ACADIA Pharmaceuticals Inc (ACAD) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ACADIA Pharmaceuticals Fourth Quarter and Full Year 2017 Financial Results Conference Call. My name is Lisa, and I'll be your coordinator for today. (Operator Instructions) .

I would now like to turn the presentation over to Lisa Barthelemy, Senior Director of Investor Relations at ACADIA. Please proceed.

Thank you, Lisa. Good afternoon, and welcome to ACADIA's Fourth Quarter and Full Year 2017 Financial Results Conference Call. This call is being recorded, and an archived copy will be available on our website at www.acadia-pharm.com through March 13, 2018.

Joining me on the call today from ACADIA are Steve Davis, our Chief Executive Officer; Todd Young, our Chief Financial Officer; Michael Yang, our Chief Commercial Officer; and Dr. Serge Stankovic, our Head of Research and Development.

Before we proceed, I would first like to remind you that during our call today, we will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements including goals, expectations, plans or prospects are based on current information, assumptions and beliefs that are inherently subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date.

I'll now turn the call over to Steve Davis, our President and Chief Executive Officer.

Thank you, Lisa, and thanks, everyone, for joining us on the call today. Okay. Let's get started. 2017 was the year of strong performance across all parts of the business. We continued to see strong fundamentals for NUPLAZID, which is early in its growth phase, with a long pathway for attractive unit growth year-after-year in PD Psychosis. We also made important strides in advancing pimavanserin, as NUPLAZID is known generically, and additional indications, which have the potential to expand the NUPLAZID footprint multiple fold over the substantial opportunities, which already exist in PD Psychosis.

In 2017, we saw a robust uptake in NUPLAZID with revenue of $125 million, including $43.6 million in the fourth quarter. And as we look to 2018, we expect net sales to more than double to between $255 million and $270 million. Our 2018 guidance rests on strong volume growth for NUPLAZID, which in turn is based on solid fundamentals in the marketplace. And just to give you a few examples of these fundamentals, they include: Continued growth day after day in the number of patients taking NUPLAZID; growth in the number of physicians prescribing NUPLAZID, including at academic centers, in community practices and in long-term care facilities; greater depth with physicians that is individual physicians prescribing NUPLAZID to a higher number of their patients; market research results that consistently continue to demonstrate very high levels of physician and patient satisfaction with NUPLAZID, including physician intent to prescribe more; and finally, we continue to enjoy very high levels of access.

I'm going to take just a second to add a little bit more texture. The growth we're seeing is consistent with what we often see with paradigm-shifting drugs. Because NUPLAZID treats a chronic progressive condition, patients should take the drug every day for the rest of their lives. These recurring patients create an installed base as we call it, upon which new patients are added every day. And, of course, as we continue to add patients, the installed base grows larger and larger. At this base the patients is growing, we are continuing adding new physicians, creating a different kind of installed base of sorts, with physicians who are continuing to increase the number of patients they have on NUPLAZID.

From the point of the launch of NUPLAZID, we understood that 2 key dynamics drive this opportunity with physicians supporting a profile of continued growth over an extended period. First, reaching full market potential with the very novel drug like NUPLAZID requires experience. It requires continued education and more and more physicians getting first-hand experience with the drug. That is happening. Second, historically, physicians and patients have focused mainly on treating the motor symptoms of Parkinson's disease. This creates lots of room for sustained growth for patient and physician awareness and education. In support of the solid progress we're making in advancing a long and productive growth profile for NUPLAZID, we initiated several new programs in the fourth quarter 2017. These efforts include a National TV disease awareness campaign, I'm sure many of you have seen. This is a market that is ripe for disease awareness and education. Parts of NUPLAZID there was little to no education about the condition. The vast majority of patients and caregivers had no awareness that psychosis is part of Parkinson's disease. We are changing that. While it's still early in the television campaign, initial indicators are very, very encouraging.

In the fourth quarter, we also initiated several new programs in commercial operations. We have the same number of sales reps, but we are deploying them very differently and much more effectively. Michael will go into greater detail in a moment, but let me just say here that we are beginning to see clear evidence of the benefits of these efforts in the form of an attractive increase in the rate of growth of new patient acquisitions and an increase in the rate of physicians writing NUPLAZID.

Turning now to the research and development. In 2017, we also made major progress in advancing new potential indications for pimavanserin. We initiated our Phase III HARMONY study in dementia-related psychosis last quarter, and we also were pleased to receive Breakthrough Therapy Designation from the FDA for this indication, which underscores several things: the seriousness of the condition, the fact that there is no approved treatment and the compelling data we generated from our earlier studies in Alzheimer's and Parkinson's patients.

