Axsome Therapeutics, Inc. (AXSM) Q3 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to Axsome Therapeutics Third Quarter 2018 Financial Results Conference Call. Currently, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to your host, Mark Jacobson, Senior Vice President of Operations at Axsome Therapeutics. Please go ahead.

Thank you, operator. Good morning and thank you all for joining us on today’s conference call to discuss Axsome Therapeutics 2018 third quarter financial results. A press release providing a corporate update and details of the company’s financial results for the third quarter ended September 30, 2018 crossed the wire a short time ago and is available on our website at www.axsome.com. During today’s call, we will be making certain forward-looking statements. These statements may include statements regarding among other things the efficacy, safety and intended utilization of these investigational agents, our clinical and non-clinical plans, our plans to present or report additional data, the anticipated conduct and the source of future clinical trials, regulatory plans, future research and development and possible intended use of cash and investments. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our periodic filings made with the Securities and Exchange Commission, including our quarterly and annual reports. You are cautioned not to place undue reliance on these forward-looking statements which are only made as of today’s date and the company disclaims any obligation to update such statements. Joining me on the call today are Dr. Herriot Tabuteau, Chief Executive Officer; Nick Pizzie, Chief Financial Officer; and Dr. Cedric O’Gorman, Senior Vice President of Clinical Development and Medical Affairs. Dr. Tabuteau will first provide a pipeline update and a review of upcoming milestones, Cedric will then provide further detail on the progress of our clinical studies and Nick will review our third quarter financial results. We will then open the call for questions. I shall now turn over the call to Herriot.

