Axsome Therapeutics, Inc. (NASDAQ:AXSM) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good morning, and welcome to the Axsome Therapeutics Conference Call. Currently, all participants are in listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mark Jacobson, Chief Operating Officer at Axsome Therapeutics. Please go ahead.

Mark Jacobson: Thank you, operator. Good morning, and thank you all for joining us on today's conference call. This morning, we issued our earnings press release providing a corporate update and details of the company's financial results for the full year and the fourth quarter of 2022. The release crossed the wire a short time ago and is available on our website at 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 our 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 plans, our commercial plans regarding Sunosi, Auvelity and our pipeline products, revenue projections 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; Lori Englebert, Executive Vice President of Commercial and Business Development.

Herriot will first provide an overview of the company, and then review progress made during 2022 and the fourth quarter as well as upcoming milestones. Following Herriot, Nick will review our financial results, and then, Lori will provide a commercial update, including details on the first quarter of Auvelity, sales and our second quarter with Sunosi. We'll then open the line for questions. Questions will be taken in order they are received. And with that, I will turn the call over to Herriot.

Herriot Tabuteau: Well, thank you, Mark. Good morning, everyone, and thank you all for joining Axsome Therapeutics year end and fourth quarter 2022 financial results and business update conference call. 2022 was a transformative year for Axsome as we successfully transitioned two commercial stage and deliver on our goal to become a leading CNS-focused biopharmaceutical company. Now with two differentiated products, Auvelity and Sunosi commercialized, encouraging early launch metrics of Auvelity, abroad and advancing late-stage pipeline, and a strong financial position, Axsome is well positioned to continue to deliver significant value to patients and shareholders. The fourth quarter was an important milestone for Axsome, as it is the first quarter with sales for both Auvelity and Sunosi.

Total net product sales in the quarter was strong at $24.4 million. Later, Nick and Lori will provide further details on our financial and commercial performance. To improve these updates, I'd like to start by taking -- by talking about the topic that brings us all here, which is making a difference for patients. In just more than a quarter, Auvelity has already been prescribed 2,000s of patients and we have seen repeat prescribing by HCPs and refills by patients. Lori will provide additional perspective later. But these observations suggest that the unique mechanistic and clinical profile of Auvelity is having a positive impact on the treatment landscape for major depressive disorder and making a meaningful difference to the lives of MDD patients.

Furthermore, with just half a year of Sunosi sales that will be excellent efforts, we've seen steady growth both in the U.S. and overseas. We view the potential for Sunosi in the current indication which is largely contact leading room for significant potential for future growth. Just last week, we announced an important licensing deal for Sunosi's (ph) providing our lead partner formula via, commercial rights to Sunosi in Europe and certain countries in the Middle East and North Africa. Pharmanovia shares our excitement and commitment to maximize potential of Sunosi for patients worldwide maybe a strong commercial platform is well suited to expand the availability of an access for this important treatment in the licensed region. In addition to our clinical progress, our broad late stage seen as pipeline continues to advance, positioning us to drive further significant value creation in 2023 and beyond.

Our leading CNS pipeline improves the effects of AXS-07 for migraine, AXS-05 for Alzheimer's disease agitation and for smoking cessation, AXS-12 for narcolepsy, AXS-14 for fibromyalgia for solriamfetol for ADHD. In the fourth quarter and subsequently, we made significant progress in Alzheimer's disease agitation program, AXS-05 (ph) including the announcement of positive top line results for the ACCORD trial, advanced on the ADVANCE-2 trial and obtaining FDA feedback on our development plan for AXS-05 in this cessation. With regards to ADVANCE-2, our parallel group trial, based on recent enrollment trends, we now anticipate completion of this trial in the first half of 2024 versus our prior guidance of mid-2025. Given all the progress in Alzheimer's disease agitation program, we're recently saw and received feedback from the FDA on the registration front.

The FDA requested generation of additional safety experience with AXS-05 in this elderly population, including placebo-controlled safety information from the ongoing ADVANCE-2 trial, as well as long-term safety data in the target patient population consistent with ICH E1 guidelines. Based on this feedback, the company intends to submit an NDA for AXS-05 after completion of the ongoing ADVANCE-2 and open label safety extension trial. In parallel, we expect to initiate a Phase 2/3 trial of AXS-05 in smoking cessation in the fourth quarter of 2023. With regards to AXS-07 for the acute treatment of migraine, manufacturing activities related to the planned resubmission of the NDA for this product candidate are ongoing, and we expect the resubmission to occur in the second half of this year.