Our other late-stage programs in schizophrenia inadequate response, schizophrenia negative symptoms and major depressive disorder also continue to move forward. This year and next, we'll have a number of milestones and data readout from the MDD study expected in the second half of 2018 and results from our 2 schizophrenia studies expected next year.

I'm going to take just a brief moment to focus on MDD since it's the first study you read out. MDD affects approximately 16 million adults in the United States. Unfortunately, the majority of people who suffer from MDD do not respond to initial antidepressant therapy. And as a consequence, physicians often add current generation antipsychotics to the antidepressant therapy. However, even at the lower dose used in depression, the nonselected biochemistry of previously existing antipsychotics that are currently approved for this use can lead to very significant side effects, such as cognitive impairment, sedation, weight gain, extrapyramidal symptoms and rare but serious tardive dyskinesias. These side effects are particularly problematic in special populations, such as elderly or demented patients. Given pimavanserin's highly selective SSIA mechanism of action, which is completely different than all other antipsychotics on the market and its favorable tolerability profile, we believe pimavanserin could be a very important new tool for treatment resistant depression, avoiding the significant side effects burden of existing adjunctive therapies.

In summary, we're off to a very strong start in 2018. We remain laser focused on executing our strategic priorities.

And with that, I'll now turn the call over to Todd for a review of our financial performance.

Thank you, Steve, and good afternoon, everyone. Today, I'll discuss our financial results for the fourth quarter and full year 2017, and then I'll provide further comments on 2018 guidance.

As Steve noted, NUPLAZID delivered strong revenue growth during the year. Consistent with our guidance, net sales in 2017 increased to $124.9 million, up from $17.3 million in 2016. Our gross-to-net adjustments for the full year was approximately 16%. Net sales for the fourth quarter of 2017 grew 263% over the fourth quarter of 2016 to $43.6 million, and grew 22% on a quarter-over-quarter basis.

Our gross-to-net in the fourth quarter increased to around 13.5% from around 12% in the third quarter. Our gross margin in the fourth quarter was the highest of 2017 at approximately 92%.

On the expense side of the P&L, total operating expenses, including cost of goods sold, were $113.6 million for the fourth quarter. This amount included approximately $22 million of noncash stock-based compensation. Our R&D expense in the fourth quarter was $43.2 million, which included $7.9 million of noncash stock-based compensation expense.

SG&A expense in the fourth quarter was $66.7 million, including $13.4 million of noncash stock-based compensation. From a cash flow perspective, cash used in operations was approximately $30 million for the fourth quarter, and we ended 2017 with $341 million of cash on our balance sheet.

As Steve mentioned, for the full year 2018, we expect continued strong growth for NUPLAZID, with net sales between $255 million and $270 million. With a significant Medicare component to our business, there will be some seasonality to our 2018 sales. We expect net sales in the first quarter to be in the range of $45 million to $48 million. This guidance reflects projected growth of NUPLAZID on a gross-sales basis to be in the mid-20% range.

As we've noted in the past, first quarter net sales reflect the impact of higher seasonal gross-to-net adjustments that are associated with the annual reset of the donut hole obligation that we have as a manufacturer for our Medicare Part D patients. We expect our first quarter gross-to-net adjustment to be in the mid-20% range.

For the full year 2018, we expect gross-to-net adjustments to be in the mid- to high-teens.

On the expense side for Q1, we expect R&D to be in the mid-$40 million range and SG&A expense to be in the high-$60 million range, which reflect the continued investment in our late-stage development programs and the commercialization of NUPLAZID in PD Psychosis. We continue to enjoy a strong balance sheet. As noted earlier, we started 2018 with $341 million of cash, and we've anticipated our cash balance at the end of this year to be in excess of $200 million.

And with that, I'll turn the call over to Michael.

Thanks, Todd. We're pleased with the execution of our commercial plans and the market response among physicians, patients and caregivers to our efforts to increase the education and awareness of PD Psychosis.

Let me start with some key measures we implemented in 2017. In April, we expanded our long-term care sales force, and as a result, we have seen the specialty distributor side of our business, which includes long-term care, VA and TRICARE, to grow to approximately 30% of our overall business.

In October, we optimized our territory coverage in rural areas, with hybrid reps to facilitate deeper penetration into both neurology offices and local long-term care facilities.

