Atai Beckley NV (ATAI) 2022 Q2 法說會逐字稿

Hi, everyone, and welcome, and thanks for joining us for the atai second quarter earnings call. I'm Greg Weaver, CFO of atai Life Sciences. We're very pleased to have you join us.

I'm joined by our CSO, Srini Rao; our CEO, Florian Brand; and Stephen Bardin, our Deputy CFO, who joined our team last month and was most recently from BridgeBio.

Today is my last earnings call as atai's CFO, and I'm very pleased and confident to be handing the CFO reins over to Stephen. He'll be taking on the role as of tomorrow, and I'll remain one of the adviser to the company through the end of the year.

Stephen, do you want to jump in and do an introduction?

Yes, of course, and thank you so much, Greg. I'll keep this brief. I am incredibly honored to be selected as the next CFO of atai. My first month at atai has been incredible. And I'm thrilled to be joining this fantastic team. And I can't wait to make a huge impact in the field of mental health. Back to you, Greg.

Thanks, Stephen. It's great to have you on board.

But today, the interview format will be led by 2 of our long-term analysts, Andrew Tsai from Jefferies and Judah Frommer from Credit Suisse. Over the next 30 minutes, Andrew and Judah will be asking us a series of questions on our Q2 activities, pipeline and the business update.

So forgive me for this bit, but as a reminder, our discussion today may include forward-looking statements about atai's future results and performance, subject to risks and uncertainties that may cause actual results to differ. atai does not undertake any obligation to update such statements, which speak only as of today.

And with that out of the way and just before kicking off the interview, a brief comment on the key financial takeaways for the quarter as we reported in today's earnings release. First, our Q2 operating use of cash was $23 million and was in line with expectations. So no surprise there.

Second, in addition, let me draw your attention to the other press release from atai this morning, where we importantly announced that we've added our Hercules debt facility of up to $175 million. Third, and really the critical point, is that with the combination of $312 million in total cash and the addition of the debt facility, it's approaching $0.5 billion. We have a very strong runway, which, in combination with the pipeline prioritization and some thoughtful cost tightening, we now forecast runway extending into 2025. That's a full year beyond the earlier guidance and an important takeaway here, and as we continue to exercise a disciplined use of cash in this challenging macro environment.

So with that, let's move into the interview section. I'll hand the mic over to Judah from Credit Suisse to introduce himself and kick us off. Judah?

Great. Thanks to the atai team for having me and inviting me to participate. Greg, it's been great working with you and best of luck in your future endeavors. Stephen, welcome to the team as well. We're excited to work with you. .

So maybe just kicking off with a financial question. This has not been an ideal time maybe outside of the last few days for some mid-cap biotechs to be raising capital. And in light of your recent news, you have reasonable runway and a broad pipeline already in clinic. So how should we think about priorities for capital allocation over the next 18 or so months? And how does your current runway factor into this?

Judah, we are very, very confident in the measures that we've taken to extend the runway, as Greg mentioned, by 1 year into 2025 because we believe that the combination of a nondilutive financing, the debt facility of Hercules of up to $175 million, combined with a very intentional strategic and thoughtful way of reprioritizing our pipeline, puts us into the position to now really execute and focus in a focused way on all the very meaningful PoC data inflections that sit in the 7 clinical programs, and soon 8 clinical programs, that we are focused on going forward. And we believe that this will be appreciated by investors and not need -- we don't anticipate any additional funding to actually deliver on those PoC readouts. And I think that's an important takeaway for investors.

Okay. That's really helpful. And then should we read that as an inclination to further focus on later-stage programs, potentially at the expense of earlier ones or business development activities? Or should we continue to think of atai as in the process of further building a broader neuropsych platform?

Yes. I would like to emphasize that we have, over the last years, built a very, very strong pipeline and platform already with many clinical programs, but also many enabling technologies that, together with the clinical programs, in our perspective, have been proven very, very effective and efficient when it comes to -- in a very focused way to develop those compounds. And that puts us in a very strong position to have a great basis to execute on the current trials. And to your point, we will focus more on the clinical programs going forward, and we can go into those a little bit further in this call for sure.

