ACADIA Pharmaceuticals Inc

NASDAQ:ACAD

Earnings Call Transcript 2019-Q3

[Operator]

Good day, ladies and gentlemen and welcome to the ACADIA Pharmaceuticals Third Quarter 2019 Financial Results Conference Call. My name is Daniel 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-answer session towards the end of today's call. [Operator Instructions]

I would now like to turn the presentation over to Mark Johnson, Vice President of Investor Relations at ACADIA. Please proceed.

[Mark Johnson, Vice President of Investor Relations]

Thank you, Daniel. Good afternoon and thank you for joining us on today's call to discuss ACADIA's third quarter 2019 financial results. Joining me on the call today from ACADIA are Steve Davis, our Chief Executive Officer, who will review our achievement this quarter; Michael Yang, our Chief Commercial Officer who will provide updates on our commercial initiatives and plans; Serge Stankovic, our President will discuss our pipeline progress; and Elena Ridloff, our Chief Financial Officer who will discuss our financial results before turning it back over to Steve for his final remarks and the lead the call up for questions. I would also like to point out that we're using supplement slides, which are available on the Events & Presentations section of our website.

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 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 will now turn the call over to Steve Davis, our Chief Executive Officer.

[Steve Davis, Chief Executive Officer]

Thank you, Mark. Good afternoon, everyone and thank you for joining us today. I am extremely pleased by the high quality of execution our team has delivered this quarter. In the past few months, our team has made great strides in helping us fulfill our promise to improve the lives of patients and caregivers with new and innovative medicines for neurological disorders.

Today, more people are receiving treatment with NUPLAZID for their Parkinson's disease psychosis than ever before. The number of patients being treated continues to grow, as well as the number of physicians who are prescribing this important treatment option. The stories we hear from patients, caregivers and physicians are incredibly rewarding and reinforce our passion to continue to educate the community on PDP and the potential of NUPLAZID.

This unwavering commitment and execution from our team is reflected in our strong financial performance this quarter. We delivered third quarter net sales of $94.6 million, a 62% increase year-over-year. As a result, we raised our full year 2019 net sales guidance to $330 million to $340 million. This represents a 50% increase year-over-year at the midpoint of the range.

Over the past 12 months, our R&D team has reported significant and impactful results from a number of late-stage trials helping us to more completely understand the potential clinical utilities of pimavanserin. Based on the robustly positive Phase 3 HARMONY results, we believe that pimavanserin has the potential to be one of the first new treatments approved for people with dementia in over 15 years and the first-ever FDA-approved treatment for dementia-related psychosis.

The positive results announced for dementia-related psychosis and depression in the third quarter have only increased our confidence that pimavanserin may become a very important new treatment option beyond PDP. In addition, we look forward to announcing results from the Phase 2 advanced study evaluating pimavanserin for the negative symptoms of schizophrenia this quarter.

Finally, I'm very pleased to announce that we've initiated the pivotal Phase 2 LAVENDER study, evaluating trofinetide as potential treatment for Rett syndrome. Rett is a devastating neurological disease with no approved treatments. Trofinetide is a key new program helping us achieve our mission to new medicines to address significant unmet needs in CNS disorders.

I'll now turn it over to Michael to discuss in greater detail, our strong commercial performance.

[Michael Yang, Chief Commercial Officer]

Thank you, Steve and good afternoon to everyone on the call. Please turn to slide 7. This is an exciting time at ACADIA, and I'm proud to report that the commercial team's efforts led to net sales of $94.6 million representing sequential volume growth of approximately 6% and year-over-year volume growth of approximately 38%.

As shown on the graph on slide 7, we have now delivered two strong quarters of revenue and volume growth a direct result of the commercial initiatives we've been executing on. I'm extremely proud that we have caught back up to the growth strategy we anticipated at launch. This is a testament to the benefits of NUPLAZID and we are confident in the future growth opportunity in PDP.

Our focus on core commercial initiatives and strong execution in the third quarter expanded our reach continuing to add new PD Psychosis patients starting on NUPLAZID treatment. From a prescriber perspective, we saw an increase in demand from both new prescribers as well as prescribers expanding use within their practice. We continue to increase demand for NUPLAZID in both specialty pharmacy and specialty distribution channels. And continuing from the second quarter, we again observed a high sustained rate of compliance and fulfillment for established patients in this quarter. We believe this is related to a better brand experience with a single 34-milligram capsule compared to the previous dosing of two 17-milligram tablets.

Turning to slide 8. We see continued opportunity to provide future growth of NUPLAZID for patients with PD Psychosis. Currently, we're in the mid to high-teens in terms of market penetration, which provides a lot of opportunity to continue to grow.

Our growth strategies are focused on the high need for continued disease awareness and a dynamic patient population. The key element is to build on and gain market share include educating physicians on the recently updated evidence-based guidelines from the Movement Disorder Society recognizing NUPLAZID as both efficacious and clinically useful for PDP.

Continuing to close the awareness gaps for PDP and NUPLAZID with our integrated direct-to-consumer strategy, which includes digital trend and in-office assets and our recently-deployed television commercials. Alongside these efforts ACADIA is sponsoring the Michael J. Fox foundation Parkinson's IQ + You education series, which recently held its first event. These events are designed to educate and empower patients with PD and their caregivers.

We are dedicated to serving patients and educate health care practitioners about PD Psychosis and NUPLAZID. We look forward to building on our success and carrying this positive momentum into 2020. As Steve mentioned we are very excited about the recent clinical results in the HARMONY study and a potential FDA approval for DRP.