In November, we launched a key account team to focus on Movement Disorder Society, centers of excellence and other key academic centers. And in late November, we broadened our direct-to-consumer activities and launched a national TV ad campaign to drive awareness of PD Psychosis amongst patients and caregivers. The goal of this campaign is to close the PD Psychosis awareness gap. Although it's well accepted amongst physicians that Parkinson's is a chronic and progressive disorder, in which symptoms such as psychosis emerge over time, we realized that patient and caregiver awareness of psychosis was very low.

In our latest market research since the campaign aired, we've seen significant increases in unaided awareness of psychosis among PDP caregivers, who is our core target audience.

Additionally, around 30% of key movement disorder specialists observed an increase in patient and caregiver disclosure of PD Psychosis symptoms. The campaign also provides important resources and information to patients and caregivers on our moretoparkinsons.com website. We've had over 200,000 unique visitors to our moretoparkinsons.com website. Importantly, there had been over 25,000 what we call high-value actions taken on the website. This includes watching or downloading patient videos, downloading doctor discussion guides and using the Parkinson's doctor finder app on the website.

We're pleased to see this campaign is achieving its goal of stimulating patient and caregiver discussions with their physicians about PD Psychosis.

Moving on, we've also forced important channel relationships with 3 of the largest GPOs in the long-term care market. And finally, we've made important additions to our commercial leadership team, including bringing on Amanda Morgan, who joined as our Vice President of Sales in June, and Charmaine Lykins, who joined as Vice President of Marketing earlier this month.

To add with Steve's comments, we're seeing early results of these measures to increase rates of new patient acquisition and patients writing NUPLAZID. We're gratified in the momentum we're building, and more importantly, the opportunity to bring NUPLAZID to patients with PD Psychosis as well as the caregivers and their families who care for them.

So with that, let me turn the call over to Serge.

Thank you, Michael. I would like to start with the reminder that pimavanserin represent new way of treating neurobehavioral symptoms. It is a selective serotonin inverse agonist, preferentially targeting 5-HT2A receptors, and the first nondopamine blocking antipsychotic to be approved by the FDA. There is a strong clinical body of evidence, showing broad-based effect for treating neurobehavioral symptoms. Pimavanserin has demonstrated efficacy in 3 very different disease states: Parkinson's disease psychosis, Alzheimer's disease psychosis and schizophrenia.

Pimavanserin also has a favorable tolerability profile. In contrast, other antipsychotics carry significant side effects and tolerability issues. Against this backdrop, we are advancing 4 late-stage development programs in CNS areas, where there are either no approved treatments or there is a strong need for improved treatment options. They focus on some of the most pervasive and chronic CNS disorders of our time, including dementia-related psychosis, schizophrenia inadequate response, schizophrenia negative symptoms and major depressive disorder.

My comments today will focus on our MDD program, along with a brief update on our dementia-related psychosis program. As Steve mentioned, the majority of patients with MDD do not respond to initial antidepressant treatment and require adjunctive therapy. Preclinical and clinical evidence suggests blockade of 5-HT2A receptor may improve clinical effects of SSRIs, typically the first line of defense in treating MDD. Historically, there have been other 5-HT2A-related compounds tested in clinical studies and have shown encouraging antidepressant effects. Our Phase II CLARITY study is a 10-week randomized double-blind, placebo-controlled, multicenter study, designed to evaluate the efficacy and safety of adjunctive use of pimavanserin in patients with MDD, who have an inadequate response to standard antidepressant therapy, with either an SSRI or SNRI. Approximately 188 patients will be randomized to receive either 34-milligram of pimavanserin or placebo, orally once daily in addition to their ongoing antidepressant. The primary endpoint is the change from the baseline on the Hamilton Depression Rating Scale total score. Top line data from this study are expected in the second half of this year.

Turning now to our program in dementia-related psychosis. As you know, we initiated our Phase III HARMONY study of pimavanserin in dementia-related psychosis this past quarter. I am pleased to announce that we have opened all U.S. sites in HARMONY and continue to open international sites. We are making good progress on this study, and are excited about the prospects of pimavanserin to improve the lives of people who suffer from dementia-related psychosis. Let me now turn the call over back to Steve.

Great. Thank you, Serge. So in summary, we've made great progress in 2017, and we're even more excited about 2018. With that, operator, I'd like to open the call up for questions.

(Operator Instructions) Your first question comes from Cory Kasimov with JPMorgan.

I have one commercial one and one pipeline one for you. So I guess, on the commercial side of things, just curious about the early impact you've seen, if any, from the new PDP guidelines in terms of the overall awareness and interest in NUPLAZID. And then on the pipeline side of things, for the DRP clinical trial design, are there any built-in analysis prior to the interim that you're going to run, for instance, would you be aware of what percentage of patients complete the open-label lead in to determine whether or not you should take any action like resizing the trial or anything along those lines?

