COMPASS Pathways plc (NASDAQ:CMPS) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good day and thank you for standing by. Welcome to the COMPASS Pathways First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Schultz. Please go ahead.

Steve Schultz: Welcome all of you and thank you for joining us today for our first quarter 2023 results conference call. Again, my name is Steve Schultz. I’m Senior Vice President of Investor Relations at COMPASS Pathways. Today, I’m joined by Kabir Nath, our Chief Executive Officer; Dr. Guy Goodwin, our Chief Medical Officer; and Mike Falvey, our Chief Financial Officer. The call is being recorded and will be available on the COMPASS Pathways Investor Relations website shortly after the conclusion of the call. Before we begin, let me remind everyone that during the call today, the team will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. You should not place undue reliance on these forward-looking statements.

Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties, and other factors including those risks and uncertainties described under the heading Risk Factors in our quarterly report on Form 10-Q filed with the U.S. Securities and Exchange Commission and in subsequent filings made by COMPASS with the SEC. Additionally, these forward-looking statements represent our views only as of today and should not be relied upon as representing our views of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements even if our estimates or assumptions change. And with that, I will now hand the call over to Kabir Nath.

A – Kabir Nath: Thank you, Steve. Good day, everyone, and thank you for joining us. During this past quarter, COMPASS Pathways has continued to make excellent progress with our COMP360 Phase 3 pivotal program in treatment-resistant depression, or TRD, with patients being treated in both trials. You may recall that on our fourth quarter conference call, we said that we expected the FDA to come back to us with comments on pivotal trial design amendments by March the 20th. We’ve now received comments for both the 005 and 006 trial designs. While I won’t go into the details of our interactions with the FDA, I will say that the comments reflected an active and thoughtful dialogue. As you would expect, with a drug development program that has breakthrough designation, we will have ongoing engagement with the FDA more broadly over the whole course of the development program.

The upshot is that we are continuing to execute both the 005 and 006 trials as described in our February conference call and, importantly, with no changes to the trial design. We also continued to expect top line results for the six-week primary endpoint for 005 in summer of 2024 and for 006 in mid-2025. On the reimbursement front, the American Medical Association has accepted a current procedural terminology, or CPT III code, for psychedelic therapies. This was a very welcome development and the result of a collaboration between COMPASS Pathways and MAPS Public Benefit Corporation. Once effective, the CPT code will provide physicians and other qualified healthcare professionals with a means to track the work involved and ultimately seek reimbursement for delivering psychedelic therapies.

Existing codes can provide coverage for the preparation and integration sessions, but the new code will fill a gap and cover psychological support during administration. The full details of the code are expected to be released by the AMA in July this year, and the code will go into effect when it’s published on January the 1st, 2024. Currently, clinicians are forced to use various different codes cobbled together to gain reimbursement for approved medicines that require observation or support during administration. This tracking code is a crucial step toward a single code that covers psychological support for therapies like COMP360, subject to FDA approval, and it’s a critical step toward obtaining reimbursement. This helps enable broad and equitable access to psychedelic therapies.

This ensures that FDA-approved psychedelic therapies could be integrated into healthcare systems, reimbursed by payers, and made available to the people who need them. Finally, we’ve continued our active engagement with biotech specialist investors. We’ve continued to communicate the depth and the progress of our programs and the strength of our value creation proposition in an area of significant unmet medical need. Since the beginning of this year, we’ve raised roughly $28 million from sales under our ATM facility, including a large block trade in April. With that, let me now hand the call over to Dr. Guy Goodwin to provide further clinical updates.

A – Guy Goodwin: Thank you, Kabir, and good day, all. Let me begin with a review of our COMPASS-sponsored clinical programs. In TRD, as you heard from Kabir, the Phase 3 program is progressing as planned, and we are actively treating patients in both trials. We are pleased with the rate of opening of clinical sites. This is a significant achievement as it’s a complicated process to ensure that clinical sites that are cleared to handle a Schedule 1 compound are appropriately trained and can recruit suitable patients. This level of infrastructure is unprecedented and one that we believe represents a significant competitive advantage for COMPASS, both in this and future programs. Once sites surpass this stage, they are better able to concentrate on recruitment and patient management.

