.

So if somebody had previous ketamine experience, you wouldn’t be excluding them from Phase 3?

What is important for us that the treatment that they are currently on, they do not respond adequately to treatment, and they need to be for appropriate duration and with the appropriate dose of treatment. Once those are -- on SSRI or SNRI. When those conditions are met, of course, patients cannot be on other antidepressant treatment at the same time. So that would exclude patients that are in the category of candidates for the esketamine.

Our next question is from Tazeen Ahmad with Bank of America. Your line is open.

I guess, Michael, you talked about the survey work that you’ve done for physicians, all of which indicates that there’s a lot of pent-up demand. You have kept your high end of the guidance at 225 million for the year. And so now that we’re comfortably into the fourth quarter, can you give us some color on what you’re seeing in terms of -- perhaps of acceleration of scripts that came as a result of the FDA making a formal statement on safety? And then I have a follow-up.

Yes, thanks, Tazeen. We have seen, as you can see on the slide, early signs of sequential new patient acquisition. As I mentioned on the call, there is a lag between the efforts that we do in the office due to the sample period and the physician timing to see their patients between converting that into a new patient start. But I believe that we’re building a solid foundation, and that will lead to future acceleration in new patient starts in the coming months.

But the acceleration that you’re seeing in long-term care, I think you said was pretty robust, right?

Yes. As I mentioned on the long-term care channel, we see a much more immediate impact. We also didn’t see quite a dramatic downturn in long-term care. We’re seeing a very good, robust response in long-term care.

Just to add to Michael’s comments, Tazeen, one additional element that’s incorporated in our guidance is the anticipated increase in gross-to-net in the fourth quarter as a result of accruing for the donut hole obligation associated with year-end inventory in the channel.

Okay. Did you sell any of the 10 mg dose this quarter?

Yes.

And have you -- can you give us some color on what percent of scripts that might have been?

It’s a very small percentage, but I don’t think we have as good a detail on the 10 milligram from a script perspective. But from a channel perspective, we did stock some 10. It’s a fairly low percentage.

Our next question is from Jason Butler with JMP Securities.

Just had one on the brand campaign that you’re going to be starting in the next couple of months. Can you just maybe give us some more visibility into what that campaign will consist of and how that will both compare and contrast to last January’s efforts?

Yes. Great question and thanks for the question. Our last campaign, as you remember, was designed to be a disease awareness campaign and really designed to stimulate conversation in the office between physicians, caregivers and patients around Parkinson’s disease psychosis. This campaign is designed to be more solutions-oriented, painting a picture of the benefits of treatment with NUPLAZID. So it will be a campaign that is largely focused on the benefits of treatment with NUPLAZID and will be designed to be really specifically on the solution.

Jason, did you have a follow-up question?

Our next question is from Salveen Richter with Goldman Sachs.

Just in regard to the dementia-related psychosis study that’s reading out in the second half of the year, will you provide -- or next year, would you provide us the number of patients that were initially enrolled before the withdrawal phase and then how many qualified for that phase of the study? Just wondering what details we’ll get around that data read.

I’m going to ask Serge to answer, but I just want to clarify before we do. The dementia-related psychosis study, what we’ve said is that we expect to do the interim read in the second half of next year. The study commenced in the fourth quarter of 2017. We said at that point in time, it would take 2 to 2.5 years for the study. Serge, would you answer the rest of the question?

Yes. What I can say and I was going to make the same clarification, interim analysis, we recall, when we reached half of the pre-specified number of adjudicated relapses, we did not specifically share the detail around the exact numbers of patients. In terms of the patients that enter the open-label treatment period and the stabilization rate, I can tell you that we are running a little bit ahead of our assumptions in terms of the proportion of patients that are successfully completing -- meeting stabilization criteria, both week 8 and week 12, which is a rather stringent criterion for stabilization. So we are randomizing more patients, slightly more patients than what we anticipated initially. Now in terms of the interim analysis, interim analysis is either going to be positive, in which case we will stop the trial and announce results of the trial, or we will continue with the trial till the end but we will not be, at that point, announcing any details in the latter case. I do want to remind everybody that the threshold, statistical threshold, to stop the trial at the point of interim analysis is rather high.