Right. Thanks, Cory. I'm going to ask Michael to address the commercial question. But just to be clear on it, I think what you're asking about is the new CMS guidelines in the long-term care settings designating that PDP is an enduring disorder, which may require enduring therapy.

Exactly.

Okay. Great. Michael, do you want to answer that?

Sure. Thanks for the question, Cory. Obviously, this calling out of the PDP as an enduring condition is being positively received from the director of pharmacies and nursing at the long-term care facilities. Importantly, however, it doesn't specifically call out NUPLAZID, I want to make sure that was clear. So we are leveraging these guidelines to have the appropriate patient start conversations and how to move that into their protocols. But it's early days yet, that guidance didn't go in effect until the end of November. So really, only a couple of months there where it's being digested. And I might add, that there was -- we're calling out that one guideline, but there were a large number of other what we call F tags on that guidelines. So we're just one of many things that were changed in long-term care.

Great. Serge, do you want to take the pipeline question?

Yes. Cory, thanks for the question. Other than preplanned interim analysis, we do not have prospectively planned any analysis in the course of this trial. However, having said that, I do want to point out that the 12-week stabilization period, first period in the study is an open label. So in our regular monitoring of the trial, we will be aware of the numbers of patients that are entering the open label phase of the study, and also the number of patients that are completing that study and whether they are successfully being randomized or meeting randomization criteria or not, including what type of dementia these patients have. So we will have that level of awareness, but there is no preplanned resizing on the study on the basis of this information. It is more information work for us to know whether the proportions of patients that we are having are following the general prevalence of different dementia subtypes.

Okay. So Serge, just to follow up on that one point. I mean, with all the history you have with NUPLAZID, do you think that this initial open label run in period in terms of the percentage of patients that are responding should be pretty predictable for you guys?

Yes, we do believe so. And that's how we essentially sized the study. So I just want to remind you and everybody that we -- the study is sized eventually by the number of the events, and its power on the basis of the number of events. And from that, or relapses, to be more precise. I mean from that number, we kind of backtrack to the total number of required patients to be -- to enter the open-label stage. And on -- those calculations were done on the basis of our data, both in our control trials as well as in the open-label trial.

Okay. Great. That's helpful.

Cory, just to echo Michael's comments on the new CMS guidelines. They're very new as part of the 700-page document. It does give us an important point of leverage in a value-added way. It puts us in a position to really help these facilities understand the implications of this, and of course, being the only drug approved to treat PDP, is an important distinction, as we pointed out as well. So it's a very important development for us. It's one that we expect to be able to leverage in a very educational and beneficial way in the long-term care setting.

Your next question comes from Charles Duncan with Piper Jaffray.

Hi Guys. Thanks for taking my question. Congrats on the -- sequential growth as well as year-on-year. Had one commercial question, and then one or two development questions. On the commercial question, 22% sequential growth, 3Q to 4Q, could you help us understand the impact of pricing within the quarter versus new patients and their persistence? What was the greatest contributor to that growth?

Yes. Todd, do you want to take that?

Sure. You're right, obviously, Charles, we did raise price during the fourth quarter, and so that was a contributor to the growth. We also had a little higher gross-to-net cutting against us as well as a little shrinkage of inventory in the channel that cut against us, and so underlying demand growth was in the high single digit range for Q4.

Okay. And as a follow-up, I guess, given the guidance, and thank you very much for providing that, what are some of your assumptions behind the guidance in terms of the approximate impact of new scripts or patients versus, say, pricing?

I'll take a stab at that, and Todd feel free to jump in if you'd like. So we're not going get into some of the specific assumptions that we're making. But what I would say, and again, this is a situation we try to get the people on the street to understand the business the way we do as best as we can. What we saw in the fourth quarter was a little bit of tapering of the rate of organic growth. We knew that was likely happened because we knew we're instituting a lot of things that Michael described in the fourth quarter. And any time you do that, there is a certain effort that's required to do that. As we mentioned, we're seeing the benefits of that already. So as -- to try to be as thorough as we can, as we've mentioned, we're seeing a very attractive increase of new patient acquisition. We're seeing increase in the rate of new physicians writing drug. So those are 2 key metrics, 2 key elements that underlie our growth assumptions in our guidance, both for the quarter, but most importantly, really for the year.

Okay. And the vector in terms of persistence is pointed up and to the right, if you will? Or increasing?