I would, therefore, expect to see continued progress and acceleration on those fronts. Beyond treatment-resistant depression, our Phase 2 studies in PTSD and anorexia nervosa continue to progress well and are on track. In the anorexia nervosa study, we told you on our last call that we had encountered some challenges in getting patients into and through the screening process. I’m pleased to report that we are now making excellent progress after amending and adjusting our procedures to enable recruitment more in line with our expectations. We look forward to updating you on future calls regarding expected timing. Looking beyond our sponsored trials to investigator-led studies, we continue to see encouraging data coming from these programs.

In March, data on the use of COMP360 with psychological support in 12 patients with treatment-resistant body dysmorphic disorder, or BDD, were published in the Journal of Psychiatric Research. Individuals with BDD are preoccupied by aspects of their appearance that they misperceive as defective or ugly. In this study of a single 25-milligram dose of COMP360, primary treatment effect was measured with the BDD-YBOCS score, which improved significantly over the 12 weeks of follow-up, with a large effect size and significant changes from baseline seen at week one and persisting through week 12, the duration of the study. At week 12, seven participants, or 58%, were considered responders. Secondary measures of BDD symptom severity, conviction of beliefs, depression, negative effects, psychological insight, and disability all similarly showed significant improvement.

Tolerability and safety were evidenced by completion of all study visits by all participants and that no serious adverse events or occurrences of suicidal ideation were reported. The signals we see in this BDD study align with the hypothesis that difficult-to-treat disorders with preoccupying thoughts or fears represent potential target indications for COMP360 psilocybin therapy. This comes on the heel of another IIS we told you about in February that evaluated a single 25-milligram dose of COMP360 psilocybin therapy in 14 patients with type II bipolar depression, another condition for which treatment options are limited. This study produced very compelling data with 12 of 14 patients, or 86%, achieving remission at 12 weeks after administration without a resumption of antidepressant medication.

It is this kind of information that these studies were designed to generate, understanding the potential of COMP360 in other indications with significant unmet need. These data sets also reinforce our confidence in our Phase 3 program. I would expect to see additional interesting data from such studies as we move through this year. I will now hand the call to Mike for the financial overview.

A – Mike Falvey: Thank you, Guy. I’ll now recap our first quarter financial results. For the three months ended March 31, 2023, net loss was $24.2 million, or $0.57 per share, including non-cash share-based compensation of $4.1 million, compared to net loss of $21.2 million, or $0.50 per share, including non-cash share-based compensation of $3.1 million for the three months ended March 31, 2022. I will now turn to an analysis of the three months ended March 31, 2023 compared to the prior quarter ended December 31, 2022. For the three months ended March 31, 2023, net loss was $24.2 million, or $0.57 per share, compared with a net loss of $30.9 million, or $0.73 per share for the three months ended December 31, 2022. These results include non-cash share-based compensation of $4.1 million for the first quarter of 2023 and $3.3 million in the fourth quarter of 2022.

Our first quarter financial results reflect our continued success in progressing our Phase 3 trial in treatment-resistant depression. In line with our expectations, cash used in operations was $27.7 million, in the middle of the guidance range we provided last quarter. R&D expenses were $19 million in the three months ended March 31, 2023, compared with $19.8 million in the three months ended December 31, 2022. The slight decrease was mainly caused by lower external development expenses due to the change in our Phase 3 design. This decrease was partially offset by increased personnel costs. G&A expenses were $12.8 million in the three months ended March 31, 2023, compared with $12.4 million in the three months ended December 31, 2022. This increase was due to increased personnel and legal costs, partially offset by decreased facilities and other expenses.

