Axsome Therapeutics Inc

NASDAQ:AXSM

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen and welcome to Axsome Therapeutics’ fourth quarter and full year 2017 financial results conference call. Currently, all participants are in a 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 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.

[Mark Jacobson, SVP, Operations]

Thank you, operator. Good morning and thank you all for joining us on today's conference call. Our financial results press release providing corporate update and details of the company's financial results for the fourth quarter and full year ended December 31, 2017 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 and our clinical and non-clinical plans, our plans to present or report additional data, anticipated conduct in the source of future critical trials, regulatory plans, future resource and development and possible intended use of cash and investments.

These forward-looking statements are based on current information, assumptions and expectation 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 weight on these forward-looking statements and the company disclaims any obligation to update such statements.

Joining me on the call today are Dr. Herriot Tabuteau, Chief Executive Officer; Dr. Cedric O’Gorman, Senior Vice President of Clinical Development and Medical Affairs and Mr. John Golubieski, Chief Financial Officer. Dr. Tabuteau will first provide a pipeline update and review of upcoming milestones. Following that, Dr. O’Gorman will provide an update on our ongoing late stage clinical program and then Mr. Golubieski will review our financial results. We will then open the line for questions.

I shall now turn over the call to Herriot.

[Herriot Tabuteau, CEO]

Thank you, Mark. Good morning, everyone and thank you all for joining Axsome Therapeutics fourth quarter and full year 2017 results conference call. 2017 was a productive year for Axsome as we significantly expanded our product portfolio and advanced our product candidates. Our pipeline currently consists of five differentiated clinical stage CNS product candidates, up from two at the beginning of last year. 2018 promises to be another eventful year for us as we advance our AXS-05 product candidate toward data readouts and as we launch a registration trial with AXS-07.

I will now provide an update on our key product candidates and then summarize our upcoming clinical milestones. Let me begin with AXS-05, which is our most advanced product candidate. AXS-05 is currently in a Phase 3 trial in treatment resistant depression, which we refer to as the STRIDE-1 and a Phase 2/3 trial in agitation associated with Alzheimer’s disease, which we refer to as the ADVANCE-1 trial. We are excited by the prospects of AXS-05 in these two under-served indications based on its multiple mechanisms of action, targeting glutamatergic and monoaminergic neurotransmission.

This morning, we announced that we have incorporated two interim analyses in each of these trials. The first interim analysis in each trial will be to assess futility and the second interim analysis in each trial will be to assess efficacy. Because these analyses could result in stopping the trials early for efficacy or futility, they provide the possibility for accelerated value creation and represent continued prudent capital resource management. We anticipate both interim analyses from the STRIDE-1 trial and the first interim analysis from the ADVANCE-1 trial this year.

We recently announced that we are developing AXS-05 for smoking cessation. This is a third indication for this product candidate. In December of 2017, we entered a research collaboration with Duke University to evaluate AXS-05 in a Phase 2 trial in smoking cessation. The Duke Center for Smoking Cessation is recognized as the world's leading center for smoking cessation research. We anticipate initiation of a smoking cessation trial with AXS-05 in the first half of this year.

Last week, we announced our next generation CNS product candidate, AXS-09, which consists of esbupropion, the chirally pure S-enantiomer of bupropion and dextromethorphan. Our completed Phase 1 trial demonstrated that AXS-09 resulted in substantial increases in dextromethorphan plasma concentrations into a potentially therapeutic range. The increased dextromethorphan plasma concentrations with AXS-09 which contains the pure S-enantiomer of bupropion were comparable to those achieved with our first generation AXS-05 product candidate, which contains racemic bupropion.

Results of this Phase 1 trial coupled with preclinical data also indicate the potential for enhanced absorption and therapeutic effect of the S-enantiomer as compared to the R-enantiomer. AXS-09 is an example of Axsome’s continued scientific innovation and complements AXS-05. With AXS-05 and AXS-09, we are building a franchise of differentiated medicines targeting both glutamatergic and monoaminergic neurotransmission with potential applicability in numerous CNS disorders. We plan to continue development of AXS-05 for treatment resistant depression, in Alzheimer’s disease agitation and to develop AXS-09 for future CNS indications.

Let me now switch to AXS-07, our product candidate for the acute treatment of migraine, which we plan to advance into a Phase 3 trial this year. Migraine affects more than 37 million Americans. 70% report that they are not fully satisfied with their current treatment and desired treatments that work faster, more consistently and result in less symptom recurrence. AXS-07 is an oral, fixed-dose combination of MoSEIC meloxicam and rizatriptan. Meloxicam is a new molecular entity for migraine enabled by Axsome’s MoSEIC technology, which results in rapid absorption of meloxicam while maintaining a long plasma half-life.