First let's review the potential DRP opportunity on slide 9. Of the approximately 2.4 million patients suffering from DRP in the United States about half are being treated for it. Roughly two-thirds of the patients receiving treatment are on off-label antipsychotics. As we contemplate the potential of becoming the first FDA-approved treatment for DRP and leveraging our learnings for the PDP launch, we believe it's critical to implement disease education and awareness efforts early in our prelaunch preparation.

On slide 10 we outlined some of our disease awareness and education initiatives already in place. We launched a new disease awareness and education microsite called MoreThanCognition.com which is dedicated to educating health care professionals on the neurobiology and prevalence of the disease symptoms as well as providing background on the large unmet need. In addition, we are sponsoring symposiums at major medical congresses.

One recent example is the disease awareness symposium we sponsored in conjunction with Alzheimer's Association International Conference in July. This event provided an overview of DRP with a focus on the impact and consequences of the delusions and hallucinations. Joining the KOLs on the panel was a caregiver providing her experiences and difficulties caring for a loved one with DRP.

I'll now turn it over to Serge to provide R&D updates on our pipeline.

[Serge Stankovic, President]

Thank you, Michael. This quarter our clinical development for pimavanserin took a major step forward. We reported positive results in the dementia-related psychosis pivotal HARMONY study. These results opened up a potentially significant opportunity for pimavanserin to address a large unmet need.

Slide 12 highlights all of our pipeline programs. In total we have four programs in late-stage clinical development that could lead to potentially four new drug application over the next few years.

Starting with DRP on slide 13. There is no FDA-approved treatment for DRP. In fact there have been no treatments approved in the dementia space since 2003. Psychosis is among the major problems for dementia patients and their caregivers. Serious consequences have been associated with severe or persistent psychosis in patients with dementia such as repeated hospital admissions, increased likelihood of nursing home placement, progression of dementia and increased risk of morbidity and mortality.

Turning to slide 14. We were very excited to announce last month that the Phase 3 HARMONY study was stopped for positive efficacy. The study achieved the primary endpoint with one-sided p-value less than 0.0033. We will be presenting additional top line results from the HARMONY study during a late-breaking oral presentation at the Clinical Trials on Alzheimer's Disease meeting or CTAD on December 4. In addition, we plan to host an investor event with key opinion leaders and management to review and discuss these results following the data presentation.

Please turn to slide 15. At our end-of-Phase II meeting with the FDA we confirmed that statistically and clinically persuasive results from the Phase 3 HARMONY study would support supplemental NDA submission. In the first half of 2020, we plan to meet with the FDA to discuss our submission.

For this SNDA we plan to include not only our HARMONY study data but also results from the two previous acute efficacy studies in Alzheimer disease psychosis and Parkinson's disease psychosis and additional safety data from our completed placebo-controlled studies as well as our ongoing placebo-controlled post-marketing commitment study in frail and elderly subjects.

Turning to our major depressive disorder, or MDD program on slide 16. There remains significant unmet need in depression and based on the positive and robust study results from our Phase 2 CLARITY study, we believe pimavanserin may represent an important new adjunctive therapy for patients struggling with MDD, who have an inadequate response to their SSRI or SNRI therapy.

Slide 17 highlights important recent presentations and publication from our depression program. Our positive Phase 2 CLARITY results were recently published in The Journal of Clinical Psychiatry. Second, we presented additional positive data from the CLARITY study at the 2019 Psychiatry Congress, which showed that pimavanserin significantly improved symptoms of sexual dysfunction when compared to placebo in patients taking SSRI or SNRI therapy for major depressive disorder.

And third we presented positive exploratory data with pimavanserin at the 2019 Movement Disorder Society Congress showing improvement of depressive symptoms in Parkinson's disease, patients struggling with depression. In this open-label study, we observed the response rate of 60% and remission rate of 44%.

Turning to slide 18. Our U.S. Phase 3 study CLARITY-2 continues to enroll well as does our international Phase 3 study CLARITY-3 which started more recently. If we are successful our Phase 2 CLARITY study combined with at least one of the Phase 3 trials would be the basis of a supplemental NDA submission for MDD indication.

Turning to our schizophrenia program on slide 19. There are no FDA-approved drugs specifically indicated for the treatment of negative symptoms of schizophrenia. Currently available antipsychotics treat primarily positive symptoms.

On slide 20 we have a high-level illustration of the ADVANCE study. This is a 26-week Phase 2 study evaluating pimavanserin as a treatment for schizophrenia patients with predominant negative symptoms while controlling for their positive symptoms on a stable antipsychotic background therapy. The primary endpoint is the change from baseline on the negative symptom assessment 16-item scale. We have fully enrolled the ADVANCE study and expect to announce results before the end of the year.

We are also excited about our trofinetide program for Rett syndrome starting on slide 21. Rett syndrome is a debilitating neurodevelopmental disorder that occurs predominantly in females following apparently normal development for the first six to 18 months of life. Currently, there are no approved medicines for this rare disease.

Today we announced that we have initiated LAVENDER our pivotal Phase 3 study for trofinetide in Rett syndrome. This 12-week study will evaluate approximately 180 female patients with Rett syndrome age 5 to 20. There are co-primary endpoints for this study: the Rett syndrome behavior questionnaire; a caregiver assessment; and the Clinical Global Impression scale for improvement, a physician assessment. Both of these endpoints were positive in the previous Phase 2 study. Based on the end of Phase 2 meeting with the FDA, positive results from LAVENDER and the extension study will be the basis of the NDA submission.

