Akili, Inc. (NASDAQ:AKLI) Q4 2022 Earnings Call Transcript

Akili, Inc. (NASDAQ:AKLI) Q4 2022 Earnings Call Transcript March 10, 2023

Operator: Greetings, and welcome to the Akili Fourth Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Julie DiCarlo, Senior Vice President of Communications.

Julie DiCarlo : Thanks, Joe. Good afternoon, and welcome to Akili’s earnings conference call for the fourth quarter of 2022. After the market closed today, we issued our earnings release, which can be accessed on the Investor Relations section of our website. Additionally, we posted earnings slides of our — on our IR website that we’ll reference during today’s call. This call is being recorded, and a replay of the teleconference will be available on our IR website at the conclusion of today’s event. During today’s call, we’ll make forward-looking statements regarding future events, expectations, plans, prospects or the financial performance of the company. These forward-looking statements are based upon estimates and assumptions that while considered reasonable by the company’s management involve certain risks and uncertainties.

The company’s actual results may differ materially from those expressed or implied by any such forward-looking statements as a result of various important factors. Factors that might cause such differences include, but are not limited to, those risks and uncertainties set forth in our Form 10-Q filed on November 14 as well as other subsequent filings with the SEC. Information provided on today’s call reflects our views only as of today, March 7, and should not be relied upon as representative of our views as of any subsequent date. We explicitly disclaim any obligation to update or revise any forward-looking statements or our outlook. Also during today’s call, we’ll refer to certain non-GAAP financial measures. Management does not intend the presentation of these non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP, but as a complement to provide greater transparency.

A reconciliation of the historical non-GAAP financial measures to our GAAP financial measures is included in our earnings slides and in our earnings release. If you’re following along with the slides, please turn now to the agenda. With me on today’s call are Akili’s CEO, Eddie Martucci, our President and Chief Operating Officer, Matt Franklin; our Chief Medical Officer, Scott Kollins; and our Chief Financial Officer, Santosh Shanbhag. Now please turn to Slide 4 as I hand the call over to Eddie for his prepared remarks. Eddie?

Eddie Martucci : Thanks, Julie. Hello, everyone. Thank you for joining our call to discuss our business performance in Q4 of last year and our overall summary of 2022. Today, you’ll hear from Matt, Scott and Santosh on various detailed aspects of our business growth. We’re excited about how we’re evolving the business and seeing the increasing traction of EndeavorRx and more generally, progress of our business model. With moves that we announced in early Q1 of this year to restructure the business, we’re now operating with a more efficient capital footprint so that we can execute against our most important business goals and have cash that we expect will fund the business into Q1 2025. With our heightened focus on EndeavorRx in the ADHD marketplace, we’ll look to prove out that the digital treatment can indeed scale like a drug.

I believe, EndeavorRx has the potential to be the first example of this new paradigm and the entire Akili team is passionate and focused on making that happen. I’m excited with the early impact of our sales force investment, where we’re seeing a positive increase in most commercial metrics. We’re also seeing strong willingness to pay out of pocket by patients. As expected, we haven’t seen insurers step up to broader coverage, and this is a continued area of focus for us. And we continue to push the cutting edge of a patient experience in medicine with multiple enhancements to both our treatment product and our caregiver companion product over the last quarter. In terms of getting EndeavorRx to all of the ADHD patients we believe can benefit from our product, we were extremely excited to announce positive outcomes from our STARS-ADHD-Adolescent trial earlier than anticipated in January of this year.

With the needs around mental health in teens and the ongoing ADHD medication shortage, we’re putting urgency around our planned FDA submission this year for a review of an expanded label for EndeavorRx to include adolescents over 12 years of age. If successful, that expanded label would essentially double our current addressable market based on our estimates. Overall, I believe we’ve made good progress to end the year, and I’m even more pleased with our team’s increased focus and execution mindset here in the early part of 2023. I’ll now turn it over to our President and COO, Matt Franklin, to give you a deeper look into our core business progress. Matt?

Matthew Franklin : Thanks, Eddie. During our third quarter earnings call, we outlined 3 strategic areas of focus for our business. These are outlined on Slide 5. The first is driving awareness in adoption of EndeavorRx is the addition of the first wave of our direct sales force in 13 priority territories covering roughly 20% of the estimated U.S. market opportunity for EndeavorRx. The second is removing barriers to adoption by driving expanded coverage for EndeavorRx, and third, we aim to continually improve our treatment experience. In the fourth quarter, we made good progress with expanding adoption and improving the treatment experience. As expected, payers continue to be slow to act and coverage remains a challenge that we are addressing head on.