For AXS-12, our product candidate for the treatment of narcolepsy, enrollment in the pivotal Phase 3 SYMPHONY trial is progressing, and top line results are expected in the first half of 2023. As a reminder, AXS-12 has been granted to Orphan Drug designation by the FDA for the treatment of narcolepsy. Our AXS-14 product candidate for fibromyalgia is also progressing with manufacturing and activities related to the preparation of the planned NDA submission ongoing, and we expect to submit the NDA for this product candidate in 2023. With regard to Solriamfetol or Sunosi for the treatment of ADHD, we are preparing to initiate a Phase 3 trial in this indication in the first half of 2023. In the fourth quarter, we also shared positive top line results from the SHARP trial, demonstrating improving the cognitive function with solriamfetol treatment and highlighted new mechanistic data for solriamfetol .

These results further highlight the clinical potential and differentiated pharmacology of this molecule. As you can see, the Axsome team is busy and continues to be excited as we prepare to deliver ongoing commercial success and potentially hit on multiple pipeline milestones, including clinical trial readouts and initiations, NDA filings in the next 12 months to 18 months. I will now turn the call over to Nick, who will review our financial results.

Photo by Myriam Zilles on Unsplash

Nick Pizzie: Thank you, Herriot, and good morning, everyone. Today, I'll discuss our fourth quarter and full year results and provide some financial guidance. Total revenue in the fourth quarter of '22 was $24.4 million, consisting of net sales of our two commercialized products of Auvelity and Sunosi. There were no net sales in the comparable prior period. Auvelity was launched in the fourth quarter on October '19, and for the partial quarter generated net sales of $5.2 million. Sunosi generated total net sales to Axsome of $19.2 million in the fourth quarter, consisting of U.S. net sales of $18.3 million and international net sales of $900,000. Because the ex-U.S. acquisition of Sunosi closed on November 14, the reported international net sales reflect the first quarter.

Total revenue for the full year of 2020 was $50 million. Again, there were no reported sales for the prior year because of the acquisition of Sunosi and the launch of Auvelity both occurred in '22. For the full year of 2022, Auvelity net sales were $5.2 million. For the full year 2022, Sunosi generated total net sales to Axsome of $44.8 million, consisting of U.S. net sales of $43.9 million and international net sales of $900,000. As a reminder, the U.S. portion of the acquisition of Sunosi was completed on May 9. Cost of product sales were $2.3 million and $5.2 million for the fourth quarter and full year of 2022, respectively, compared to none in the prior year. Research and development expenses were $14.7 million and $57.9 million for the fourth quarter and full year 2022, respectively, and $13.8 million and $58.1 million for the comparable period in 2021.

The increase for the fourth quarter was primarily related to higher costs associated with ongoing clinical trials including post-marketing commitments for Sunosi and Auvelity. Selling, general and administrative expenses were $61.5 million and $159.3 million for the fourth quarter and full year of 2022, respectively, and $18.8 million and $66.6 million for the comparable period in 2021. The increases for the fourth quarter and full year were primarily related to commercial activities for Sunosi and Auvelity, including sales force onboarding, marketing spend as well as higher non-cash stock compensation expense. Net loss for the fourth quarter of 2022 was $61.2 million or $1.41 per share compared to a net loss of $34 million or $0.90 per share for the comparable period in 2021.

The net loss for the fourth quarter included $10.8 million of non-cash stock compensation expense compared to $5.9 million in the comparable period in 2021. Net loss was $187.1 million or $4.60 per share for the full year of 2022 compared to a net loss of $130.4 million or $3.47 per share for the comparable period in 2021. The net loss for the full year of 2022 included $37.7 million of non-cash stock compensation expense compared to $20.8 million for the full year of 2021. We ended the year with $201 million in cash and equivalents compared to $86.5 million as of December 31, 2021. During the fourth quarter, we did not utilize our facility. In January of 2023, we amended our loan agreement with Hercules Capital to increase the size of the facility to $350 million to reduce the interest rate and to extend the maturity and interest-only periods while accessing a $55 million tranche.