Slide 23 highlights our clinical milestones for the year. We have made an excellent progress. For the remainder of the year, we look forward to presenting top line results from the Phase 3 HARMONY study at CTAD, as well as announcing results from our Phase 2 ADVANCE study later this year.

I'll now turn the call over to Elena to discuss our financial performance.

[Elena Ridloff, Chief Financial Officer]

Thank you, Serge. Today I'll discuss our third quarter 2019 results and our updated 2019 financial outlook. Please turn to slide 25. In the third quarter of 2019, we reported $94.6 million in net sales, an increase of approximately 62% compared to the $58.3 million of net sales in the third quarter of 2018. This is driven by approximately 38% volume growth year-over-year in Q3.

Gross-to-net in Q3 was 11% as compared to approximately 13% in Q3 of 2018. The improvement in gross-to-net was primarily due to an adjustment for change in estimate of our Medicare accrual for the first half of 2019 resulting in increasing net sales by approximately $2.2 million in the third quarter. Excluding this benefit to net sales Q3, gross-to-net would have been approximately 13%. Recent inventory in the channel at the end of the third quarter were consistent with previous quarters.

Moving down the P&L. GAAP R&D expenses increased to $62.6 million in Q3 2019 from $53.1 million in Q3 2018. The increase was primarily due to development costs for trofinetide and additional clinical study costs for pimavanserin.

GAAP SG&A expenses the increased to $72.7 million in Q3 2019 from $61.1 million in the third quarter of last year. This increase was largely due to higher direct-to-consumer advertising expense, charitable contribution, and personnel costs.

Non-cash stock-based compensation expense during the quarter was $22 million compared to $20.2 million in the same period in 2018. Cash used in operations during the quarter was $18.9 million compared to $42.3 million for the third quarter of 2018.

The end of the quarter was $683.8 million in cash and investments on our balance sheet compared to $473.5 million at year-end 2018. This increase reflects our successful equity offering with net proceeds of $271.5 million and proceeds from employee option exercises of $55.1 million.

Please turn to our 2019 guidance on Slide 26. We are increasing our net sales guidance to be between $330 million and $340 million from the previous range of $320 million to $330 million.

As the midpoint of this new guidance range, this represents approximately 50% growth in revenue year-over-year and approximately 32% volume growth year-over-year. The midpoint also represents a similar sequential volume growth in Q4 as we observed in Q3.

Given the favorable gross-to-net year-to-date, we now anticipate the full year gross-to-net to be in a range of 15% to 16% versus prior expectations of 17% to 18%. This favorability is due to changes in payer mix and a greater proportion of bottles from continuing patients as a result of the higher compliance and fulfillment rates we're observing.

For Q4, we forecast gross-to-net to be in the mid-teens. As a reminder, gross-to-net in the fourth quarter is typically higher than Q3 as a result of accruing for the donut hole obligation associated with year-end inventory in the channel.

Turning to expenses, we now forecast GAAP R&D expense to be between $240 million and $250 million from the previous range of $250 million to $265 million. The decrease is related to savings associated with the early stopping of the HARMONY trial for positive efficacy and timing of MDD in trofinetide clinical study cost.

We now forecast GAAP SG&A expense to be between $315 million and $325 million from the previous range of $300 million to $315 million. The increase is related to accelerating investments in preparation of a potential DRP launch.

We continue to expect non-cash stock-based compensation expense to be between $80 million and $90 million. Inclusive of our 2019 equity offering we ended Q3 with approximately 153.5 million shares outstanding.

And with that I'll turn the call back over to Steve.

[Steve Davis, Chief Executive Officer]

Thank you, Elena. Please turn to Slide 28. We're very pleased with our strong quarterly financial performance and outlook for the remainder of the year. We're also very excited and motivated by the positive clinical results we announced this past quarter and the future potential of our development pipeline.

Please turn to Slide 29. Looking ahead we will continue to execute on all three of our strategic pillars; Grow the sales of NUPLAZID in PDP; leverage the potential of our pipeline programs; and expand our pipeline through focused business development. I'd like thank our employees whose dedication and hard work are driving our company's continued success and execution of our three-pillar strategy.

I'll now open the call up for questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Ritu Baral with Cowen. Your line is now open.

[Ritu Baral, Cowen]

Hey guys. Thanks for taking the question. My question's on the DRP commercial opportunity. As you have indicated to ramping up SG&A how is your I guess your commercial efforts going to change specifically? Is there more call points? Are there different types of call points that you're already teeing up with the sales force? Are you anticipating expansion?

And further just as you think of how the label will translate into the commercial opportunity, how do you think you'll reconcile the Alzheimer's mortality black box with the indication that you'll be going after with DRP? Thanks.

[Steve Davis, Chief Executive Officer]

Thanks for the question Ritu. I think there's two parts to that question. I'm going to ask Michael to answer the first part. And Serge after Michael's done if you could answer the second part.

[Michael Yang, Chief Commercial Officer]

Great yes. Thanks for the question. We're very excited about the potential of a DRP indication and it represents a very large opportunity. I think it's important to understand that we'll be able to leverage our existing approach with PDP and that is to say that we currently call on neurology, psychiatry, and long-term care, and all of those are important channels and call points for us for DRP. However, as you could inspect the number of targets and the number of patients are substantially larger, which makes it a very exciting opportunity.

So in terms of the approach and the planning for our commercial buildout, it's obvious that we will need to build out and expand our footprint. And you could expect a, kind of, a standard approach -- appropriate size CNS specialty sales force and field force to just to give you some grounding on that the benchmarks. And when you look at others CNS specialty field forces, you're typically in the range of about 400 to 500 people. So that would be the expansion kind of framework that we're looking to optimize as we look into DRP.