Let’s look at each of these areas, starting with adoption. In the third quarter, we deployed the first wave of our sales team to 13 initial geographic territories of the approximately 70 priority territories we identified in the U.S. We are encouraged by the initial progress we’ve seen in these territories. Through the end of 2022, growth in sales occupied territories outperformed whitespace or unoccupied geographies in overall prescription growth, overall number of active prescribers and the number of prescriptions per prescriber. We continue to add more than 100 new prescribers per month in Q4, while simultaneously expanding the number of repeat prescribers, meaning prescribers who have written multiple prescriptions over time. This is a key area of focus for our sales team, and we’ve seen repeat prescribers grow by 60% over Q3 2022.

In short, we believe there was a strong correlation between direct sales engagement and accelerated growth across key adoption performance metrics. In addition to seeing the initial impact of our direct sales force on demand for EndeavorRx, during Q4, we also saw refill prescriptions growth more than 200% over the third quarter of 2022. This growth was driven by the successful transition of EndeavorRX from a 90-day prescription to the 30-day prescription, which was initiated in August. During this transition, we maintained the established $450 list price, which now applies to the 30-day treatment course. Even with this higher effective per month price, we saw only a 25% reduction in prescriptions dispensed from prior quarter, giving us confidence that the 30-day prescription model is working and that EndeavorRx is as an ongoing periodic therapy.

Seeing these early indicators of commercial traction, we are expanding our sales force and expect to be in approximately 15 additional U.S. markets by the end of this quarter. Moving now to coverage. In Q4, we continued to see families willing to pay out of pocket for EndeavorRX, while this is encouraging, we acknowledge that families need expanded access to new non-pharmaceutical treatment options more rapidly than payers are currently providing, and we continue our work to breakdown this barrier for them. Finally, on treatment experience, as we shared last quarter, we have a unique opportunity with EndeavorRx to rapidly iterate the product to drive engagement and compliance. Enabled by the adaptive ability of digital therapeutics and the dynamic nature of video games, we are able to evolve the game play experience for patients while preserving the regulated core technology of the product.

We also continue to update and optimize the treatment experience surrounding the product, including our companion application for caregivers EndeavorRx Insight. In Q4, our enhancements were focused on improving the patient on-boarding experience, optimizing core game play to maximize player engagement and implementing progress tracking features to provide caregivers and healthcare providers increased visibility into patient progress during treatment. This is part of our ongoing commitment to deliver amazing experiences to our patients and their families. Turning now to Slide 6, let’s look at the numbers. First, on prescriptions, more than 4,500 prescriptions were written for EndeavorRX in 2022. During the fourth quarter, we saw about 1,800 prescriptions written for EndeavorRx, a 37% increase over Q3 2022 and a 176% increase over Q4 2021.

There were 1,064 new prescriptions written during the period, similar to the number written in Q3 2022 despite 8 fewer selling days during the period, representing a more than 100% increase in Q4 2022 over Q4 2021. On refills, as mentioned earlier, we also saw a significant increase in the number of refills on prescriptions written during the period. There were 737 prescription refills written during Q4 2022, up about 200% from Q3 2022 and up more than 400% over Q4 2021. On prescribers, in Q4, the total number of prescriptions were written by 800 unique prescribers, representing a 2% increase over Q3 2022, an increase of 88% over Q4 2021. The number of new prescribers was down 29% from Q3 2022, but this decline was more than offset by growth in the number of repeat prescribers, a key area of focus for our sales team, which grew more than 60% from Q3 2022.

40% of new prescriptions written in Q4 were dispensed during the quarter, down from 53% in Q3 but up from 33% we saw in Q4 2021. We believe this was driven by two factors: the transition from a 90-day to 30-day prescription and the impact of the December holidays. During Q4, we received payment for 98% of dispensed prescriptions. 96% of dispensed prescriptions were paid out of pocket by caregivers, 2% were reimbursed and 2% were provided free of charge to qualifying families under our patient assistance program. Now I’ll turn it over to Dr. Scott Kollins, our Chief Medical Officer, who will provide an update on our clinical programs.

Scott Kollins : Thanks, Matt. Hello, everyone. I’m excited to be joining my first earnings call since joining Akili on December 1. Before I get started, a quick note on my transition to the company. I’ve spent nearly my entire 25-year career studying new treatments for ADHD, including running the Duke University ADHD program for 18 years and have grown in patient at the fact that we have not provided new options to patients in decades. The standard of care has not changed since I finished graduate school. EndeavorRx, we now have an FDA-authorized product that can change that, and I’m excited to be leading the medical and scientific aspects of Akili as we work to get this product into the hands of everyone who can benefit. Broadly, the current strategy for my team will focus primarily on supporting our commercial efforts by continuing to generate and disseminate high-quality evidence of the effectiveness and safety of EndeavorRx is an important component of ADHD clinical care.