Thank you, Mark. Good morning everyone and thank you all for joining us today. The past several months have been a highly productive period for Axsome. We advanced our ongoing clinical trials, broadened our CNS pipeline with the announcement of a new product candidate, extended our cash runway in front of upcoming clinical catalysts and position our non-core CNS product candidates for enhanced value creation. We have continued to highlight our technology at a number of medical conferences and held two R&D key opinion leader events to further the understanding of the important diseases we are targeting and the potential of our product candidates to addressing them. Our growing CNS portfolio now includes AXS-05, AXS-07, AXS-09 and AXS-012. We continue to successfully advance the ongoing clinical trials with our lead CNS product candidate AXS-05 in treatment resistant depression, Alzheimer’s disease agitation, major depressive disorder and smoking cessation treatment. AXS-05 possess novel mechanisms of action including glutamatergic, monoaminergic and anti-inflammatory properties. We are pleased to announce that a) that we now expect the final results from the STRIDE-1 Phase 3 trial of AXS-05, a treatment resistant depression in the first quarter of 2019. This is a change from our prior guidance of the first half of 2019, the acceleration and timeline results from our decision to forego the previously planned second interim analysis for this trial in favor of a final analysis. Foregoing the second interim analysis preserve statistical power and with a lower than expected observed dropout rate enables a reduction in the total planned number of subjects for the trial. Moving on to Alzheimer’s disease agitation, for the Phase 2-3 trial of AXS-05 and Alzheimer’s disease agitation we are on track to report the results of the planned interim analysis for futility this quarter. With regards to the Phase 2 trial of AXS-05 in major depressive disorder, enrollment in this trial is nearly complete and we expect top line results around year end. This trial may provide us the first indications of the potential efficacy of AXS-05 in mood disorders. Our next product candidate is AXS-07, which we are developing for the acute treatment of migraine. AXS-07 is a novel oral investigational medicine that consists of MoSEIC Meloxicam and rizatriptan. Meloxicam is a new molecular entity for migraine enabled by Axsome’s MoSEIC technology which resulted in rapid absorption of Meloxicam while maintaining a long plasma half life. Preparations are underway to initiate our planned Phase 3 trial of AXS-07 in acute migraine in the fourth quarter of 2018 to the first quarter of 2019. We have slightly broadened the range of guidance for the start of this trial to ensure the most robust manufacturing process ahead of our trial start since only one Phase 3 trial maybe required for NMDA filing of AXS-07. Adding on to our already broad pipeline, we recently announced our newest CNS product candidate AXS-12, which we are developing for the treatment of narcolepsy. AXS-12 is the novel, oral, highly selective and potent norepinephrine reuptake inhibitor. Narcolepsy is the serious and debilitating neurological condition characterized by excessive daytime sleepiness and cataplexy which is a sudden reduction or loss of muscle tone while a patient is awake. The potential utility of AXS-12 in narcolepsy is supported by positive pre-clinical and preliminary clinical results in narcolepsy as well as an extensive positive clinical safety record for the active agent in AXS-12 in Europe and in over 40 countries where it is currently approved for the treatment of depression. We received orphan drug designation from the FDA for AXS-12 for the treatment of narcolepsy. We anticipate starting our Phase 2 trial of AXS-12 in patients with narcolepsy in the fourth quarter of 2018 with top line results anticipated in the first half of 2019. Overall, our late stage CNS pipeline now consists of four product candidates which still will be in six efficacy trials in six different indications. Our recently completed equity financing with institutional investors will allow us to continue to advance these various programs ahead of several important clinical milestones. To review these upcoming milestones, for the Stride-1 trial of AXS-05 in treatment resistant depression we anticipate final top line results in the first quarter of 2019. For the Advance-1 trial of AXS-05 in Alzheimer’s disease agitation, we anticipate an interim analysis for futility in the fourth quarter of 2018 and an interim analysis for efficacy in 2010. With the ASCEND trial of AXS-05 in major depressive disorder we anticipate top line results around year end. For the Phase 2 trial of AXS-05 in smoking cessation, we expect top line results in the first quarter of 2019. For AXS-07 we anticipate starting a Phase 3 trial in the acute treatment of migraine in the fourth quarter of this year to the first quarter of 2019. For AXS-12 we anticipate starting a Phase 2 trial in the treatment of narcolepsy in the fourth quarter of 2018 with top line results expected in the first half of 2019. Before I turn it over to Cedric to provide further detail regarding our ongoing clinical programs, let me say a few words about our non-CNS portfolio. Last month, we announced the creation of a new business unit which we call Axsome Pain and Primary Care to house, manage, develop and enhance the value of Axsome’s non-CNS assets, a pain in primary care assets in this business unit include three Phase 3 stage product candidates and over 145 related patents. These product candidates are being developed for five different indications including the signs and symptoms of osteoarthritis and rheumatoid arthritis. Osteoporosis, a pain of knee osteoarthritis, chronic low back pain and complex regional pain syndrome. Two product candidates AXS-06 and AXS-02 are being developed directly by Axsome and one of the product candidates neridronate is covered by Axsome’s intellectual property portfolio. These non-core assets are source of potential value for Axsome shareholders. The new structure provides clear communication of the potential of these assets and facilitates the business development activities related to them. Now, a more detail regarding our ongoing clinical programs, I will