[Steve Davis, Chief Executive Officer]

Great. Thanks Michael. Serge?

[Serge Stankovic, President]

Yes. Ritu we -- in the context of our application, we intend to discuss with the FDA the existing class box warning as it relates to our targeting DRP indication, and in context obviously of the extensive clinical trial safety data with pimavanserin as well as post-marketing experience with pimavanserin.

Just as to remind you in the wording of the box class warning, there is a DRP mentioned. So we’ll, obviously, we feel very comfortable and confident with the safety data and risk benefit based on the number of placebo-controlled trial as well as our post-marketing safety trials to be able to provide sufficient information for FDA to evaluate potential modification or even removal of the box. But, obviously, we cannot make any assumptions in that respect until we get to those discussion and the process.

[Ritu Baral, Cowen]

Thanks guys. Still only one question.

[Operator]

Thank you. Our next question comes from Cory Kasimov with JPMorgan. Your line is now open.

[Cory Kasimov, JPMorgan]

Hi, good afternoon guys. Thanks for taking my question. So I guess, look acknowledging upfront is all very recent. But in a month or so since you've had the DRP top-line results, I'm curious whether you've seen any noticeable shift in physician desire or intent to prescribe for PDP. In other words, how much do the top-line data validate the product if at all in the eyes of physicians? Or do you think you need CTAD or even the actual approval label to take that to the next level?

[Steve Davis, Chief Executive Officer]

Thanks for the question Cory. Michael you want to take that?

[Michael Yang, Chief Commercial Officer]

Yeah. Thanks Cory. I think it's worth noting that we don't communicate in a commercial field anything to do with the DRP results. So any acknowledge that a physician or customer would have would have to be on their own through the media and other awareness avenues. And as such we don't -- I don't think it's a thing that the physicians bring up to us in the field.

So I think as the data unfolds and more is known about that that may be something that has a positive halo on the brand in total. But in terms of our current PDP approach, it's all basically what we're communicating with the physician within the existing label and the risk benefits that we communicate with the physicians.

[Cory Kasimov, JPMorgan]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Marc Goodman with SVB Leerink. Your line is now open.

[Marc Goodman, SVB Leerink]

Yes, two things. One is, can you give us a sense of coverage at all? If there's any changes? Any contract? Anything that's going on that we just need to be thinking about from a managed care perspective that would impact the gross to net as we move into next year? How you're thinking about that?

And then second of all just give us a sense of the spend on DTC and how that's evolved? I know we're in our, I guess you want to call it a second program. Is this a higher level of DTC than what was before on a quarterly basis? Just trying to get a sense of that and if you're committed to that throughout 2020. And just to confirm you were saying that you're going to add an additional 400 to 500 reps on top of the reps you already have today? Thanks.

[Steve Davis, Chief Executive Officer]

Yeah. Marc, let me just clarify the last one and then I'm going to ask Elena to take other two questions. No that's not what Michael was saying. When you look at other sales forces of similar nature, they usually are a total of about 500. So we're just trying to give you, I guess a little bit of directional guidance there in terms of how we're thinking about the…

[Marc Goodman, SVB Leerink]

Just wanted to make sure. Thank you.

[Steve Davis, Chief Executive Officer]

Yeah, yeah. No thanks for asking. Elena you want to take the other two questions?

[Elena Ridloff, Chief Financial Officer]

Sure. So on your first question with regards to coverage and gross to net. We have broad and very good coverage for NUPLAZID in PDP and that has been consistent over time. With regards to gross to net and looking into next year, as I mentioned there's two variables that have benefited gross to net, one being the payer mix shift where we've seen a reduction in the proportion of patients who are on Medicare and eligible and subject to the donut hole. That's been a recent shift, so it would be premature to comment at this point if that will be sustained long-term.

The second element is we've seen continued growth in the base of established patients. We continue to grow new patients as well, but the proportion of established patients grow that is a benefit to gross-to-net and should be sustained.

One point I would just mention though is when we get to additional indication, they are in the payer mix and the proportion of new patients versus continuing patients will pay an important role.

With regard to DTC spend, we don't break that out specifically. We've had an effort this year, which has been supported by a very positive ROI, and so we will continue to assess those investments and invest appropriately in DTC, but we haven't broken out the specific dollars.

[Marc Goodman, SVB Leerink]

But you don't have to break out the dollars. So I was just asking for a sense of, is the number going up as the year progress? Are we assuming -- should we assume into 2020 we're also going to have the same level?

[Steve Davis, Chief Executive Officer]

Marc, this is Steve. I think as is typically the case with any DTC campaign, we have a number of components that we -- that make up the entire program. The television portion is just one of those components.

In the television portion, it would be uncommon for a company to run that 24/7 year-round. And so on the television portion of it, which I think is where you're really trying to get at, we try to make strategic investments to produce a very nice ROI. And so far we're very happy with the results. But it's -- I don't think we can draw a frontline for you to give you crisp guidance on what to expect quarter-to-quarter, because it really depends on what we're seeing in the field.

[Marc Goodman, SVB Leerink]

Okay. Thanks.

[Operator]

Thank you. Our next question comes from Tazeen Ahmad with Bank of America. Your line is now open.

[Tazeen Ahmad, Bank of America]

HI. Good morning. Thanks for taking my question. This is either for Serge or for Steve. We're looking forward to seeing your data set presented at CTAD on the 4th of December. And ahead of that, I'm just wondering if you could give us an idea of what additional details from the study you plan on showing? So should we expect to see a breakout of the different subsets of patients that were studied as part of the DRP indication?

