COMPASS Pathways plc (NASDAQ:CMPS) Q4 2022 Earnings Call Transcript

COMPASS Pathways plc (NASDAQ:CMPS) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Good day, ladies and gentlemen, and welcome to the COMPASS Pathways Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Steven Schultz. You may begin.

Steven Schultz: Welcome all of you, and thank you for joining us today for our fourth quarter and year end 2022 results conference call. Again, my name is Steven Schultz. I’m the Senior Vice President of Investor Relations at COMPASS Pathways. And today, I’m joined by Kabir Nath, our Chief Executive Officer and Mike Falvey, our Chief Financial Officer. Dr. Guy Goodwin, our Chief Medical Officer is unable to join us today, so Kabir will be covering clinical development. 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 Annual Report on Form 10-K filed with the US 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 as of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements, even if our estimates or assumptions change.

With that, I’ll now hand the call over to Kabir Nath.

Kabir Nath: Thank you, Steve. Good day everyone, and thank you for joining us. We have quite a bit to share with you, as we continue to make strong progress across all aspects of our business. During this past quarter, we started our COMP360 Phase III pivotal program in treatment-resistant depression or TRD, a unique achievement, the first ever Phase III trial of psilocybin. As you know, this is a field that holds the potential for significant advances in the treatment of mental health conditions and we’re thrilled to be at the forefront of this potential paradigm shift. Today, we’re announcing an important update to the Phase III program we described last fall, starting with our COMP 005 trial. As a reminder, this is the single dose monotherapy trial, comparing a 25-milligram dose of COM360 to a true placebo.

We’ve completed further analysis of our Phase IIb data with specific focus on the participants in the 1-milligram arm, who had a minimal psychedelic experience, as well as analysis of a recent data from a placebo-controlled study at the University of Zurich, using COMP360 in major depressive disorder or MDD. This data-driven analysis has led to a re-estimation of the sample size for the COMP 005 trial and a revision to a lower expected response to true placebo. This allows us to reduce the number of patients required in the 005 trial to 255 from the original 378, while maintaining the power to achieve our objectives. With the reduction in the number of patients, we now expect to complete the pivotal component of this trial, the six-week primary endpoint by summer 2024 rather than the end of 2024 as we previously guided.

Additionally, we finalized the plans for long-term follow-up for the Phase 3 program. Building off the lessons from COMP 004 the long-term follow-up trial Phase 2b study, our strategy is to integrate the follow-up into the two pivotal trials, which we believe will enable a more streamlined design, reduce selection bias and the implementation burden on our patients and clinicians. Again, to remind you the two pivotal trials are COMP 005, which I described just now and COMP 006, a fixed repeat dose monotherapy trial with three arms, comparing COMP360 doses of 25 milligrams, 10 milligrams and 1 milligram where patients will receive the same dose at day one and week three. In both trials, we will follow patients up to 52 weeks, building on the six-week pivotal analysis of each trial which we’re calling Part A.

The design follows the same principles for each trial. Part B of each trial will follow from the primary endpoint assessment at six weeks to 26 weeks. Patients who meet criteria for retreatment in Part B will have the option to receive a further treatment according to their original allocation in both studies, thus preserving the randomized comparison between arms to 26 weeks. Part C will run from 26 weeks to 52 weeks as an open-label component of the trial. Importantly, all patients who meet criteria for retreatment in Part C will have the option to receive a single 25-milligram dose of COMP360 open label. This option is expected to support patient engagement throughout the entire duration of the trials. It’s important to emphasize that there is no change to the primary endpoint of either trial, which is change in MADRS from baseline at six weeks, nor to our intention to announce the top line results from the primary endpoint of each trial at that time.

We’re confident that this trial design will provide insights to key questions on durability of effect and the value of retreatment. Moreover, TRD often behaves like a chronic condition. By following patients with continuing randomization for 26 weeks, much longer than is conventional in other major depressive disorder trials, we have the potential to generate unique durability and retreatment data which could enhance the value of COMP360. We believe that these amendments will help to generate further evidence that enhances our Phase 3 program and the potential benefit to patients, clinicians, regulators and payers. We’ve submitted these protocol amendments to the FDA, who have indicated they will come back to us by March 20 on 005 if they had any further comments following their earlier feedback on durability and retreatment design principles.