Our next question is from Charles Duncan with Cantor Fitzgerald. Your line is now open.

Congrats on the recent MDD results. I had a question for Serge regarding next steps. I know that you still need to meet with the agency, but looks like given the effect sizes, the pivotal program doesn’t have to be all that large. So beyond just an assumption about effect size, what else would drive the sizing of those Phase 3s? And could you give us a sense, if you had to guess right now, what would both -- be the sizing? Then I had a follow-up.

I will say that we have indeed a luxury of a rather large effect size that we achieved in the Stage 1. And considering that Phase 3 trials were looped exactly in the parallel comparison paradigm just as the Stage 1, we can -- even if we discount for the -- some effect size in a Phase 3 trial, we still can do a smaller trial. So you’re absolutely right, and we will take advantage of that. The additional consideration is really a careful selection of the numbers of sites. And again, the smaller trial -- I mean, this will not be a small trial but a smaller trial than usual, hundreds of patients. Phase 3 trials would give us that advantage as well, as well as carefully selecting the regions in which we will be conducting this trial. So just we -- of course, we have a fairly good idea of what we will be doing but would refrain from publicly sharing that until we have discussions with FDA and settle on the Phase 3 program. But I can say that what we are envisioning would not be much, much larger than what we are -- what we did in the Phase 2 in terms of the size of the trial.

That makes sense. A quick question for Steve. I saw that you’ve received a consumer investigative demand related to marketing. And I guess I’m wondering -- this seems to me a little bit reminiscent of something that Avanir went through several years ago. Maybe it’s not the same, but wondering if you could help us understand sales force marketing practices, compliance practices that ACADIA has in place and who could trigger this if you have any thoughts on this even though it’s new information.

Yes, sure. No, thanks for the question, Charles. We have received the civil document request from the DOJ. And of course, we’ll fully cooperate with them. I think it’s worth noting that our management team and board are committed to a culture of compliance and we aim to foster business practices that are grounded in responsible and ethical behavior, and that encourage people to fully comply with all of the laws and regulations. Of course, just to state the obvious, adherence to these principles is the responsibility of very employee, and it helps assure that we hold ourselves to this very high standard. I think at this point, it’s premature to give a comment on this -- any further comment at this time.

Our next question is from Danielle Brill with Piper Jaffray.

I heard, Elena, you said that gross-to-net will be increased in the fourth quarter. Did you say what it was this quarter?

Yes, this quarter, it was 13%, Danielle.

And then what was the sequential volume growth? And then I have one quick follow-up.

The sequential volume growth was approximately 2% in the third quarter.

And then so now, I think MDD, for most of us, is now derisked. And I’m just thinking about modeling here. How should we think about pricing? Should we keep it in line with pricing for PDP at quite a premium to what’s already available? Any color you can give on that would be helpful.

Thanks for the question, Danielle. Michael’s going to answer that.

As we discussed, there is a significant unmet need in adjunctive MDD, and the trial results that we saw were very, very positive and robust. Based on that, we believe that pimavanserin has the opportunity to be the best-in-class really as an adjunctive agent. It had everything that we wanted or saw from a market research perspective. So it’s a little early to talk about pricing. We’ve been doing a lot of research and appropriate planning, and what we’ve seen in Phase 2 is the profile is really differentiated. We’ll continue to dial up the research in Phase 3, but we’re excited about the potential of the profile, and we believe there’s going to be lots of opportunities to partner with payers to expand access for pimavanserin.

Our next question is from Paul Matteis with Stifel.