And I guess related to that, is your expectation that you would get a label just simply saying DRP? Or would it be specific to maybe the subgroups that seem to be most responsive if there were subgroups that were more responsive than others? Thanks.

[Steve Davis, Chief Executive Officer]

Great. Thanks for the question Tazeen. It's a two-part question Serge and we're going to let you take both of them.

[Serge Stankovic, President]

Yeah, sure. Let me first tackle the -- what data we will plan to present at CTAD. We will be sharing all material top line results from the study, meaning efficacy data from the open-label portion of the trial, primary and key secondary endpoint details in the trial particularly, obviously in the randomized withdrawal portion as well as overall safety data. So as part of that to specifically to your question, we will be presenting the data related to different subtypes of dementia as well.

To your second question, all discussions that we had with the FDA and our initial intention were related to us pursuing indication of the treatment of hallucinations and delusions in dementia-related psychosis. So, yes, indeed that is what we are pursuing and that is what we had discussed with the FDA.

[Tazeen Ahmad, Bank of America]

Okay. Perfect. Thanks for that.

[Operator]

Thank you. Our next question comes from Salveen Richter with Goldman Sachs. Your line is now open.

[Unidentified Analyst]

Okay. Thanks for taking our question. This is Andrea on for Salveen. Maybe our first one. While it is still early days for your second DTC campaign, are you seeing any trends or similarities to the first one? And in particular if you expect a similar benefit for your long-term care. I think you mentioned that was a bit unexpected from the first one.

[Steve Davis, Chief Executive Officer]

Yeah. Thanks Andrea. Michael, you want to take that?

[Michael Yang, Chief Commercial Officer]

Yeah, thanks. Thanks for the question. So on the current campaign we are seeing very strong and similar set of early indicators specifically website traffic expressions of interest and physician enthusiasm from what we hear from the patients in the offices.

A little early yet to talk about LTC just yet. So we haven't had enough time to kind of -- to see that yet if that's a replicant benefit yet. So I can't comment just yet on the long-term care models.

[Unidentified Analyst]

Got it. And then maybe just one more question on the prior Phase 3 ENHANCE study. Just if have any color that could provide additional clarity on whether you've looked at that post-hoc analysis yet, and if you see a potential correlation between your negative symptom patients and the study responders there?

[Steve Davis, Chief Executive Officer]

Serge, you want to take that?

[Serge Stankovic, President]

Yes, of course. We, of course, have been looking at analyzing data to -- and conducting a number of post-hoc analysis. As we previously reported, we did see better efficacy outcomes on the negative symptom scale and in the patients that have this -- more prominent negative symptoms. However, it is very difficult to make any correlation to our ADVANCE study because there are substantive differences in this patient population that's number one.

In ENHANCE study we have people that have positive symptoms and moderate-to-severe positive symptoms, while in our ADVANCE study in the negative symptom study those positive symptoms are controlled with their current antipsychotic medications. So from that perspective these are two different population.

Another element in interpreting and reading through the data from ENHANCE to ADVANCE is that ENHANCE is a 6-week study while ADVANCE is a 6-month study. So duration of treatment plays an important role here. So in short, I would say while we -- what we see in terms of the response on negative subscale in ENHANCE study, we find that encouraging we certainly are not reading through from those data to our ADVANCE study.

[Operator]

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

[Charles Duncan, Cantor Fitzgerald]

Thanks guys for taking the questions and congrats on a good quarter. I wanted to ask a quick question of – Michael, appreciate the mid-teens penetration rate within patients. But I'm wondering, if you could characterize or provide any color on breadth versus depth in terms of prescribers? And then I had a quick follow-up for Serge.

[Michael Yang, Chief Commercial Officer]

Sure. Thanks Charles for the question. So obviously at this juncture we're focused on both. We have a good cohort of physicians that have what I would call driving product robustly and we would want to try and drive greater depth with them. But we're also trying to drive or build greater loyalty amongst the broader set of physicians that we have.

So I think we're focused on both. But I think a big focus in the coming quarters will be to drive more physicians with a deeper loyalty. We've acquired a lot of new physicians recently as a result of DTC and the new data that -- the information we have with the guidelines, I think there's an opportunity to broaden or enhance build more depth with our physician base.

[Charles Duncan, Cantor Fitzgerald]

Okay. That's helpful. And quickly for Serge, the Phase II ADVANCE study yet to read out this year. I'm wondering as you look at NSA-16, if you could provide a little bit of thought on the hurdle for clinical value that you'd like to see? And then you're probably tracking on a blinded basis, the dropout rate. And is that consistent with your expectations better or worse than when you designed the study?

[Serge Stankovic, President]

Let me take the second question first and then I'll go to the first one, Charles. And thanks for the question. We continue to see quite a good retention rate in the ADVANCE trial, even if this trial is 6 months long. So in terms of the lower dropout rates that we saw in the ENHANCE trial continue for us, continue in this longer trial.

Usually in schizophrenia trials over the half year duration of trial you tend to lose quite a bit of the patients in 40% to 50%. And we are not seeing those attrition rates which is very good for -- in terms of preserving the power in the trial. So we are very pleased with that trend and continue the overall trend of quite a good retention that we see with pimavanserin across clinical trials.

Now in regard to what -- clinical meaningfulness of the results, we obviously first let me just remind everybody there is nothing approved for treatment of negative symptoms in schizophrenia.

And there are not very many successful studies in negative symptoms of schizophrenia so -- to be able to draw some historical precedents from that. We will be looking for the results that are statistically significant and meaningful in terms of the percent reduction on the NSA, on the primary endpoint scale as well as the consistency across different scale. And based on that, we will be evaluating the overall consistency of response in the benefit/risk assessment.