Additionally, in February of 2023, the company received approximately $66 million from the out-licensing of ex-U.S. Sunosi rights. Inclusive of these events, our pro forma year-end cash balance now exceeds $300 million. We believe that our current cash balance, along with remaining committed capital from the $350 million term loan facility with Hercules Capital is sufficient to fund anticipated operations into cash flow positivity based on our current operating plan. I will now turn the call over to Lori, who will provide a commercial update.

Lori Englebert: Thank you, Nick. Q4 was certainly an exciting quarter for Axsome with the launch of Auvelity and the continued relaunch of Sunosi. Both of our commercial products address serious, highly prevalent conditions and bring meaningful innovation to millions with potential patients. We are pleased with our commercial progress on Sunosi. And although it is still early days, we are encouraged by Auvelity launch progress. I will share our key metrics from our commercial efforts for both brands, starting with Sunosi followed by Auvelity. As a reminder, Sunosi is the first and only the DNRI for excessive daytime sleepiness and obstructive sleep apnea and narcolepsy and the first and only wake promoting agent proven to improve wakefulness through 9 hours.

In the fourth quarter, total prescriptions for Sunosi in the U.S. grew 11% year-over-year and 1% quarter-over-quarter. For the full year 2022, U.S. federal Sunosi prescriptions showed strong growth with an increase of 21% versus 2021. The total prescription split by the diagnosed patient population for Sunosi is 70% for EDS due to OSA and 30% for EDS due to narcolepsy. Payer coverage for Sunosi remains broad with 96% of commercial lives and 83% of total lives covered. The growth potential for Sunosi in the currently approved indication remains substantial. Sunosi currently has only a 2% share of drug-treated OSA patients and a 7% share in drug-treated narcolepsy patients. Sunosi is the only branded therapy available for patients who suffer from EDS and OSA and we expect increased and enhanced promotional and disease education efforts to drive market share growth for the product in 2023 in the U.S. With recently announced licensing of ex-U.S. marketing rights for Sunosi to Pharmanovia, we are well positioned to increase the availability of this important treatment to patients worldwide.

Turning to Auvelity. We launched Auvelity on October 19 and despite launching in Q4, a traditionally challenging quarter due to multiple holidays. We saw early signs of encouraging uptake with our initial HCP adopters. With only a tangible lease of promotion in Q4, 2,200 unique HCPs for prescriptions for over 6,000 new patients. Those metrics have grown to 4,300 unique HCP writers and over 13,700 new patients since launch. Importantly, HCPs who have written ability are gaining critical early clinical experience and are reporting promising patient response that is consistent with that -- with what we saw in clinical trials with many reporting that we're seeing rapid onset of action and rapid achievement of remission. With regards to payer coverage, the commercial channel is expected to be the primary channel for Auvelity as it accounts for more than 60% of antidepressant prescription item.

Interactions with commercial payers as it relates to Auvelity have been active and productive. Effective January 2023, we have contracted with one of the largest group purchasing organizations, or GPO's, for potential coverage of Auvelity. As a result, pharmacy benefit managers or PBMs and health plans under this GPO will now be able to make formulary coverage decisions for Auvelity based on the contracted terms. These interactions with commercial payers are proceeding as expected during the standard six to nine month period post-launch when new drugs are blocked, while coverage decisions are being made. In the non-commercial channel, Medicaid coverage became effective in 49 states on January 1, and Medicare plans have up to six months post-launch to determine coverage and add Auvelity to formulary.

We expect additional formulary decisions over the next six months. I look forward to discussing more as the payer process progresses. We are extremely encouraged by the initial launch progress and remain committed to our launch focus of driving fast HCP adoption, empowering patients and enabling quality assets. We are all aware that there is a mental health crisis happening in the U.S. and major depressive disorder, or MDD is a major public health concern with 21 million U.S. adults diagnosed in 2020 and reported a significant increase in prevalence as a result of the pandemic. Auvelity is an important new therapeutic option for patients living with this product and devastating condition and we are proud of our efforts to make Auvelity available to patients living with MDD and their physicians.

I will now turn the call back to Mark to lead the Q&A discussion.

Mark Jacobson: Great. Thank you, Lori. Operator, may we please have our first question?

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