The distinct mechanism of action and rapid absorption of MoSEIC meloxicam, combined with the known efficacy of rizatriptan, is expected to result in rapid, superior and more consistent pain relief of migraine pain, with lower symptom recurrence, as compared to currently available therapies. AXS-07 may therefore be able to address major reasons for patient dissatisfaction with current treatments. We anticipate starting the Phase 3 trial with AXS-07 in migraine in 2018.

A few words on AXS-02, our differentiated product candidate for chronic pain. In January, an Independent Data Monitoring Committee or IDMC conducted an interim analysis of two separate trials with AXS-02, the CREATE-1 trial in Complex Regional Pain Syndrome and the COAST-1 trial in knee osteoarthritis associated with bone marrow lesions. The IDMC recommended that the COAST-1 trial be continued to full enrolment and that the CREATE-1 trial be stopped for futility.

Screening in the COAST-1 trial was paused, pending the results of this interim analysis and is anticipated to resume after the final readout from our STRIDE-1 trial as we have previously disclosed. In the CREATE-1 trial, AXS-02 treatment resulted in a significant reduction of serum CTx, a marker of bone resorption which confirms the potent pharmacologic activity of orally administered AXS-02. We have discontinued the CREATE-1 trial as recommended by the IDCM and will be performing further analysis of the data to better understand the basis of this outcome.

I will now review our upcoming clinical milestones for 2018 and beyond. For the STRIDE-1 trial of AXS-05 in treatment resistant depression, we anticipate an interim analysis for futility in the second quarter of 2018 and an interim analysis for efficacy in the second half of 2018. We still anticipate final results from the STRIDE-1 trial in the second half of 2018 to the first half of 2019 timeframe. For the ADVANCE-1 trial of AXS-05 in Alzheimer’s disease agitation, we anticipate an interim analysis for futility in the second half of 2018 and an interim analysis for efficacy in 2019.

We also anticipate the start of a Phase 2 trial of AXS-05 in smoking cessation in collaboration with Duke University in the first half of 2018. For AXS-07, we anticipate starting a Phase 3 trial in the acute treatment of migraine in 2018. We are excited for these upcoming clinical milestones. We believe that our current financial resources will allow us to deliver efficacy readouts in each of these ongoing planned trials with AXS-05 and AXS-07.

Now for more detail regarding our ongoing clinical programs, I will turn the call over to Cedric for a review.

[Cedric O’Gorman, SVP, Clinical Development and Medical Affairs]

Thank you, Herriot. As Herriot mentioned, we are actively enrolling patients into two late stage clinical trials with AXS-05. I will remind you of the design of these trials. The STRIDE-1 trial is a Phase 3 multicenter, randomized, double-blind, active-controlled trial to assess the efficacy and safety of AXS-05 in the treatment of treatment resistant depression. Patients with major depressive disorder who have previously failed one or two prior antidepressant treatments are treated in an open label fashion with bupropion during a six week lead in period.

Patients who failed to respond to bupropion during this lead in period are then randomly assigned in a one to one ratio to receive either bupropion or AXS-05 in a double blind fashion. The primary endpoint is the change in the Montgomery-Asberg depression rating scale or MADRS at six weeks. We anticipate that approximately 346 subjects will be randomized in the trial. Two interim analysis to be conducted by an Independent Data Monitoring Committee or IDMC are now planned.

The first interim analysis will be performed on the first approximately 40% of the target number of subjects to assess futility. The second interim analysis will be performed on the first approximately 60% of the target number of subjects to assess efficacy. To date, over 40% of the target number of subjects have been randomized. Therefore, the results of the first interim analysis are expected in the second quarter of 2018. Results of the sequenced treatment alternatives to relieve depression or STARD trial indicate that nearly two-thirds of treated patients with major depressive disorder do not experience adequate treatment response with first line therapy and that the majority of these initial failures also fail second line treatment. Unfortunately, treatment options are limited for treatment resistant depression. There is therefore an urgent need for effective and safe new treatments.

Now, turning our attention to the ADVANCE-1 trial. ADVANCE stands for addressing dementia via agitation centered evaluation. It is a phase 2/3 multicenter, randomized, double-blind active and placebo controlled trial to evaluate the efficacy and safety of AXS-05 in patients with agitation associated with Alzheimer’s disease. Approximately 435 patients across North America and Australia will be randomized one is to one is to one to receive AXS-05 bupropion or placebo for five weeks.