This is Ben Burnett on for Paul Matteis. Just 2 quick ones. I guess, first, I just wanted to ask about -- just a question about cash burn. So you mentioned that you have 4 Phase 3s that are slated for 2019 and with Q-over-Q top line growth in the low single digit range. I guess how should we think about the expense runway? And do you anticipate like a need for financing? And I have a follow-up, if you don’t mind.

Sure. Elena, do you want to take that question?

Sure. So we ended 3Q with approximately $214 million in cash and investment securities. And based on our current business plan, including our plan for Phase 3 programs that are ongoing and planned, we expect our cash balance to take us into 2020.

Ben, did you have a follow-up question?

Yes. So just one on your schizophrenia studies. I guess we’re just trying to understand if there’s any read-through that we should assume if one of the studies succeeds onto the other. So I guess, could you speak to the degree of overlap between the ADVANCE study and the ENHANCE study in just in terms of patient population, i.e. to what extent are patients who experience inadequate response to therapy do so because of poor control of their negative symptoms?

Serge?

Yes, the -- yes, absolutely. Thanks for the question. The common feature of both studies is that patients are, on the background, atypical antipsychotics. In case of our ENHANCE study, patients, in spite of their background treatment with antipsychotic, would experience and are required to experience both positive and negative symptoms. So there is no really -- in case of the negative symptoms, patients are required to have a certain severity of negative symptoms but not prominent positive symptoms. So that’s the difference between two trial. So from the perspective of read-through, obviously, we will be able, with the ENHANCE trial and the results of ENHANCE trial, to see what is the impact on negative symptoms subscale in these patients and probably be able to get a better idea on what to expect in the negative symptom trial, but these are two different patient population. I would also say that in our Phase 2 schizophrenia trial, we did see that. We did see that improvement that we saw in the Phase 2 trial in patients that were on background Risperdal low-dose treatment that, that improvement was due to both improvement in the positive symptom subscale and the negative symptom subscale, so the dual action there.

Our next question is from Alan Carr with Needham. Your line is open.

Can you give a sense of proportion that was long-term care and TRICARE this quarter? And then a bigger picture, where do you think you stand in terms of penetration of potential prescribers here?

Our mix for long-term care, if I heard your question correct, was 25% of our total business. TRICARE is not a significant part of our business in the low single digits. Did I answer your question correctly?

Yes. I was just trying to see if that proportion had changed from quarter to quarter, but it sounds like it’s pretty stable.

Yes, pretty stable. And your second question, if you can remind me?

Well, I’m trying to -- a bigger picture question here about where you think you stand in terms of penetration of potential prescribers here. Do you feel like you have a lot of room to grow here still?

Oh, yes. So I mean, I look at it in two ways; in terms of the prescriber base, lots of opportunities in targeting and penetrating the prescriber universe. We have good coverage of the relevant decile positions. But more importantly, in terms of patients, we’re right around 10% to 12% of the patient opportunity. So we have a lot more opportunity to penetrate the market in PDP.

And we have time for one more question from Tazeen Ahmad with Bank of America. Your line is open.

Just to clarify on your balance sheet. Before, your comment that you have enough on cash on hand to take you into 2020, does that assume that you would also be able to fund the trials that you’ve talked about in the next couple of years, whether they’d be DRP or MDD and beyond?

So that assumption includes the MDD program, DRP schizophrenia and trofinetide. With regards to MDD, we’ve obviously made some assumptions. And as Serge finalizes that plan, we’ll have more specifics, which will reflect in our cash consumption.

Okay. And then just one question on the quarter. Was there any impact at all from inventory?

No, inventory was flat quarter-over-quarter.

Thank you. Mr. Davis, please proceed to closing remarks.

Great. Thank you, operator. As always, we appreciate the dedication and hard work of all of our employees who are committed to improving the lives of patients and caregivers with CNS disorders. We look forward to updating you on our progress next quarter.

Thank you for your participation in today’s conference call. This does conclude the presentation. You may now disconnect. Good day.