And on the BD side, we continue -- and you know BD or M&A is in our DNA. We have built a tie through aggressive M&A and BD. And especially in those depressed valuations that we are seeing, we continue to be very, very active and are on the lookout for assets, companies, technologies that can accelerate our existing pipeline or can be very complementary -- or complementing the existing pipeline and -- by basically adding programs with near-term value inflection points. So that is what we are active in, with a focus in the near-term future, definitely on clinical programs.

I was just going to reiterate something that Florian said. So the programs that we selected and prioritized are all going to be [inclined] by the end of this year. And all of these will generate some meaningful clinical results, proof-of-concept type data within 2 years. So that's really the way to think about it. That's been kind of the model here in terms of prioritization in the next [level].

Perfect.

And so speaking of like you guys focusing a little bit more on the clinical-stage portion, maybe my question is a more holistic question is, as we think about, for instance, industry peers, COMPASS, they are technically pioneering the space, in a sense. So as you pursue later-stage studies, should we expect you to kind of follow COMPASS' footsteps in Phase II, for example, they did dose-ranging; Phase III, who knows if they do a placebo as a comparator, but could you kind of follow their footsteps, in a sense?

Yes. I would say that we're actually already following in their footsteps in many ways, right? So their first trial was, as you said, it was basically single-dose, dose-ranging. And that is exactly what we're doing with our Perception study, right, single administration and dose-ranging. And in both situations, I can say it's very definitively for Perception. We know that we're going to meet multiple doses, right? It's R-ketamine-related. If you know the monthly dose, those are required. But the idea of that first study was to really get a good handle on duration of efficacy, of course, and magnitude of efficacy. And so that's the data that we're going to take forward and to help design that next trial. And again, I imagine that COMPASS is doing something very similar.

Understood. And before I turn it over to Judah, they are, technically, we learned, leveraging some digital tools in Phase III plus psychological support. It's apparent that FDA is on board with this. Could you incorporate these dynamics within neuro studies even as early as Phase II, for instance?

Well, we've been working on digital technologies for a while now, right? So we actually announced Introspect, which is one of the focus areas within the company 2 years ago, over 2 years ago. So our digital technologies have matured to the point where they're in clinical testing now. So really got more user acceptability-type trials, but in ketamine clinics. So that we're getting all the data we need to really help, yes, and the content, right?

So we're testing content as well. And we're actually going to be deploying these very soon in our Phase I trials with both Viridia and EmpathBio. So Phase I, of course, these are healthy volunteers, but they still require prep work, and there still are some support post dosing. So the digital technologies will be used there. And then, of course, we'll roll them out in subsequent Phase IIs.

Yes. Before Judah, you jump in, I would like to remind investors quickly actually why we think digital therapeutics are important. So if you remember, we are really about achieving clinically meaningful behavioral change in mental health patients and are intending to really achieve durable behavioral change. And we pursue this through our 3-pillar strategy.

One is the focus on differentiated and more rapid-acting pharmacological interventions that we believe have all strong neuroplastic effects that induce this window of behavioral plasticity that we then want to leverage exactly through those digital therapeutics, such as our Introspect app, to really help foster new habits through a company of behavioral therapy elements and multiple other content elements that we believe can effectively be delivered through digital means. So this is the ongoing psychotherapeutic support elements of pillar 2 of our strategy.

And then along the way, use and harvest -- or harness that data that we're going to be collecting by digital phenotyping, for example, but also looking at biological biomarkers potentially here to move us to a more precision psychiatry approach of thinking about treating patients given the very heterogeneous nature in this patient population. So very, very excited to see the first technologies applied actually in the first clinical study now with our DMT program.

So we -- technically speaking, we could get some early data over the coming months with the digital tools, basically?

That's correct.

That's awesome. Okay.

Yes.

Great. And maybe just sticking with COMPASS for a second here. It sounds like we'll get a detail of their Phase III trial design around October, I think, is the latest. So what would you say you're looking for in terms of trial design that could carry a read across beyond maybe the digital components for pipeline programs at atai?

Well, I think we have hit on one, of course, digital and seeing how -- what their perspective is on that and how they want that characterized, validated testing, and I think that will be really interesting. The other piece is the one that I alluded to earlier, right? And that's the repeated dosing. How does the agency look upon that? What are the implications, potentially, for tox testing, right? What are they looking for there? What are they looking for in terms of long-term data? Are they looking for repeat dosing within that? Or do they look -- do they want to see meeting the ICH guidelines, so 100 subjects approximate at the end of the year?