Our cash balance decreased by $26 million in the first quarter of 2023 due to using $27.7 million in operating cash, partially offset by $1.1 million provided by financing activities due primarily to the sale of shares under our ATM facility and a change of $0.7 million due to exchange rates impacts. The movement in operating cash is primarily driven by our net loss, partially reduced by non-cash charges. Regarding guidance, we expect the second quarter net cash used in operating activities to be between $22 million and $30 million and the full year to be between $85 million and $110 million. The size of the second quarter range is due to the challenge in predicting the precise timing of cash outlays to support our Phase 3 program in its early stages.

As the trial reaches steady-state enrollment, we expect to offer a narrower quarterly and annual range. COMPASS continues to maintain a strong financial position with cash and cash equivalents of $117.1 million at March 31, 2023, compared with $143.2 million at December 31, 2022. In addition to our first quarter cash balance, in the second quarter, we have received net proceeds of $26.9 million through the share – sale of shares under our ATM facility, which has further strengthened our cash position and extended our runway. We view our strong balance sheet as an important strategic asset, which we manage carefully as we invest to advance these promising potential therapies while, at the same time, continuing to create value for our shareholders.

Thank you, and I’ll now turn the call back to Kabir.

A – Kabir Nath: Thank you, Mike. In closing, let me say that now as a Phase 3 company, COMPASS Pathways leads the way in the development of psychedelic therapies. We believe these therapies represent the next generation of mental health therapeutic options. There’s a significant and growing number of people across the world suffering from serious mental illness who are not helped by existing standards of care. We must act with urgency on their behalf. Most programs in this area of science today are unproven, early stage, and risky. We’ve established a high bar for evidence regarding safety and efficacy. Many of those early stage clinical studies will likely fail to meet their primary endpoints as we have seen with news from some other studies earlier this year.

As Guy noted, we’re progressing as expected in our Phase 3 program in treatment-resistant depression. While we ultimately expect to leverage our extensive data set to expand the development of COMP360 into a range of areas of unmet need, TRD is our first target indication and our clear focus. To this end, we continue to advance our commercial strategy on a number of fronts as we move through the Phase 3 program toward an NDA submission with the FDA. The CPT III code, as discussed earlier, is a prime example of a successful step forward with our commercial approach and a clear indication that it can translate to significant value creation. As Mike noted, we continue to be in a solid financial position with a strong balance sheet to help us advance these promising therapies.

We are making strong, meaningful progress in our work to develop and deliver new therapeutic solutions to patients who suffer from difficult-to-treat mental health conditions. Thank you again for your participation on today’s call. We’ll now turn to Q&A, so I’ll hand this back to the operator.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Elemer Piros from EF Hutton. Your line is open.

Operator: One moment for our next question. Our next question comes the line of Charles Duncan from Cantor. Your line is open.

Operator: One moment for our next question. Our next question comes from the line of Frank Brisebois from Oppenheimer. Your line is open.

Operator: One moment for next question. Our next question comes online of Joshua Schimmer from Evercore ISI. Your line is open.

Operator: One moment for our next question. Our next question comes from the line of Patrick Trucchio from H.C. Wainwright. Your line is open.

Operator: One moment for our next question. Next question comes from the line of Ritu Baral from Cowen. Your line is open.

Operator: One moment for our next question. Our next question comes from the line of Neena Bitritto-Garg from Citi. Your line is open.

Operator: One moment for our next question. Our next question comes from the line of Sumant Kulkarni from Canaccord. Your line is open.

Operator: Thank you. And with no further questions in the queue, I’d like to turn the call back over to management for any closer remarks.

Kabir Nath: Thank you very much. So, once again, thank you, everyone, for your participation, and thank you for the questions as well. Just a reminder, we are making excellent progress on our Phase 3 trials for treatment-resistant depression, as well as continuing to build the body of evidence for COMP360 more generally. We’re excited, obviously, about the CPT III code. We’re excited about the validation externally that you see from Spravato as well in terms of momentum. And we believe we’re also making strong strides towards demonstrating a commercial value proposition for COMP360. So, thanks, everyone. Have a good rest of the day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a good day.