[Operator]

Thank you. Our next question comes from Paul Matteis with Stifel. Your line is now open.

[Unidentified Analyst]

Hi. Thanks for taking the question. This is Alex on for Paul. Just one from us today. Could you remind us how you're thinking about pricing as you think about the potential expansion from PDP to DRP and even beyond towards depression schizophrenia? Thanks.

[Steve Davis, Chief Executive Officer]

Great. Thanks so much for the question. Michael?

[Michael Yang, Chief Commercial Officer]

Yeah, thanks. Thanks for the question. I think it's a little too early to talk about our approach for the payers. We don't have the entire DRP data package just yet. But as we've discussed, and Serge outlined there is a significant unmet need. I'm speaking specifically of DRP since that's the next indication we'll have potentially conversations with the payers for.

I think it's important to note that today as Elena outlined, we already enjoy very broad access and coverage with PDP. The type of patient that is in DRP is very similar in that perspective to PDP. And I think it's important to note that a significant delay in relapses of psychosis is a very significant outcome, and there is evidence that show that patients with dementia-related psychosis are 2 times more likely to progress to severe dementia.

They have a 1.5 times more higher mortality rate. And there's a significant unmet -- significant burden, caregiver burden and a large part of that is to do to unresolved or relapsing psychosis. So we'll make that argument I think to the payers. I think it will be persuasive. And in terms of the value proposition, we'll wait for the data to see how we can position that with the payers.

[Unidentified Analyst]

Great. Thanks.

[Operator]

Thank you. Our next question comes from Jason Butler with JMP Securities. Your line is now open.

[Roy Buchanan, JMP Securities]

Hi. It's Roy for Jason. Thanks for taking our question. Just a quick on the Phase III for trofinetide, how many sites are you guys planning and how quickly do you think you might enroll that trial? Thanks.

[Steve Davis, Chief Executive Officer]

Thank you for the question. Serge?

[Serge Stankovic, President]

Yes. In that trial, we plan to enroll about 180 girls. So the number of sites is correspondent to that and it's not much bigger than what was done in the Phase II trial. We plan initially to have about 16 sites or thereabout, and we will be evaluating as we move forward in terms of the number of sites. But that's where we see it.

In terms of the recruitment period, obviously we will be assessing the base of recruitment as we progress in the trial. We just initiated the trial. But initially, we anticipated it may take between 12 and 18 months to complete enrollment in the trial.

[Roy Buchanan, JMP Securities]

Okay. Thank you.

[Operator]

Thank you. And our next question comes from Danielle Brill with Piper Jaffray. Your line is now open.

[Danielle Brill, Piper Jaffray]

Hi, guys. Thanks for the question. You said you've caught back up to the growth trajectory you expected at launch. So I'm curious is growth now more balanced across channels? And what was the sequential volume growth in 3Q?

And then quickly on DRP, I see you're sponsoring quite a few disease awareness initiatives and engaging with KOLs. Curious what their initial feedback has been, particularly pertaining to the relapse prevention study design. Thanks.

[Steve Davis, Chief Executive Officer]

Michael, do you want to take that?

[Michael Yang, Chief Commercial Officer]

Right. So, as we outlined on that graph, you can see the revenues as we are contacting the last couple of quarters where we kind of got back to that same curve that we established early in the launch. We think that's a great reflection as I mentioned to the benefit that NUPLAZID brings to patients and a response to the kind of messages both that we and the FDA have given to consumers and physicians on confidence in NUPLAZID.

We had 38% volume growth so that it gives you context to what we saw in the third quarter. And I think we are again, I've said, in the mid to high-teens in terms of penetration so we have a lot of opportunity to grow the brand.

[Elena Ridloff, Chief Financial Officer]

Just to add, I think familiar for sequential volume growth, which was 6% in the quarter. And we did see growth in both channels the SP and SD channel.

[Michael Yang, Chief Commercial Officer]

Good concede.

[Steve Davis, Chief Executive Officer]

And then Danielle as to your second question regarding DRP and the medical education work we're doing there. Just to be completely clear, of course, we're only approved an Parkinson's disease psychosis today, so that's the only thing that the commercial organization is engaged on. And having said that, our medical affairs group and broader organization is doing a fair amount of work already on medical education for DRP.

That's really important work to do. There's a significant opportunity there and a significant gap that we need to fill, so we're beginning to lay that foundation today. I would just simply say that the interactions that we've had very much support our view that we think there's a very significant unmet need and a great opportunity if we're successful in getting approval in DRP.

[Danielle Brill, Piper Jaffray]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from Alan Carr with Needham. Your line is now open.

[Alan Carr, Needham]

Hi. Thanks for taking the questions. I guess to follow-up on Danielle's. You mentioned that there was growth in both those channels, but is one growing any more faster -- or growing any more than the other?

And then a couple other questions around, how traditional antipsychotics are being used in DRP. Can you -- in off-label use. Can you tell us a little bit about that how they're being used? Is it more intermittent? Or is their compliance any better? That sort of thing versus on-label uses like in schizophrenia? And then do you have any more resolution on NDA submission timing for DRP or for the Phase III CLARITY trials?

[Steve Davis, Chief Executive Officer]

Michael?

[Michael Yang, Chief Commercial Officer]

Great. So Alan thanks for the question. On the channel question, we saw growth both in the SD and the SP channels. They're both growing consistent with our expectations. So not really seeing any dramatic shifts or deltas between one versus the other. So I think that's a good thing for the total franchise.