And these are the sort of questions that obviously will impact us over time. There are other things that would be interesting. I can't imagine it'll be very controversial, stuff like placebo versus dose control, I mean, there's lots of precedence from both. I can't imagine they'd be very -- that would be much of an issue. But the other ones are our repeat dosing, et cetera, would be really interesting and obviously very impactful for our studies.

Okay. That's helpful. And then just hitting on a couple of changes that have gone on at COMPASS given your minority stake there. Any quick thoughts on the anorexia nervosa indication? And have you guys interacted in a significant way with the new CEO?

Yes. In fact, we have. We actually had a call, I believe, 1.5 weeks ago with Kabir. We believe it's a great choice. So I applaud the COMPASS Board for that decision. I think he's definitely the right person and has also the right skill set to now move that company through Phase III and, hopefully, to approval and then has also the requisite experience of how to effectively commercialize drugs. So I believe that is a very great setup for success for COMPASS going forward with him spearheading it, and George also staying onboard as Chairman. So I believe we have a very, very strong solution here for COMPASS.

And we also applaud them for going after anorexia nervosa This is a really, really significant unmet need in psychiatry. So there is no approved drug, and we see a great potential for COMP360 here given the early signals that we saw based on their open-label trial and believe that this is very worthwhile to pursue from our perspective.

Just one small follow-up. I was just curious if you guys think maybe the FDA deems their Phase IIb as a pivotal study potential? I guess, it's hard to say, but just asking if you have any thoughts.

I mean, clearly, there's precedence for using Phase II data's supportive data, right? So if one of the Phase III trials is sort of marginal, there's been certainly precedents where the agency will accept a Phase II, though, is much more robust.

Will they truly accept it as a pivotal? I don't know. I mean, clearly, during the earnings call, COMPASS did emphasize 2, or at least more than 1, certainly, Phase III study. It's not obvious whether or not they also we're including a long-term follow-up study. So we'll get more clarity over the course of the next little bit. I'm personally a little skeptical of that, but that doesn't...

Yes, we'll see.

We'll have the data soon. So let's just wait.

Sure.

All right. Maybe switching gears to PCN-101, if we could, certainly the program we get the most inbounds on lately. So with a couple of readouts expected end of this year, can you remind us of design time lines, maybe bars for success for the Phase IIa, and how its clinical expansion into the U.S. has gone, along with the drug-drug interaction study and the subcu bridging study. So a lot to unpack there.

That is a lot to unpack. So yes, just to level set with everybody, as I mentioned, the [double A] is -- the Phase II, the double-blind, placebo-controlled study, again, following the footsteps of COMPASS, single administration is IV. In this case, following in the footsteps of, yes, Janssen.

So we are looking at basically 2 doses of R-ketamine, one is sub associated, the other one is sort of a threshold associated. That's 30 milligrams and 60 milligrams, respectively. And of course, third arm is placebo. 31 subjects in each one of those arms. Primary outcome measure is [20] MADRS in 24 hours. It's also looked at over the course of the next 7 days and 14 days. So that's the outline of the trial. Recruitment is going really well. So very excited about that. And this trial, we're completely on track for readout by the end of this year.

In terms of U.S. expansion, as you -- we did, of course, announce an IND earlier this year. You can actually look at clinicaltrials.gov, it's going really well. And so far, there's 10 sites in the United States that are currently recruiting. And there's 3 others that are in the process of coming up online. So again, going really well.

Now you also mentioned what -- in terms of what are thresholds as well as success look like. it's important to go back to what our premise here is, right? And that premise is at-home use. So our thoughts on that are pretty straightforward. I mean, obviously, that's had good efficacy, and we know what the MADRS MCID, the minimum clinically important difference, is at [2]. We hope to see more than that versus placebo at 24 hours. But the other element there is tolerability, specifically regarding dissociation.

And as you guys are probably very well aware, Spravato's quite dissociative at the doses required for efficacy. We hope to be much lower in that regard, if not within the normal realm. That's really going to be -- that will be an important factor for us in the decision-making process at the FDA to support at-home use. So that's kind of a big picture there in terms of what we are looking for.