Yes. It's still relatively early days in the launch in terms of getting those longer-term persistence metrics. But the drug continues to look very sticky as we said before kind of very scientific way, so to speak. What we see is once you get past the initial degradation, you tend to see with all drugs of this sort, patients had very high satisfaction levels, physicians have high satisfaction levels, and that's translating into what appears to be a very sticky drug.

Okay. And just quick development question for Serge. On the MDD study, we are assuming it's still enrolling. But can you provide any color on the type of background meds the patients are most commonly on? And are these patients who had to previously respond at some point to their serotonin or norepinephrine reuptake inhibitors?

Sorry, Charles, I didn't hear the second part of your question. What types and ...

Previous responders in the past, yes.

Okay. Yes. First -- the first part of the question, the distribution of background, SSRIs or SNRIs is pretty similar to what you would see in general in terms of the use of this drug. There are no any specific difference, and we are conducting this study exclusively in the United States, there are jointly U.S. sites involved in the trial. So from that perspective, we are seeing what one would usually see in terms of the background, medication and representation of different SSRIs. In terms of the second question, we -- this is a study for inadequate response. It's not really a core treatment resistant depression study, where the patients essentially do not have any response to their current antidepressant. In this particular case, these patients have -- can have some response, but the response are such that they still do not have a full remission or they still have a sufficient severity of depression symptoms that qualified them for the study. Also, there are no requirements that patients are not previously responsive, actually they do have a history of -- they may have history of positive response in the past.

That's helpful. And last question regarding HARMONY. FDA recently issued draft guidance for drug development in Alzheimer's disease. Not sure if this really applies, but wondered if you had a perspective. They called out one of their preferred designs, being the withdrawal design, and I believe that's very consistent with your work with the HARMONY protocol? Do you have a perspective on that?

Yes. I mean, I actually appreciate you mentioning that we were also pleased to see that. And you're right, there are no direct implications for our program in those guidelines. Although reading that there are several elements that one can say were reflected in our discussions with them in terms of the tackling the both the disease modifying and symptomatic treatment in patients with dementia. And one was the trial design, another is urgency of needs to expedite development in this particular patient population. But there are no direct implications that we see from that document in our development program.

Next question comes from Ritu Baral from Cowen.

My first question is on some of the initiatives, commercial initiatives that you detailed, Michael, over the course of 2017. Specifically, the November initiative where you targeted the movement disorder centers. Is this something that was part of the original targeting? How is -- what you did in November different than the initial strategy? And two, what's the advantage in the sort of October move to hybrid rep long-term care neuro? And I've got a follow-up for Serge.

Ritu, great questions. So yes, I think that we were for sure in the prior structure covering both of those entities, let me address them specifically. So what I would consider this -- the MDMs or key account reps is an overlay to our existing reach and frequency. And the basic premise here is that these key academic centers want to be -- want to have a different relationship other than just a sales rep calling on them. And so the folks that we have in the marketplace are some of our best reps. They've been elevated to a position where they can be a little bit more strategic and expansive with these KOLs. And so it does help us create a different kind of relationship, and we're seeing early fruits of just that response to these new resources. And it's kind of a positioning where we're treating these high-value customers who have deep reservoirs of patients and want to have a different relationship, and that's what they're getting from us on that side. With regards to the hybrid reps, we had a certain number of territories where we were overlay -- we had resources, both in the long-term care and our regular reps going in there, and really the rural geography, many times the local physician is, in fact, the admitting physician to the long-term care facility. That's quite different than, say, your more higher metropolitan areas, where there could be a separate specialist there. So it made sense to pull back our long-term care work there and concentrate our efforts. And so we have kind of what I'd call a total "dirt" mentality in these areas. And we're seeing the early fruits of that concentration, both with our long-term care group being more specific to and deeper in metropolitan areas, and also the logic of a single rep calling in a local geography, chasing the doctor and the demand model all around. So it doesn't -- we don't have an overcomplicated structure in those geographies where they don't mandate that.

Got it. So it sounds like for the key accounts being the target is more patients for a treating clinician rather than increasing the number of treating clinician. Did I interpret that correctly?

I'm sorry, I kind of missed that. Can you repeat that.

Sorry. The strategy behind the key account team at the movement disorder clinics is to increase the number of patients per treating clinician rather than expanding the number of treating clinicians in these centers. Am I interpreting your answer correctly?

Well, I think, clearly, that there is an opportunity to get deeper penetration with those specialists who see a lot of patients for sure. But one must also consider the reputation or influence network that comes from getting these centers to more fully adopt NUPLAZID. They are local influential and even in some cases, nationally influential in regards to the adoption. So there is also the referral/reputational impact about getting these centers to adopt in a deeper way.