I remind you that this Phase 3 program is already underway and that it’s routine to have an ongoing dialogue with the FDA as we conduct the trials, especially with our breakthrough therapy designation. If we do receive further comments, we will, of course, consider that feedback. Let me now turn to the broader body of evidence we’re developing for COMP360. The Phase 2 PTSD program is progressing with COMP360 dosing of enrolled patients. In December, data from an exploratory open-label investigator-led initiative in bipolar depression type 2 were presented by the investigator at the Annual Meeting of the American College of Neuropsychopharmacology. This study investigated the safety and efficacy of a single 25-milligram dose of COMP360 psilocybin therapy in 14 patients.

The results showed positive early signals of efficacy with 12 of the 14 patients meeting response and remission criteria for the MADRS scale at 12 weeks after COMP360 psilocybin therapy. Notably, no subject had manic or hypomanic symptoms or an increase in suicidal ideation. We believe that these are remarkable data and provide further evidence to support the potential of COMP360 psilocybin therapy for difficult-to-treat depression. I remind you, though that this was a small study and these findings now need to be validated in larger studies. Also in December, the Zurich study in MDD, which I referenced earlier, was published. This randomized blinded study enrolled 52 patients, comparing a weight-based variable dose of COMP360 to true placebo and demonstrated compelling efficacy results with no new safety signal.

We see this as further evidence of the potential for COMP360 to help patients living with serious mental illness. Turning to anorexia nervosa. This remains an area of critical unmet need with no FDA-approved pharmaceutical product and the highest mortality rate of any serious mental illness. We’re committed to pioneering a robust Phase 2 trial to build on the evidence already generated in investigator-initiated studies. I remind you that there is no significant body of experience available for this indication, so we are on a steep learning curve. We’ve learned that we need to make amendments to our protocol to better meet the needs of this highly vulnerable patient population. As a result, it’s unlikely that we will see top line data in 2023.

Please note that this is a very different patient population from TRD patients, treated largely by different physicians at specialized centers and that the need to amend this protocol has no impact on our Phase 3 TRD program. In closing, let me reiterate that we believe the last quarter of 2022 was a quarter of strong progress, capping a year of extraordinary progress for COMPASS Pathways. Our Phase 3 study, the largest most robust ever study in psilocybin is underway, and we’re excited to continue the journey to bring COMP360 psilocybin therapy with psychological support to patients, subject to study results and regulatory approval. I’ll now hand the call to Mike for the financial overview.

Mike Falvey: Thank you, Kabir. I will start with a brief summary of the full year results and then review the fourth quarter results in more detail. For the year, ended December 31, 2022, net loss was $91.5 million or $2.16 per share compared with a net loss of $71.7 million or $1.79 per share during the same period in 2021. These results include non-cash share-based compensation of $13.1 million in 2022 and $8.6 million in 2021. R&D expenses were $65.1 million, compared with $44 million during the same period in 2021. And G&A expenses were $45.4 million compared with $39.2 million during the same period in 2021. Our fourth quarter results reflect the commencement of our Phase 3 trial in TRD in a number of places. For the three months ended December 31, 2022, net loss was $30.9 million, or $0.73 per share, compared with a net loss of $18.4 million, or $0.43 per share for the three months ended September 30, 2022.

These results include non-cash share-based compensation of $3.3 million in the fourth quarter and $3.5 million in the third quarter. R&D expenses were $19.8 million in the fourth quarter, compared with $14 million in the third quarter due to the Phase 3 start. The growth in R&D outside development spending and personnel expenses were due to our Phase 3 trial. G&A expenses were $12.4 million in the fourth quarter, compared with $11.6 million in the third quarter. This increase was due to increased personnel and facility costs partially offset by decreased legal and professional fees. We believe that COMPASS continues to maintain a strong financial position with cash and cash equivalents of $143.2 million at December 31, 2022, compared with $173.1 million at September 30, 2022, and $273.2 million at December 31, 2021.