In regards -- I think your question was how does the market currently treat DRP with off-label psychotics and I think we elucidated that a little bit more going forward. But just quantitative or qualitatively the challenge is that there is different channels and different prescribers that have different behaviors. And so the neurologists do things a little differently than the psychiatrists and they do things a little differently than they do in long-term care.

So each channel and each kind of specialty has their own kind of a flavor. But in general I think one thing I just want to say for all of them the off-label antipsychotic presents a therapeutic challenge for physicians because they carry compromises so they're trying to fix the psychosis but there are also warnings against using them in the LOV [ph] patients for a wide variety of different reasons. So we think that the promise of NUPLAZID in that opportunity is a more precise targeting in terms of its neurobiology effects will be a benefit to physicians and allows them to treat them without that compromise.

[Steve Davis, Chief Executive Officer]

And Alan gave a question on submission. Serge do you want to take that?

[Serge Stankovic, President]

Yes. Absolutely. Let me start with the DRP. As we mentioned earlier, we plan to meet with the FDA in the first half of 2020 to discuss the format and context of our supplemental NDA submission. And once we have that under our belt we will be in a position to more precisely guide on the timing of submission because there are certain dependency in that respect.

But that's where we stand right now. In regard to depression. As you know, we initiated our Phase III program. U.S. study started I believe some time in May and international study started some time in August. We currently guide that it will take approximately around two years to complete enrollment and get the top line results of this study.

And obviously, once we have a little bit more time with recruitment we will be able some time in the beginning of next year or first half of next year to guide more precisely on the timing of completion of these studies as well as the timing of supplemental NDA submission. I do want to say that recruitment is going very well and we are quite pleased how it is going. But it's to develop some more trends -- more trends with more confidence we would like to put a few months under our belt again.

[Alan Carr, Needham]

With respect to the SNDA, it sounds like it's possible that it might be in 2H 2020?

[Serge Stankovic, President]

Which one are you referring to?

[Alan Carr, Needham]

The SNDA for DRP. It sounds like it's being open to the whole year.

[Serge Stankovic, President]

At this point, like I said, it's hard to say. But we will be able later in the 2020 in the first half after the meeting to be more precise about that.

[Alan Carr, Needham]

Thanks for taking my questions.

[Operator]

Thank you. Our next question comes from Beau Miller with RBC Capital Markets. Your line is now open.

[Beau Miller, RBC Capital Markets]

Hey, everyone. Thanks for taking my questions. I have one quick one on the CTAD data and then one on LAVENDER. I guess first on CTAD. When you speak about some of the secondary measures you're going to be presenting, I guess how important is showing efficacy on those like agitation and caregiver burden in contextualizing the value proposition and potential commercial opportunity?

[Steve Davis, Chief Executive Officer]

Yes. Thanks for the question Beau. Serge, I'm going to let you speak to this if you don't mind.

[Serge Stankovic, President]

No, absolutely. Well, first of all let me just make sure that we don't have a misunderstanding. In our DRP study we did not measure agitation. The outcomes are measured on the hallucinations and delusions. So in terms of secondary outcome measure I would say the most important outcome and if you will is the -- in this study will be a hazard ratio because that directly tells us how much treatment with pimavanserin reduces probability that somebody will experience exacerbation of psychotic symptoms. Let's say, if a drug, its hazard ratio is 0.55 that means that, taking the drug you would reduce the chances of experiencing psychotic symptoms for about 45% and so on.

In addition to that, obviously we will be measuring, the severity of symptoms in the course both of the open-label study, as well as open-label portion of the study as well as randomized withdrawal portion of the study.

And severity of overall hallucinations and delusions as well as other indicators of sleep quality of life, would be information that is -- will be valuable to both patients and prescribers.

[Beau Miller, RBC Capital Markets]

Okay. That's really helpful.

[Steve Davis, Chief Executive Officer]

Beau, I'm sorry -- Beau, I'm sorry just to follow-up on the second part of your question a little bit. You're asking the importance of education or caregiver burden, in the context of how meaningful this would be to physicians.

And just to be clear, the work that we've done -- and we've done a lot of market research to really, clearly understand the need in the medical community. And it's very clear from that market research psychosis is a significant issue that impacts these patients in a very profound way.

And so -- and much like PDP, many of these patients are cared for, by a spouse or a family member. And so it creates a very significant burden on them as well. So we're very confident with -- based upon the results that we've seen in our Phase III program, that pimavanserin can have a very significant impact on them.

And the -- and can be an important tool in addressing that very significant unmet need. Agitation is a different dynamic that these patients deal with. And of course, as Serge described, we're not seeking an indication, in agitation.

However what we have seen is, when -- and based on the clinical trials that we've done is when we resolve agitation in a dementia patient -- excuse me, when we resolve psychosis in a dementia patient, we also possibly affect agitation there.

So, its long-winded way of saying, we're very excited about the profile that we're seeing. And the ability to address what we think is a very significant unmet need.

[Beau Miller, RBC Capital Markets]

Okay. Yes. Thanks for the helpful color there. And then, I guess, quickly on trofinetide. Can you just remind us of the co-primary endpoints, and whether or not both of those are required for approval?

Or how the statistical hierarchy works there? And I guess, overall how do you kind of plan to manage the patient heterogeneity in this population, just given it encompasses, five-year-olds to 20-year-olds. And it can be quite variable inter-patient? Thanks.

[Serge Stankovic, President]

Yes. The first part, we have a, co-primary endpoints. One is Rett Syndrome Behavior Questionnaire, which is a caregiver assessment. And then the second is Clinical Global Impression of Improvement, which is a physician assessment.