Got it. And then my follow-up is for Serge, actually, Steve and Serge. On the interim for the HARMONY study, what's your confidence level around where the threshold? Can you remind us where the threshold -- apparent threshold is set for the interim and just how you're thinking of your confidence going into that and what it could mean strategically for the DRP program?

Well...

Please go ahead, Serge.

Okay. Well there are two elements that may inform us in terms of the level of expectations of what could happen at the interim analysis. They're both historical and both know directly related to pimavanserin as we don't have that experience with pimavanserin. But we do know that from a number of randomized withdrawal trials in other psychiatric indications such as schizophrenia or depression, a vast majority of this trial has concluded at the interim analysis with -- in trials that with a variety of different drug, with variety of levels of clinical effectiveness. Second element is in the Devanand study that was positive outcomes where reach at the very small number of events and small number of patients. So that's another element that gives us some information and level of expectations what we may see with pimavanserin at the interim analysis. But the answer to your question is, of course, we will not know until we do the analysis.

So, Ritu, just to echo Serge's thoughts, so we had powered the study at 90% level based on assumptions we made, which would be typical for Phase III program. When you do an interim read, I think everyone knows this but you split the P value here. Some of it you assign to interim read and some of it you assign to the full analysis of the human study. Because of the very high statistically powering in this kind of study, this study design, this relapse prevention study, it gives you more flexibility. You can set the bar very high on the interim read, and still have a meaningful shot at hitting it. If you don't, that's fine. You've got a much lower bar, statistically speaking, in terms of how you split the P value for the full analysis. So I would just say this type of study design, Serge has mentioned this, it bears repeating. This study design is very statistically powerful. They have a very high success rate, it gives you more flexibility on your interim read and how you split that P value.

And then strategically, what would an earlier interim read out potentially mean for the DRP program, suppose it was a 2018 interim? What sort of timelines are you thinking? Is there anything else, any other clinical data do you need to gather to move this program ahead expeditiously?

So let me just point out we're not indicating when we could do an interim read, so I just want to be really clear on that. But at the time of an interim read, we expect to have a safety database that is substantial given the work that we've done in the area and the work that we're doing in addition to this study. And we would expect that if we were successful in having victory at the interim read, I just want to be really clear, it's a much lower bar, it's a full analysis so sometimes that high bar is not hit, although in these kinds of studies it frequently is. But if we have a full read there, we feel like we're well equipped to -- from that point to go right to registration, assuming that we have a robust efficacy response, which, as we've agreed with the FDA, could serve as the basis of a submission based upon the single study.

Your next question comes from Tazeen Ahmad with Bank of America.

So Steve, for you. I guess, I've been getting a lot of questions on price increases that you've taken recently. So you went the first year of the launch effectively not really taking any price increases. And then last year, you took 3, one in April, one in October and then another one in December. And now you've talked about why you've taken -- why you took the December one, and may be, for the benefit of everyone else on the call, it helps to repeat that. But for people that might have concerns that some of the reasons behind taking these price increases so close together is that you might be seeing signs that your volume growth might be starting to plateau. So can you guys give us any color on how you're thinking about price increases? And what gave you the confidence to take the price increases you did last year? And long-term, how are you thinking about the volume growth?

Great. Thanks much for the question, Tazeen. You get a lot in there, so if I don't cover everything, please redirect me. Let me just start by saying as we've always said, we priced the drug based upon the value that we're delivering. The value that you deliver when you are launching a drug is based upon results of clinical studies in a very highly controlled clinical setting, and you don't have as much of a feel for the real-world application of the drug as you do after you've launched the drug. So we were much better equipped during the course of 2017, our first full calendar year on the market, to appreciate and gauge the value of the drug that we're delivering. Again, I don't want to make too much out of anecdotes, you've heard me say things like this before. But we've had instances where we've had patients who were in a nursing home, go on NUPLAZID, go home for a weekend, and stay home. So it's just an example what kind of value that we believe are delivering. So those -- that refined view of the value the drug is really 100% behind the price adjustments that we made last year. As we go forward, I think you heard us say a number of times on this call, our guidance for 2018 is based upon the volume growth that we anticipate with NUPLAZID. I don't want to get into whether we take price increases in 2018 or not, we don't comment about those things in advance, but I'd just simply say, that the -- what we would expect going forward is likely that our price adjustments will definitely always be based upon the value we're delivering on the drug, but they're probably likely to be more in line within at the cadence that you typically see with pharmaceuticals. I think I covered everything, but, Tazeen, if I didn't hit everything, please let me know.