Our cash balance decreased by $29.9 million in the fourth quarter of 2022 due to using $45.3 million in operating cash partially offset by a change of $14.9 million due to the impact of exchange rates on our cash balances held in British pounds. The movement in operating cash is largely driven by our net loss partially reduced by non-cash charges and also increases from a number of prepaid Phase 3 expenses to our CRO, which will be used to support R&D expenses over the next few quarters as our program progresses. This cash usage was partially offset by $8.5 million we received this quarter for our 2021 UK R&D tax credit. Our cash balance also reflects an increase to record the impact of currency exchange rates on our cash balance. After two consecutive quarters of declines, the British pound appreciated versus the dollar in the fourth quarter.

As a reminder, we hold our cash balances in dollars, pounds and euros in proportion to our spending plans in each currency. Since we intend to spend these balances rather than exchange them, fluctuations in foreign exchange rates are not expected to significantly impact our cash runway, which continues to fund our operations for at least the next 12 months. We view our strong balance sheet as an important strategic asset, which we intend to manage carefully, as we invest to advance promising potential therapies, while at the same time continuing to create value for our shareholders. As previously indicated, we are providing financial guidance for the first quarter and the full year 2023. We expect the first quarter net cash used in operating activities to be in the range of $24 million to $32 million and the full year to be in the range of $85 million to $110 million.

The first quarter range is due to the challenge in predicting the precise timing of cash outlays to support the Phase 3 program in its start-up phase. As the trial reaches steady state enrollment in future quarters, we plan to offer a narrower quarterly range. Thank you and I’ll now turn the call back to Kabir.

Kabir Nath: Thank you, Mike. With our lead asset COMP360 in Phase 3, we continue to be an industry leader in our area of science, addressing complex therapeutic challenges. Treatment-resistant depression, is the first target indication but we believe that COMP360 psilocybin therapy has potential for broad application. We also continue to advance our commercial strategy. An important step towards this objective, is to have reimbursement codes called CPT codes in place at launch. In February, we participated in the meeting focused on the final stages of this process, and we hope to have the new tracking CPT code available soon, and this would be the precursor to the final commercial code. Our robust and comprehensive strategy, is designed to support both the COMO360 psilocybin therapy regulatory approval, as well as provide the evidence needed by payers to reimburse this new therapy upon launch.

We believe that this strategy can lead to significant value creation, as we continue to execute successfully. Thank you, once again, for your participation in today’s call. And we’ll now turn to Q&A, so I will hand the call back to the operator. Thank you.

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Q&A Session

Operator: And our first question is from Charles Duncan with Cantor Fitzgerald. Your line is open.

Charles Duncan: Yes, good morning, Kabir and team. Thank you for taking our questions and thanks for the update on the Phase 3 program, that was interesting. I did have a couple of questions to ask you on that. I guess, I’m wondering, if you could provide a little bit more color on, what you saw out of the prior trial the 1-milligram of responses that you saw. And clearly, that has resulted in a sample size adjustment downward. But can you, also give us some thoughts on whether or not that changes your perspective on effect size ultimately, that you’re looking for out of this study?

Kabir Nath: Thanks for the question Charles. So in the Phase 2b, as you’ll recall, the 1-milligram was effectively the control. And as we were able to do further analysis, as you’d expect, given this was a largely naive population, naive to psychedelics, we saw a range of psychedelic experience in the patients on the 1-milligram arm, but the majority clustered around essentially no psychodelic experience. And that for us, kind of conforms to something that looks like a placebo response. When we actually were able to analyze that, we were able to see a strong correlation between that and lack of outcome. And that was our internal data from the Phase 2b data. We were then able to validate, some of our thinking around that with the data from the Zurich study in MDD, which again used a pure placebo arm.