turn the call over to Cedric for a review. Cedric O’Gorman: Thank you, Herriot. I will now discuss some of our recent clinical and scientific updates. Enrollment in our Stride-1 trial of AXS-05 in treatment resistant depression is ongoing and we now expect final top line results in the first quarter of 2019. In April 2018 Stride-1 passed the successful interim analysis for futility which was conducted by an Independent Data Monitoring Committee or IDMC. The IDMC recommended that the trial continue and indicated that AXS-05 was safe and well tolerated. The second interim analysis for efficacy was planned. While the target enrollment for the second interim analysis has been achieved, this interim analysis will not be performed, however in favor of the final analysis at approximately 250 subjects. Foregoing the second interim analysis preserves statistical power and with a lower than expected observed dropout rates enables a reduction in the total planned number of subjects for the trial. To-date, approximately 80% of the new target number of subjects have been randomized. We are pleased with the ongoing clinical conduct of the STRIDE-1 trial as we aim to find better treatment options for patients suffering from treatment resistant depression, a significant proportion of patients with major depressive disorder are treatment resistant having previously failed two or more therapies. There are a limited treatment options available for these patients. ASX-05’s multiple mechanisms targeting glutamatergic, monoaminergic and anti-inflammatory pathways may offer a unique therapeutic approach for this serious condition. To further explore the anti-depressive potential of AXS-05 in a broader population of depressed patients, we initiated the trail in major depressive disorder or MDD in June of 2018. We refer to this trial as the ASCEND trial or assessing clinical episodes in depression trial. The ASCEND trial is a Phase 2 randomized active controlled multi-centric trial of AXS-05 in MDD. Approximately 74 patients will be randomized in a 1 to 1 ratio to receive AXS-05 or bupropion for six weeks. Assessments will be conducted throughout the study include safety parameters, the Montgomery-Åsberg Depression Rating Scale or MADRS, other clinician rated scales as well as patients reported outcome measures. We believe that data from this study may allow us to further characterize the potential utility of AXS-05 in the treatment of mood disorders. Enrollment for this study is nearing completion and we are on track to report top line results from the ASCEND trial around year end. Our Phase 2/3 trial of AXS-05 for agitation associated with Alzheimer’s disease is ongoing. We have planned for an interim futility analysis on the first 30% of target subjects randomized and this interim analysis is anticipated in the fourth quarter of this year. Furthermore, a second interim analysis for efficacy is planned for 2019 and top line data are expected in the second half of 2019 to the first half of 2020. We are pleased with the ongoing clinical conduct of the ADVANCE study in Alzheimer’s disease agitation. Last month, we hosted a Research and Development Day or R&D Day with key opinion leaders focusing on AXS-05 and unmet needs in Alzheimer’s disease agitation. The events featured presentations from two leading experts in the area of Alzheimer’s disease, Dr. Jeffrey Cummings from the Cleveland Clinic and Dr. Clive Ballard from the University of Exeter in England. Doctors Cummings and Ballard discussed the clinical features of Alzheimer’s disease agitation, the current treatment options and the potential of AXS-05 in this serious condition. There are currently no FDA-approved medications for the treatment of Alzheimer’s disease agitation. Turning to our AXS-07 product candidate, preparations for our Phase 3 trial are underway. We expect this to be a 4-arm trial with subjects being randomized to AXS-07, placebo or the individual components of AXS-07. We expect to launch this trial in the fourth quarter of 2018 to the first quarter of 2019, and would expect to have top-line results within a year of launching the study. We look forward to providing further details on the design of this trial in the near future. On October 16, we announced our newest CNS product candidate, AXS-12, which we’re developing for the treatment of narcolepsy. Narcolepsy is a serious debilitating orphan neurological condition characterized by excessive daytime sleepiness and cataplexy. Cataplexy is a sudden reduction or loss of muscle tone while a patient is awake, which can affect specific parts of the body or the entire body. Unfortunately, currently approved treatments are few for this underdiagnosed orphan condition and are limited by variability and efficacy from patient-to-patient, tolerability issues, and the need for DEA scheduling. AXS-12, which has received Orphan Drug Designation by the FDA is a highly selective and potent norepinephrine reuptake inhibitor, that has the potential to address the key symptoms of narcolepsy. Concurrent with our announcement of this new product candidate, we hosted a Key Opinion Leader Conference Call with doctor Michael Thorpy, Professor of Neurology at Albert Einstein College of Medicine and a leading expert in the field of sleep medicine and narcolepsy in particular. Doctor Thorpy reviewed the clinical features and treatment landscape for the serious condition and the potential of AXS-12 to address the symptoms of narcolepsy. We look forward to evaluating the effect of AXS-12 in patients with narcolepsy and anticipate initiating a Phase 2 trial in the fourth quarter of this year with top-line results anticipated in the first half of 2019. Turning now to scientific presentations, since our last earnings conference call, we have delivered a number of oral and poster presentations focusing on our product candidate portfolio at the CNS Summit in November, the World Congress of Psychiatry in Mexico City in September, the Annual Meeting of the European College of Neuropsychopharmacology in Barcelona, Spain in October, and the International Association for the Study of Pain Meeting in September. We look forward to continuing to drive all of our clinical programs forward and to providing further updates as they progress. I would now like to turn the call back over to Herriot.