Okay. And the other piece of at-home use is subcu? Yes.

Yes. So subcu, that's still in planning. We're basically moving that forward towards initiation at this point. But yes, I mean, basically, right now, it's IV. We have a subcu formulation that we'll be testing, looking for relative bioavailability of these 2 different routes of administration, understanding what the dose levels and what you need for comparability there.

Got it.

Of course, that will be what we take forward in subsequent trials. That's much more suitable, as you can imagine, for repeat dosing.

Sure.

And you mentioned the DDI study as well. So the DDI study is really focused on 3A4 inhibitors and 2C19, and looking at the impact of those compounds on the PK of R-ketamine. And so that trial is the clinical basis. All the clinical dosing have been -- is completed at this point. So it's under analysis now, and again, expecting top line certainly before the end of this year.

Great.

And I'm curious, 2 points, technically, is the fundamental approvable, I guess, delta, in a sense. But maybe the market or the Street prefer something more similar to esketamine, or [what esketamine] traditionally shows. Is that fair to think about as we think about the top line data in terms of the delta of drug versus placebo?

Yes. I mean, I think, it's a very valid point. So just kind of thinking through what the approvability package for esketamine, one was -- I mean, esketamine was. It was basically -- they had 3 trials, TRANSFORM-1, 2 and 3, and then they have this long-term [bet]. Really, the only truly positive trial was the TRANSFORM-2, right. TRANSFORM2 had a 4-point delta on the MADRS. And that's -- I think that was the 28th day. So that's a good bar.

But of course, that was a lot of going into the clinic, right? So the minimum bar, for me, it's not great. But the minimum bar would certainly be 2-plus, but a rapid onset, right? So that differentiates you completely from an SSRI. SSRIs are weeks, if not a month or months, to get at. Because if you can get that same level of efficacy in 24 hours, that's a win, right?

And with esketamine, you go in there every -- you're going there twice a week for 4 weeks. You're going there once a week for the subsequent 4 weeks. That's a lot of travel. That's a lot of time in commute, right? So if we can do this all at home, I think we [all may want] about. So I mean, I think that remains a very strong win for the [the center].

And how reliable -- "reliable" or "translatable" do you think this data set would be, assuming it was successful? Because my -- I'm presuming it's done in an inpatient setting, whereas, eventually, you want to go at-home. So do you have any color around that, around how you think about this?

Yes. I mean -- well, there's 2 elements to that. So the first is the PK piece, right? So there's a -- changing the route of administration, so there will be an impact on PK. So we're obviously generating data with our current administration protocol, which is 40 minutes continuous infusion. So of course, we need to understand what the PK of the subcutaneous formulation is, and we've got some parameters that we want to match there, right? So the AUC, the Cmax are all things that we want to look at. And of course, that's where -- that will be driven by the Phase I.

So that will have some impact on efficacy. And of course, you're right, in-house may have a different effect. It should impact placebo on drug sort of similarly, I mean, generally going to a clinic is going to drive up your response. It's going to drive up your placebo response. So we may actually have a better signal-to-noise ratio if we're at home. Purely speculation, we'll have to see how this plays out.

And maybe one more question is, I noticed in the press release the bridging study could complete within the next few quarters. So as we think about the next steps afterwards, that technically is the gating step before you move to a subsequent study after this Phase II?

Well, there's also some additional talks and other things that are also in [process]. So there are a few pieces that have to come together. That is one of them, certainly. But yes, of course, you got -- we need those results. I'll -- think of it as support the next trial.

Okay. If I could move us over to RL-007 and CIAS. So there have literally been dozens of compounds in CIAS that have failed, some with similar pathways even to 007. And In your view, how much of that can be attributed to chemistry or target selection of those compounds versus trial design?

Well, let's focus on the chemistry but for the moment. In general, over the last several decades, there's been this concept of being really a reduction in some of the pharmacology, right? Trying to find that piece of pharmacology that's driving the efficacy and make very clean drugs for it.