And that again, was able to validate our assumptions around in fact a, likely lower difference from baseline in MADRS, on the true placebo arm in COMP 005. As you recall COMP 006, of course, uses the same three arms as the 2b, so we can assume something around the treatment difference there. We haven’t disclosed and don’t intend to disclose the actual treatment differences that we are powering for. But what I can confirm is that from our perspective, we are very comfortable that we are looking at a different, treatment difference for the true placebo arm. We’re maintaining the power with the reduced size but we are confident that that will not affect the integrity or the validity of the outcome.

Charles Duncan: Makes sense. Sounds like the delta is actually bigger. If I may just ask one brief follow-up and then I’ll hop back in the queue. And that is in terms of the patient engagement that you mentioned with Part B being able to take patients out through 26 weeks. I’m really intrigued with that. I guess I’m wondering if that was the result of some feedback from agency or more importantly, investigators suggesting that that’s what patients wanted. Or was that just some thinking on your part to suggest that you could really add some value for patients if you knew that the drug worked over time.

Kabir Nath: No, thanks. And I would say a combination of all those things. I mean as I mentioned partly it’s a learning from 004, where we recognized that not having the option for a further dose for all patients was potentially a challenge in terms of maintaining them out for a long time plus we’d actually denied that as a separate study, where they had to actually re-consent as opposed to integrating. But yes, clearly from investigators as well. And I think, it’s very clear that understanding both durability from a single dose but also the option for retreatment. But in that continued randomized 26 weeks is information that I believe is relevant to regulators, clinicians and payers, as well of course, as patients.

Charles Duncan: Okay. Thanks for taking my questions.

Kabir Nath: Thanks, Charles.

Operator: Thank you. One moment for our next question. And our next question comes from Ritu Baral with Cowen. Your line is open.

Ritu Baral: Good morning, guys. Thanks for taking the question. I wanted to ask about just some more details about Part B and Part C of 005. What is the €“ I guess threshold for retreatment described in the protocol for Part B? And is it the same or different for Part C of 005? And then I’ve got a follow-up.

Kabir Nath: So it is €“ so what we will retreat people who either do not remit or who relapse after remitting. So that is the criteria for retreatment and there will be the option for one retreatment in Part B. Remembering that in Part B it is in line with our original randomized assignment. So depending on what dose you were randomized to, it’s the retreatment with that. And again Part C open label will be the same thing.

Ritu Baral: And is there a particular MADRS threshold that defined relapse or is it a clinician discretion?

Kabir Nath: There is a specific one, which we haven’t at the moment disclosed from a competitive perspective.

Ritu Baral: Fair enough. Okay. And then the anorexia nervosa protocol amendments. Can you describe what they were? And essentially what drove them. I think investors generally are relatively unfamiliar with this patient population. So what considerations were new to you that are very likely new to us as well?

Kabir Nath: No. It’s a great question. Thank you. So what I would say is I mean that’s some of those amendments are straightforward, some we’re thinking more about. So I think what we learned was this is a patient population that is highly vulnerable that in fact the openness, the willingness to even participate in a trial is very challenging. And perhaps from the IIS where clearly there’s an element that investigators are able to work with patients they already know. We were not fully aware of just how challenging this would be. So some of the things we’re thinking about is just number of visits and scales again have we been over kind of — we actually tried to get too much into that. I think that’s the first thing to make sure that we can actually have screening criteria and a protocol that meets the need of some of this patient population.

But I would say that we expect to continue to learn around this study as we move forward and around the challenges of working with this population.

Ritu Baral: Understood. And can you talk about — I just wanted to be clear, you haven’t actually dosed your first patient in 005, correct? And also can you just talk about how site activation is going?

Kabir Nath: Yeah. So you are correct. And site activation is going well. We have more than a dozen sites actually now activated for both 005 and 006. Just I remind you, we know that site activation for these studies takes a long time. It’s complex getting the individual DEA licenses which despite all our experience, it’s no quicker the second time around unfortunately. So that is well underway. And again, we have patients in screening, but many of them need to wash out from SSRIs or whatever they’re on. So the washout period is extended. But we are comfortable with where we’re at and that’s why we’ve kind of given first the new guidance for 005 and reiterating the guidance for timing on 006.

Ritu Baral: Perfect. Thanks for taking all the questions.

Kabir Nath: Thanks, Ritu.