The primary efficacy measure is the Cohen-Mansfield Agitation Inventory or CMAI. This trial also incorporates two interim analyses. The first interim analysis for futility will be conducted on the first approximately 30% of the target number of subjects and results are expected in the second half of 2018. A second interim analysis for efficacy will be conducted on the first approximately 60% of the target number of subjects and results are expected in 2019.

There are no FDA approved treatments for agitation associated with Alzheimer’s disease. Agitation and aggression are seen in approximately 45% of Alzheimer's disease patients. These symptoms are associated with patient distress, caregiver burden, accelerated cognitive decline, earlier nursing home placement and increased mortality. We look forward to providing updates on all of our clinical programs as they progress throughout the year.

I would now like to turn the call over to John to provide the financial update for the full year of 2017.

[John Golubieski, CFO]

Thank you, Cedric and good morning, everyone. I will cover full year 2017 financial results on this call. Starting with our balance sheet, we had approximately $34.0 million in cash at December 31, 2017 as compared with 36.6 million at December 31, 2016. Turning to the statement of operations, research and development expenses were $20.0 million in 2017, which was 1.2 million below 2016 expense of $21.2 million. This decrease was primarily attributed to lower costs of our previously initiated clinical trials, including COAST-1, STRIDE-1 and CREATE-1, offset in part by the initiation of the ADVANCE-1 clinical study and an increase in personnel and related costs.

General and administrative expenses for the year ended December 31, 2017 were 7.2 million as compared to 6.3 million for 2016, an increase of $0.9 million. This increase was driven by higher intellectual property costs and increase in personnel related costs, including stock-based compensation and placement agent expenses associated with our registered direct offering completed in December 2017.

Overall, operating expenses in 2017 decreased $0.3 million to $27.2 million as compared with $27.5 million in 2016. Interest expense in 2017 was $1.3 million as compared with $0.1 million in 2016. The increase of $1.2 million was driven by interest and amortization of debt discount associated with our loan and security agreement with Silicon Valley Bank. Pursuant to the terms of our loan agreement, we began repaying principal in December 2017.

In summary, the company incurred a net loss of $28.9 million or $1.27 per share for the year ended December 31, 2017 as compared to a net loss of 27.2 million in 2016 or $1.42 per share. In 2017, we've strengthened our balance sheet through two equity offerings. The first was a public offering of common stock in March 2017 and we received gross proceeds of approximately $16.1 million.

The second offering was a registered direct offering of common stock in December 2017 and we received gross proceeds from that transaction of approximately $9.5 million. We anticipate that our current cash position of $34.0 million will be sufficient to fund our anticipated operating cash requirements into the third quarter of 2019.

Importantly, we believe it will take us through the next several major clinical milestones, including the interim analyses and final results from the STRIDE-1 trial for treatment resistant depression, the interim analyses for the ADVANCE-1 trial in agitation associated with Alzheimer's disease, the results from the planned phase 2 of AXS-05 in smoking cessation and potentially the results from the planned Phase 3 trial of AXS-07 in migraine.

That concludes our 2017 financial review. And I'll now turn the call back to Mark to lead the Q&A discussion.

[Mark Jacobson, SVP, Operations]

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

[Operator]

[Operator Instructions] Your first question comes from Matt Kaplan of Ladenburg Thalmann.

[Matt Kaplan, Ladenburg Thalmann]

Congrats on the progress in 2017. Can you talk a little bit about how AXS-09 complements AXS-05 and your strategy there?

[Herriot Tabuteau, CEO]

Thank you Matt for the question. AXS-05 and AXS-09 are definitely complementary. Both of these molecules incorporate dextromethorphan and obviously AXS-09 does incorporate the enantiomer of bupropion, the S-enantiomer in AXS-05 incorporates the racemic. Now, we believed it was strong scientific rationale of AXS-05 and we envision launching it for a number of indications. But we also invested as a company on high science and innovation.

We want to build a franchise of CNS product candidates. AXS-09 just as a background resulted from us leveraging our knowledge of the bupropion molecule and also our chiral chemistry and formulation expertise. To our knowledge, this is the first time that a stable chirally pure single enantiomer of bupropion has been formulated and dosed in a clinical trial. And in fact we’ve dosed now both enantiomers of bupropion.

Now, why did we do this? It is known that enantiomers which are the superimposable or non-superimposable mirror images of the same molecule may significantly differ from each other with respect to pharmacokinetics and pharmacodynamics as well as molecular interaction. So one isomer may offer significant pharmacokinetic or therapeutic advantages as compared to the other isomer or the racemic mixture. In fact, based on the results of our recently reported Phase 1 trial and also preclinical data, we believe that the individual enantiomers of bupropion may each have unique properties that random and potentially useful in different indications.