Thank you, Cedric. I would now like to turn the call over to our Chief Financial Officer, Nick Pizzie, who’ll review the company’s current financial position.

Thank you, Herriot, and good morning, everyone. I will now cover our third quarter 2018 financial results. Let me start with a financing update. Last month Axsome completed a registered direct offering of 2,966,667 shares of its common stock at a purchase price of $3 per share with existing and other institutional accredited investors. The net proceeds from the offering were approximately $8.8 million. As of September 30, 2018, our cash balance was $15.2 million. On a pro forma basis to include the proceeds from the registered direct offering which closed on October 1, our cash balance was $23 million as compared to $20.4 million as of June 30, 2018. Turning to the statement of operations. Research and development expenses were $6 million for the third quarter ended 2018 as compared to $4.5 million for the comparable period in 2017, an increase of $1.5 million. The increase of $1.5 million was primarily due to our STRIDE-1, ADVANCE-1, and ASCEND studies along with ramp-up costs related to AXS-07, which was partially offset by a reduction in the cost of our previously initiated clinical trials of AXS-02. General and administrative expenses were $2.2 million for the third quarter of 2018 and $1.8 million for the comparable period in 2017, an increase of $0.4 million. The increase was primarily due to higher intellectual property and legal expenses, external fees associated with operating as public company as well as an increase in personal costs. Overall, operating expenses in the third quarter of 2018 increased by $1.9 million to $8.2 million as compared with $6.3 million in 2017. Interest and amortization of debt discount expense was $0.3 million for the third quarter 2018 and 2017, which was associated with our loan and security agreement with SVB. In conclusion, the company incurred a net loss of $8.3 million or $0.31 per share for the third quarter of 2018 as compared to a net loss of $6.4 million or $0.27 per share for the comparable period in 2017. We believe that our current cash position will be sufficient to fund our anticipated operating cash requirements into the first quarter of 2020. Importantly, we believe that our current financial resources will take us through the next several major clinical milestones including the final results of the Stride-1 trial for treatment resistant depression both interim analysis for the ADVANCE-1 trial and agitation associated with Alzheimer’s disease, top line results from the ASCEND Phase 2 trail of AXS-05 in major depressive disorder, top line results from the Phase 2 trial of AXS-12 in narcolepsy, top line results from the Phase 2 trial in smoking cessation and top line results from our Phase 3 trial of AXS-07 for the treatment of migraine. That concludes our third quarter 2018 financial review. I will now turn the call back to Mark to lead the Q&A discussion.

Thank you, Nick. Operator, can we please have our first question.

Thank you. [Operator Instructions] Our first question comes from Bert Hazlett of BTIG. Your line is open.

Thank you. It’s going to be an excited couple of months for the [indiscernible] we are looking forward to the data readouts. Two quick questions and there is some background noise so that I am going to ask them together and then I will jump off, you have got the depressive disorder readout coming around year end, is there any read-through to the MDD – from the MDD readout to the treatment resistant depression readout that’s kind of question one. And question two is with regard to migraine in AXS-07, could you just describe how large a study that is and could you repeat I think I heard in the opening remarks Herriot that you said you might only need a single trial for that, I would love to hear some additional clarity or comments around the AXS-07 trial in migraine. Thank you.

Good morning, Bert and thank you for the questions. So with regards to the first question around MDD and potential read-through to TRD, we are really looking forward to the results for the MDD trial. We are excited about the mechanism of action of AXS-07 in depression. And as a reminder it does include a novel mechanism of action which is the glutamatergic mechanism of action. So certainly this will be the first look that we have at the potential of AXS-05 to have any effect in depression in a clinical study. So there is a clearly – if the results are positive that would be a good sign for TRD trial. Having said that, I must remind you that the patient populations are somewhat different in the MDD trial, this is the front line study whereby patients come in and they have not failed two prior treatments, which is the case for the TRD trial. The TRD trial, this is definitely a patient population which is much harder to treat. And the other thing that I would like to point out in terms of the difference between the two trials is that for the MDD trial, because it is a frontline study, we would expect both arms to get better. We are using an active control which is bupropion, which is known to work in major depression disorder. For the TRD trial on the other hand while we are using the same control group. While we are using bupropion as a control, we are showing that patience failed bupropion prior to being randomized. So that’s a competitive answer, but there are these differences between the design of the two trials. So I hope that that helps you to at least I think about what the potential read-through might be between the two studies. So it’s –

Thank you. That’s helpful. And then the migraine question?