Yes, if you could just remind us why you'd set a price increase in December after having taken one in October.

Yes. So one consideration was we're seeing in a number of states the requirement to give advance notice of price increases as you go forward or make other disclosures about your price increases there is legislation in several states, along those lines. In particular, one state happened to be California, its a new legislation that took effect in the beginning of 2018, which requires exactly that, it requires giving advance notice to -- 60 days prior to taking a price increase. One probably unintended consequence of that is they will put distribution partners in the channel in a position where they may cause some clunkiness in sales as they build inventories, trying to take advantage of the old price before you get to the new price. And we just want to try to avoid that. We anticipated that we probably will be taking another price adjustment in the first half of 2018. We felt like to avoid that clunkiness that might be a result of that kind of notice we took it a little bit earlier than we otherwise would have.

Okay. And then may be can you remind us what the trend has been for market share from long-term care this last quarter in 4Q versus 3Q?

Yes, that hasn't changed. Michael, do you want to take that.

Yes. We haven't seen, when you say market share, I don't know we've reported on market share.

Split between the long-term care and specialty business.

The split, right. Yes, we see that the split modestly grew. But LTC was about the same rate as it was last quarter.

And what was that last quarter?

LTC was about 30% of the business, and it's roughly in that ballpark now.

Okay. And I guess what's been the impact, do you still expect to see impact? You did increase the number of sales people that you hired to focus specifically on LTC. Do you think you still have more room to grow there?

Yes. For sure. That's an area that we still feel is underpenetrated. I just would remind you that the growth of LTC and that percentage is a percentage on the rate of growth on our total business. So we have a lot of moving parts when we calculate that that ratio. So -- but be that as it may the opportunity in long-term care, we still see is a very robust opportunity given the amount of patients that are there, their condition and are relatively early stages in penetrating that market.

Your next question comes from Paul Matteis with Leerink Partners.

My first one was just on the patient growth assumptions for 2018. Correct me if I'm wrong, but from our math, we're looking at, from Q3 to Q4 in 2017, we see about single digit percent organic growth, just maybe volume growth or patient growth. And for 2018 guidance, without any additional price increases, it looks like a sequentially quarter-over-quarter we're looking at low double digit percent to mid-teens percent growth sequentially in patients for 2018. Is that math, right? And I guess, if so, what do you expect is going to be driving kind of a repickup in volume growth sequentially?

Yes. So Paul your math is pretty close, the organic growth in the fourth quarter, over third quarter was in the high single digits and we are anticipating that being higher in the range that you described during quarter-over-quarter throughout 2018. The dynamics that support that really are the things that we've talked about in this call. We're seeing an attractive growth in patient acquisition and physicians writing the drug, we're continuing to grow in long-term care. So we think that this is a disorder where the, as we mentioned, there is a big gap in communications around the disease. And for all the reasons that we've mentioned earlier, we anticipate this continuing to be a very, I could characterize this verbally and people interpret this differently, but just a very steady continued growth curve as we typically see the drugs like this, which is different than the growth curve you might see with an oncology drug or rare disease drug.

Okay. Okay, thanks Steve. And then what are you observing now? I mean, I guess, you got a year and a half behind you. What are you seeing in terms of compliance and persistence relative to Phase III trials in Parkinson's psychosis?

I'm sorry. Paul, could you ask the question again? I didn't hear the last words.

I apologize, yes. What are you observing for NUPLAZID in terms of patient compliance and patient persistence, things like discontinuation rate relative to what you saw in the Phase III studies in Parkinson's psychosis?

Let me -- I'll answer it as directly as I can. What we're seeing, as we said before in PDP in the marketplace, is with drugs like this, you have a pretty significant drop off in therapy within first couple of months, or the first month or 2, with all drugs, we see that with quetiapine you see it with other drugs used in this space and just other drugs like this in general. And that's due to a whole lot of things, including drugs don't work typically in every patient. You have some discontinuations due to adverse events, you have some patients that are just not committed to therapy. So we see that kind of thing. The real question is what happens once you get through the initial degradation. What we're seeing, continuing to see is what appears to be a very sticky profile of the drug. It's very early, I said earlier, in the days to, of course, be able to measure how long the patients ultimately stay on drug, when we only have a certain number of patients that have been on for more than 12 months at this point in time. But we're continuing to see a very attractive profile from that perspective. In relation to what we saw in the clinical studies, it's just a different environment. It's an apples to oranges comparison. You really can't make those kinds of comparisons in a well-controlled clinical study where investigators are giving a different standard or a different level of care typically than you might see and maybe different frequencies of visits, et cetera. You just really can't compare the two.