Certainly, that's true where the SSRIs is a good example, but also relating to -- psychotics to some degree. But the reality is that dirty drugs tend to work a little bit better in most of these indications. The nice thing or the interesting thing about RL-007 is its polypharmacology. It's absolutely got a GABA-mediated activity, GABA-B-mediated activity, I mean, but it also has neurotransmission and cholinergic effects. So that is a point of differentiation compared to some of the other things that are currently in development. which are much more focused.

So I think that's an interesting angle. Of course, it's consistent with our model, right? We have existing clinical data, albeit in different groups. So we have one in diabetic peripheral neuropathic pain. That is a population that probably, in general, has some degree of subclinical kind of impairment, right? They are vascular paths. That's why they have diabetic peripheral neuropathic pain. They presumably have some central or vascular [tissue] compromised as well. So we saw a signal there.

We saw it in normal healthy volunteers. We saw some signaling in our [inverted] mechanism type trial. We saw an inverted u-shaped curve, which is consistent with the hypothesis vis-a-vis cognitive effects. We saw a change on quantitative EEG that was sort of mirroring that as well. So again, consistent with our hypothesis. So we got a lot of things going in our favor with this compound, not disputing the fact that it's a challenging indication, not trying to walk away from that at all.

In terms of the clinical trial design, it's an interesting question. So there's been a lot of development for an extended period of time on endpoints for this, right? It's this MCCB. This is the broad recognition of the unmet medical need with this indication, right? The FDA has been all over this for a very long time. Other industry partners have been involved with this entire thing. Academics have been involved. So there's been -- we have a nice consensus battery on what the endpoints should look like.

There has been evolution on that a little bit in terms of being more focused on some of the endpoints. So that's something that's been -- or subsets, it's been ongoing. So I think, overall, though, it's probably a lot to do with the pharmacology, to some degree, around the endpoints and particularly the ability to now focus on subsets of those endpoints.

That makes a lot of sense. And then just where do we stand on potentially improving the dosing profile? And what's the latest in terms of next steps on the decision about whether to pursue a Phase IIb and go for an end-of-Phase II meeting or do you have an additional Phase IIa? And what could preferred endpoint selection be? You touched on it there.

Okay. Well, let me take that last bit first. So we are indeed prepping for our Phase IIb at this point. And the endpoint is going to be the MCCB. So you may recall in the last study, we saw a simple [coating] , which is very positive in that trial. Simple coating has very good overall correlation with the MCCB. So we take comfort in that in terms of some degree of proof of concept. And in fact, a simple coating is part of the MCCB. So happy that's why we've decided to move forward with that. The trial will be robust and would certainly support an end-of-Phase II meeting, assuming, of course, positive results.

Now in terms of posology, this is one where -- this is an area that we have to improve on. We've got some angles there. Right now, we're dosing TID. There is a good argument to be made that you can make it BID. We could, of course, use formulation technology that make it QD. And of course, that would be great, particularly keeping in mind this patient population. So that's another thing that we are trying to look at. We could bridge to that at a later point.

That's helpful.

And with that, we are unfortunately already out of time. So I would really like to thank you, Andrew and Judah, for dialing in today. I found this very, very insightful and interactive. Thank you so much for asking these inquisitive questions today.

And I would also like to express my gratitude to Greg for your service as CFO of atai and to drive forward our mission with so much passion. So we're really, really thankful for your service. You have been an instrumental part of our leadership team. And I'm also very grateful that you stay another couple of months until the end of the year to ensure a smooth transition when you're handing over your CFO job to Stephen.

And Stephen, really thrilled to have you here. You bring with you a lot of expertise and experience with that model that we are pursuing, so this decentralized way of developing drugs, and couldn't be more happy to have you on board. So a warm welcome for you, and looking very much forward to work with you going forward.

And ultimately, I would like to reemphasize, I guess, the key takeaways from my perspective to our investors. We have taken very, very strong and thoughtful measures to extend our runway by 1 year into 2025. We believe this has been the right strategic decision by adding nondilutive debt financing of up to $175 million and a very intentional and thoughtful reprioritization of our pipeline. Because, in our perspective, this puts us into a position to really focus on the key value inflection points in our programs, and 7 out of 8 are in the clinic right now. We assume to have 8 in the clinic in -- by end of this year. And there's a lot of proof of concept data sitting in there that we intend to report out over the next 2 years.

And with that, I thank everyone to dial in, and wish everyone a very great day. Thank you.