Sure. With regards to the migraine study, the comment that I made, it had to do with the fact that, that we believe that they’re worth a potential to file an NDA with just one Phase 3 trial for migraine. And that’s based upon preliminary communications, written communications that we’ve had from the FDA, as well as also hits in the FDA’s new guidance, four developing products for the acute treatment of migraine. And you also asked the question about the size of the study. Now we’re making preparations to launch the Phase 3 trial with AXS-07 in migraine and we will be providing greater clarity, greater precision around the size of the study in the very near future.

Your next question comes from Matt Kaplan of Ladenburg. Your line is open.

Hi, good morning, guys, and congrats on all the progress during the quarter and looking forward to these near-term or in case relatively near-term read-outs. I wanted to ask you a little bit about the – if you could remind us of the – now the powering assumptions with respect to STRIDE-1 given that you’re going to go, you’re going to have the final analysis of that Phase 3 study now in the first quarter. Can you remind us of the powering for that study? Cedric O’Gorman: Thanks, Matt. This is Cedric. We’re excited by the mechanism of action at AXS-05, which includes four different antidepressant mechanisms, including the novel [indiscernible] MoA. And we’ve been very pleased with the ongoing progress and clinical conduct of the STRIDE-1 study, as well as its robust trial design. So as a reminder, we’ve incorporated an open-label bupropion lead-in, and we’ve also ensured that bupropion is the only arm in the control arm. So as a result of that, we’re ensuring that the patients that are enrolled into STRIDE-1 are truly treatment-resistant, but the variability has reduced and that the assay sensitivity has increased. So, given that we’re preserving statistical power with – now with the elimination of the interim analysis, as well as the lower-than-expected observed drop-out rate that we’ve seen in STRIDE-1, we believe that we’re retaining the power required to detect an efficacy signal in the study with this lower – this new lower target number of subjects.

Right. And if I may add Cedric, Matt, as a reminder, the initial powering of the trial was at the 90% level to detect an effect size which is to determine to what has been observed with currently approved antidepressant drug, in other words, drugs which have shown efficacy in a depressed population. And as Cedric mentioned, by forgoing the interim analysis by preserving power with the – also significantly lower-than-expected drop-out rate in the trial, as well as what we believe to be a robust trial design. And our satisfaction with the conduct of the study thus far, we believe that, that we’ll retain sufficient power to demonstrate efficacy should there be a efficacy to be demonstrated with our drug.

Okay, very good. And I guess, you’ve gone over already the MDD expectation and timeline there. Could you help us understand in terms of the other near-term read-outs? What you’re looking for in terms of the smoking cessation in the first quarter, and then also the, I guess, futility analysis for the agitation associated with Alzheimer’s disease in the fourth quarter. What should be – what are the potential outcomes there after that? Cedric O’Gorman: Well, I’ll take the question Matt on smoking cessation. So this is a collaboration with Duke and they’re running the study and we expect top-line data in the first quarter. And specifically, the primary endpoint in that study is looking at the potential for AXS-05 versus bupropion to reduce smoking intensity behavior and that’s measured a number of ways, including number of cigarettes smoked, as well as a salivary cotinine test. And then there is also – since this population is patients who are interested in quitting smoking, there is also an abstinence test incorporated into this as well. So it will give us an understanding of AXS-05’s ability both to reduce smoking intensity behavior, as well as enable subjects to abstain from smoking. And just as a reminder, AXS-05 incorporates dextromethorphan and bupropion. And dextromethorphan has demonstrated the pre-clinical data showing a reduction in nicotine-seeking behavior in nicotine-dependent animal, and as you know bupropion already has an approval for the treatment of smoking cessation. So we’re hopeful that these mechanisms maybe synergistic as we look at – look forward to the read-out in the first quarter of 2019.

And Matt, this is Herriot. So with regards to the expectations around the interim analysis for the Alzheimer’s disease agitation trial, this is an interim analysis, which will be conducted by an independent data monitoring committee. It won’t be conducted for futility. This will be a futility analysis, which will be based upon looking at efficacy parameters, because it will be conducted by the independent data monitoring committee, the company obviously will remain blinded to the actual data. So, what we’re looking for are two potential outcomes, one outcome is that the study could be recommended to continue based upon that analysis, and the other potential outcome is that the study could be recommended to be stopped for futility.