So, we need to win on both, in order for our trial to be positive, as being a co-primary measure. To your second part of your question in terms of heterogeneity both measures.

I mean, Rett Syndrome Behavioral Questionnaire is a fairly broad assessment of the variety of symptoms that occur within the Rett syndrome. So, it's a -- it capture -- because there are certainly a number of individual differences in each particular patient.

This scale capture a fairly wide range of these symptoms, and it will be able to assess patients on the individual basis, vis-à-vis their baseline. Similarly, with Clinical Global Impression obviously, it's a physician assessment of the totality of symptoms.

So we believe that, with those two scales we will be able to account for the variability of symptom inter-subject variability so to speak, measuring individual changes on the patients.

[Operator]

Thank you. Our next question comes from Sumant Kulkarni from Canaccord. Your line is now open.

[Sumant Kulkarni, Canaccord]

Thanks for taking my questions. I have two quick ones. So as you're almost exactly six months out from first generics potentially filing Paragraph IV challenges on NUPLAZID, what life cycle management plans if any are you contemplating on the product?

And secondly, given no products have been approved yet for negative symptoms of schizophrenia, what have you said about the potential for the ADVANCE trial is positive to be considered sufficient to support an SNDA filing in that indication?

[Steve Davis, Chief Executive Officer]

Great, Serge, did you hear those questions?

[Serge Stankovic, President]

Yes. Yes.

[Steve Davis, Chief Executive Officer]

Okay, great. Please go ahead.

[Serge Stankovic, President]

Yeah. Okay. Let me start with the second part of the question, related to negative symptoms. Where we are right now, obviously we are looking at a number -- a variety of scenarios, depending on what outcome of our ADVANCE trial will be.

Regulatory requirements for approval in schizophrenia, in different indication including negative symptoms schizophrenia has been two well-controlled trials. Obviously, based on the data that we see and the strength of the data that we see in our ADVANCE trial, we will evaluate what's the best regulatory pathway for us and approach FDA to discuss those.

So at this point, we are not commenting further on that. There are precedents for a single study approval obviously in a variety of indications, but regulatory requirement as I said is two well-controlled trial. And once we have the data, topline results and evaluate our data, we will formulate our regulatory pathway and approach FDA to discuss that.

In terms of the life cycle and pimavanserin exclusivity, we have obviously -- throughout development process of pimavanserin, we have been defining variety of life cycle opportunities. And as we accumulate data and as we accumulate knowledge about pimavanserin, we have been building our estate in that respect. So that's -- at this point, that's as far as I can comment on that.

[Sumant Kulkarni, Canaccord]

Thank you.

[Elena Ridloff, Chief Financial Officer]

And just to add to that, the composition of matter coverage with Hatch-Waxman exclusivity -- Hatch-Waxman extension and pediatric exclusivity, we expect pimavanserin to be covered into 2030.

[Sumant Kulkarni, Canaccord]

All right. Got it.

[Steve Davis, Chief Executive Officer]

We always say when this topic comes up that, there's no litigation in the industry that doesn't involve us, that could have the potential of moving it back to as early as first half of 2028. But the Hatch-Waxman extension, we have on composition matter, takes it to 2030. And then we have other patents that Serge was alluding to regarding utility, in certain cases formulations et cetera that go well beyond 2030.

[Sumant Kulkarni, Canaccord]

Thank you.

[Operator]

Thank you. Our next question comes from Jay Olson with Oppenheimer. Your line is now open.

[Jay Olson, Oppenheimer]

Hey, congrats on the quarter and thanks for taking my questions. I had two quick ones. My first question is about the DRP patient segments that you described. Can you compare the opportunity to switch DR patients from -- I'm sorry switch DRP patients from atypical antipsychotics to NUPLAZID versus capturing some of the 1.2 million DRP patients who are currently untreated? And then, my second question is a financial question, with regards to capital allocation priorities and whether or not you're actively considering any new business development opportunities. Thank you.

[Steve Davis, Chief Executive Officer]

Michael I'll ask you to take the first part. I'll take the second.

[Michael Yang, Chief Commercial Officer]

Right good. Great question. So, with regards to the untreated population, there could be a wide variety of reasons why folks are untreated. It could be lack of awareness. We see that a lot with PDP and I would expect the same to be somewhat -- somewhat the same in DRP. So, our efforts there I think could grow if you will the treated population, so penetrating the untreated population. And those will be kind of I'd say therapeutically-naïve patients.

In regards to the antipsychotics that are being used off label, as I mentioned earlier, these are patients where physicians are making compromises in some respect because of the nature of the disease and then the data and the side effects that potentially could be occurring with the off-label antipsychotic. So, I think the data that we will generate and the label that will be granted, if we get it from the FDA will be powerful educational opportunities for us to change and shift that behavior. And I would expect us to win both new patient and switch patients in the future with that data.

[Steve Davis, Chief Executive Officer]

Great. Thanks Michael. And in terms of the second part of your question, business development is one of our three strategic pillars and we've publicly discussed for some time our focus on building our pipeline through focused transactions. An example of that is our deal to acquire to North American rights to trofinetide, and we're beginning to see some of the fruits of that as we commence our Phase III program there. That kind of deal is an ideal strategic fit for us. It leverages both our development and commercial capabilities. So, we'll continue to pursue those kinds of opportunities as we progress.

[Jay Olson, Oppenheimer]

Great. Thank you, very much.

[Operator]

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

[Steve Davis, Chief Executive Officer]

Thank you, operator. And thanks to everyone for your time and questions. We look forward to updating you on our progress.

[Operator]

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