Okay. Okay. Fair enough. And then just one last one. As a result of taking price a few times, have you seen any changes in access with the nature of prior-auth requirements, the frequency of which plans are requiring quetiapine step-through?

No. No, we have not. Look at key players, they understand the value of the drug, they understand there's nothing approved, other drugs have the potential to interfere with the motor therapies, they're highly sedating, they've historically been used as chemical straightjackets in long-term care, I think they get all of that.

Your next question comes from Alan Carr with Needham Company.

Have you any change in the mix of prescribers neurologist versus psychiatrist and that sort of thing, or is that stable now? Also, in the payer mix, wondering if that's shifting also or if that's stable. And the last is the harder for you to tell, but are there any trends in terms of as far as you can tell in terms of what type of patients are being treated with the more severe disease or less severe disease, that sort of thing?

Great. Michael?

Yes,. Thanks for the question. We haven't really, I think, we're in a really stable period now with regards to both payer profile and prescribing universe. Just as a reminder, one area that we have seen importantly to penetrate the geriatric psychiatry who are more affiliated with long-term care facilities but in regard to neurologist and the profile of the folks that we're seeing. Not much changed there. And in regards to payer, same thing. In regards to the types of patients we're seeing, obviously, the physician who's using us a little earlier on, they tend to give us more, what do you call them, more the trainwreck-type patients, the more difficult patients, doctors are becoming more and more familiar those and have had more experience with it, they tend to move more what I call upstream, maybe not of the mild, but more of the moderate patients, knowing that benefit that could be seen by NUPLAZID in a longer time basis. More needs to be done in that area for sure.

And then more of the opportunities in the upstream to less severe, right?

Yes, it's a kind of -- there's 2 different channels. So if we get the long-term care, obviously, those patients are more, I would call, on the severe side. And then if you go in to general neurology, obviously, trying to get the younger, more moderate patients affected by PD Psychosis.

Your next question comes from Jason Butler with JMP Securities.

Just in terms of the new docs that you're seeing today prescribing versus back at the launch. Can you talk about how the prescribing habits compare. Other than, obviously, the type of patients that you just mentioned? The number of patients that new physicians are trying the drug with? How quickly they're willing to try the drug in a broader population?

Sure. Obviously, when we launched, there was a bolus of patients on this sideline waiting for the approval. Once that has been we're well pass that now. And the adoption by physicians in general can be [inaudible] in regards to early adopters than there's late adopters, and I think there's a fairly conservative nature to the neurologist in general, and they want to see that the drug is going to pass a certain period of time from a safety perspective. So I think we're working through the early adopters now, and those are in the deeper penetration mode where they move that to standard care in their practice. As we penetrate more, so to speak, upstream physicians more later adopters, that becomes more how many patients they see, the experiences they build with the product et cetera. And so we're -- I think we're, as Steve had said on the call earlier, 2018 right now we're in a very much execution mode. I think we have the right profile of the resources now, consumer programs are adding a lot of conversations in the doctors' office, which is providing a robust conversion opportunity for our sales reps. So I think we're in a very much in execution focus, getting physicians' broader experience in identifying patients for starts.

Okay, great. And then just another question on persistence. In that group of patients that you talked about the drop-off early, other than the efficacy piece and the safety piece, are there reasons for drop-off that you could do something about, either in terms of cost or access that there's still a positive return on investment on the addressing that early persistence rate?

Yes, a great question. It's the kind of thing you always tried to improve on. And we compare ourselves to other analogs in niche market in the industry, and I think we're comparing very favorably from that regard. But it's not say that we don't continue to strive even better we'd like to be the gold standard, so to speak. One thing I'll just mention in that regard that is an important consideration is there is a difference between drugs distributed through retail channels and specialty channels. And so when you distribute through the retail channels, there's a very high percentage of patients that never show up at the pharmacy to pick up the drug. That is if it's not an oncology drug, et cetera. And in our case, we distribute to the specialty pharmacies, so every prescription that's written, the patient gets put into the system automatically and we reach out through our hub or specialty pharmacies reach out the prescription goes directly to them. So as a consequence patients get into the system without the line loss you have, so to speak, from patients that just don't show up at the pharmacy. That doesn't mean that every patient is going to be committed. And so you will still have some loss associated with patients that are not truly committed to the drug, but the net effect is a positive. We'll retain more of those patients through specialty distribution than you would from patients that just don't show up at a pharmacy, and obviously, they're lost that forever.

Mr. Davis, please proceed to closing remarks.

So thanks again, everyone, for joining us on today's call. Have a great evening.

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