Got it. Okay. Well, thanks for taking the questions, and again, congrats on all the progress.

Thank you. Cedric O’Gorman: Thanks.

[Operator Instructions] Your next question comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is open.

Hi, good morning. This is Julian on for Ram. Thanks for taking my questions. First, assuming positive data, are you able to talk about how AXS-05 for major depressive disorders likely to be positioned from a pricing standpoint along with the likelihood that this indication would be an internal commercial launch?

Thank you, Julian for the question. And we have given guidance on – not guidance, but we have given an indication – an indication in the past in terms of the potential, the commercial potential for AXS-05. We’ll leave it to the analysts right now to determine what they think appropriate pricing could be, but certainly, internally, we have thoughts around that, but it’s premature at this point to make those thoughts public.

Okay, sure. Got it. Moving on, how should we be thinking about AXS-12 on mechanistic grounds as it compares to [indiscernible]?

So with regards to AXS-12, as a reminder, the mechanism of action for AXS-12 is that it is a highly potent and selective norepinephrine reuptake inhibitor. So that mechanism of action is different from a mechanism of action of [indiscernible]. So we’re excited about the norepinephrine mechanism of action based upon not only strong data with the active agent in AXS-12, reboxetine in orexin-deficient animals, which is a well-validated genetic model of narcolepsy, but also a lot of work that has been done in the canine genetic model of narcolepsy looking at various agents with various levels of norepinephrine reuptake inhibition. So, mechanistically we think that, that the pre-clinical data are very strong and also some preliminary clinical data would indicate the potential for AXS-12 to address two of the key symptoms of narcolepsy. Those are cataplexy as well as excessive daytime sleepiness. So further with regards to the profile of the product as compared to other agents that are out there, one thing that we feel pretty certain about is the potential for the lack of DEA scheduling. So we don’t expect AXS-12 to be DEA-scheduled as compared to all the currently approved agents that are DEA-scheduled. With regards to other potential features of the product that’s why we are conducting the clinical trial. So we are looking forward to launching our Phase 2 trial in the fourth quarter of this year, so very shortly. And then we are looking forward to data readout from that in the first half of 2019.

Okay, great. Thanks for that. And my last question, I am just curious if there have been any updates on the Grünenthal front recently and are you still open to licensing anything else in the near-term?

So with regards to the updates on the Grünenthal front, there are really no major updates. Just as a reminder, Axsome has a very large intellectual property portfolio which consists of over 145 patents. And these patents cover our pain in primary care assets and of those 145 patents we have now over 20 patents which cover specifically neridronate. Neridronate is an intravenous bisphosphonate compound which has been developed for a number of indications. One of which is complex regional pain syndrome. And it is in now two large Phase 3 trials in complex regional pain syndrome. Those are being conducted by Grünenthal. And our patents cover the use of neridronate in complex regional pain syndrome. Specifically, we have 10 patents that specifically cover complex regional pain syndrome. Now, Grünenthal has filed post grant reviews on the patents covering CRPS, so that would indicate that they believe that those patents have value.

Okay, got it. And then for my last question, are you I guess open to licensing anything else in the near-term?

So we are always looking to further our mission which is to develop drugs to treat difficult to treat CNS disorders. So we will of course always leave the door open to bring in additional assets. But right now we are focused on really advancing our core portfolio. And as a reminder those include AXS-05, AXS-07 and then most recently AXS-12. So we have a full plate right now and what we would like to do is to focus on advancing clinical trials for those programs.

Thanks very much.

There are no further questions at this time. I will turn the call back over to the presenters.

Well, great. Thank you all for joining us today on the call. We are committed to finding safe and effective treatment that can make a significant difference for patients suffering from prevalent and disabling CNS disorders. We are pleased with our continued progress so far in 2018 and we anticipate the reminder of the year will be busy and exciting as we focus on achieving our objectives. We look forward to informing you with our progress in the months ahead. Thank you again and operator you may now disconnect the call.

Thank you. That concludes today’s conference call. You may now disconnect.