So we are developing AXS-05 for treatment resistant depression and Alzheimer’s disease agitation and we intend to develop AXS-09 for future indications. So what this will allow us to do is utilize AXS-05 and AXS-09 to take advantage of the various different mechanisms of action of these agents to really address not only the current indications, but also all of the potential indications, which we have previously outlined maybe applicable to the pharmacology of these agents.

[Matt Kaplan, Ladenburg Thalmann]

And then just jumping back to -- staying on AXS-05, can you talk a little bit about the newly incorporated interim analyses that are planned in the TRD and the agitation associated with AD studies?

[Herriot Tabuteau, CEO]

I will turn it over to Cedric to provide details on the interim analyses and when they will occur. But before I do that, just a few words on the rationale for the interim analyses. Recall that there are two interim analyses, one for efficacy and one for futility. And the primary reason for conducting these interim analyses is the possibility of accelerating value creation with the interim analysis for efficacy. Now as far as the interim analysis for futility, there is no statistical penalty for conducting it. So, it is prudent capital resource management to do so.

Cedric?

[Cedric O’Gorman, SVP, Clinical Development and Medical Affairs]

That's right. Thank you Herriot and hi, Matt. I would just add that we've been very encouraged by reaching the approximate 40% milestone of enrolment with the study. We feel that this is a sufficient number which debates the first interim analysis for futility. As Herriot said, there is no statistical penalty associated with that and it can inform continuing the study.

[Matt Kaplan, Ladenburg Thalmann]

And then a couple of more questions, in terms of how enrolment is progressing in the TRD study?

[Herriot Tabuteau, CEO]

So operator, can we have the next question and Matt if you have follow-up questions, do you want to get back in the queue?

[Matt Kaplan, Ladenburg Thalmann]

Sure.

[Operator]

Your next question comes from Bert Hazlett of BTIG.

[Bert Hazlett, BTIG]

I have two. Just one quick one first. Maybe you mentioned it, but with regard to STRIDE-1, the second interim look at 60%. First one you said was clearly coming up here in the second quarter, the 60% target. Did you make a comment on when you might expect to receive that? And then I have a question on the esbupropion as well.

[Cedric O’Gorman, SVP, Clinical Development and Medical Affairs]

Thanks, Bert. It’s Cedric here. Just to say that yes, the interim analysis for efficacy for the STRIDE TRD study would be conducted at 60% of the target numbers, subjects enrolled and this would occur in the second half of 2018.

[Bert Hazlett, BTIG]

And then with regard to esbupropion, really an intriguing activity on your part. Could you characterize a little bit more of the pharmacology of the molecule compared to bupropion in terms of its receptor activity or pharmacokinetics or things like food effects? Again, it looks like there is a material opportunity here for you with this molecule, or perhaps the other one as well and love to know a little bit more about it?

[Herriot Tabuteau, CEO]

Thank you Bert for the question. We are excited to be the first group to embark on this innovative discovery. To our knowledge, this is the first time that the chirally pure enantiomers of bupropion had been dosed clinically. And in fact based upon the results of our Phase 1 results, based upon our Phase 1 results and also some preclinical work that has been done, we do believe that there are differences in the enantiomers, which may lend them to applicability in different CNS indications. So that is to say that being the first group to actually conduct this research, we are still in the early stages of learning about the potential benefits of each of these enantiomers.

Now, we have announced AXS-09, because we do believe that for the combination with dextromethorphan, the S-enantiomer here does make the most sense. We have indicated that what we have seen thus far is that the S-enantiomer does provide increased absorption and it may provide better therapeutic effects as compared to the R-enantiomer for certain indications. Now, what we have also seen from the phase 1 trial that we have completed is that the R-enantiomer also does possess other properties, which we also think may be applicable to other indications. So we look forward to further characterizing the activities of these two agents and we will be updating you certainly as we learn more and also as we make decisions as to which of the indications that we will take each of these molecules forward.

[Bert Hazlett, BTIG]

Well, thanks. We look forward to that and congratulation on the progress.

[Operator]

[Operator Instructions] Since there are no more questions, I will turn the call back over to Axsome’s CEO, Herriot Tabuteau for concluding remarks.

[Herriot Tabuteau, CEO]

Thank you all for joining us on the call today. We are committed to finding safe and effective treatments that can make a significant difference with patients suffering from prevalent and disabling CNS disorders. 2018 will be a busy and exciting year for Axsome with many important milestones for our ongoing late stage clinical programs, involving five different novel product candidates. We look forward to informing you of our progress in the months ahead. Thank you again and operator, you may now disconnect the call.

[Operator]

Thank you. Ladies and gentlemen, that does conclude today's conference call. You may all disconnect and everyone have a great day.