As a reminder, we’ve made a strategic decision to focus our resources on the growth of our EndeavorRx product for ADHD and subsequent clinical development activities will coincide with additional capital raise or business development opportunities. Turning now to Slide 7, I’ll provide an update on where we are with our ADHD clinical programs. As we reported in early January of this year, we now have top line results from the STARS-ADHD-Adolescents pivotal trial of EndeavorRx, our label expansion study in 162 patients with ADHD age 13 to 17, results strongly support the efficacy and safety of EndeavorRx and adolescents. As you can see on the slide, the magnitude of effect across a range of outcome measures, including objective measures of attentional functioning and ADHD symptoms were equal to or greater than those we’ve seen in 2 previous pivotal studies in younger children.

These findings are timely given the current and growing mental health crisis in our country that is disproportionately affecting teenagers. We’re in the process of preparing results from this study for presentation to future scientific meeting and for submission to peer-reviewed journal. We’re on track to use the adolescent study findings to support a 510(k) submission to FDA this year to potentially expand our label for EndeavorRx. Referring to our pipeline on Slide 8, we also previously reported that we stopped enrollment for STARS-ADHD-Adults, our pivotal study of EndeavorRx in adults with ADHD. We shared on our last earnings call that this study was recruiting more slowly than expected. Given the strong clinical data in adolescents that I just described, we closed enrollment in this adult study to preserve capital and analyze the data.

The study enrolled 223 patients, which is more than the number enrolled in the adolescent study. Data analysis for this adult study is ongoing, and we stated that we expect to have top line results from this adult study in the second half of 2023. We expect to make a decision later this year about our regulatory strategy as it relates to the STARS-ADHD-Adult study. In addition to the completion of our adolescent and adult pivotal studies, we’re also actively enrolling participants into a real-world registry that will allow us to collect data to support other regulatory and market access initiatives. As announced in January, outside of ADHD, we’ve chosen to de-prioritize other clinical programs that would require additional significant investment.

We are continuing previously launched investigator-initiated and collaborative studies, which include 2 studies of EndeavorRx to treat cognitive impairments in patients following COVID infection. Data analysis for one of these studies is in the process of being finalized, and we expect the second study to complete enrollment in Q2. As such, we expect data from both studies to readout by the end of Q2. I’ll hand it over now to our CFO, Santosh Shanbhag.

Santosh Shanbhag : Thank you, Scott, and hello, everyone. Now on to the financials on Slide #9. We continue to see quarter-over-quarter growth of EndeavorRx revenues. And as Matt mentioned earlier, we are also seeing the positive impact of the first wave of our sales reps in the field. As you see on the slide, in the fourth quarter of 2022, EndeavorRx revenues grew to $111,000, representing a 35% growth over third quarter of 2022 and a 76% growth over the fourth quarter of 2021. Similarly, full year 2022 EndeavorRx revenues grew to $323,000, up from $186,000 in 2021. Note that the total revenues in 2021 and Q4 of 2021 included an additional USD352,000 and USD98,000, respectively, of revenues associated with the Shionogi collaboration.

From an expense perspective, we incurred approximately $91 million of GAAP total operating expenses and about $78 million of non-GAAP total operating expenses in 2022. The growth of expenses compared to the third quarter of 2021 was primarily driven by expenses related to the commercial launch support of EndeavorRx, the ADHD label expansion studies and also the costs associated with the business combination and operating as a public company. Similarly, we incurred approximately $22 million of GAAP total operating expenses and $20 million of non-GAAP operating expenses in the fourth quarter of 2022. The growth in expenses compared to the third quarter of 2022 was primarily driven by business expenses related to commercial launch support of EndeavorRx. And last but not the least, from a capital perspective, we ended the year with approximately $136 million of cash, cash equivalents and short-term investments.

Now on to guidance on Slide #10. We are reaffirming our expense guidance from January that we expect our 2023 non-GAAP total operating expenses to be between USD 55 million and USD 60 million. This represents a reduction compared to the 2022 non-GAAP total operating expenses of approximately $78 million. In support of our 2023 operating plan, the company underwent a reduction in workforce impacting approximately 30% of employees across the organization. We estimate that we will incur about $1.5 million to $2.5 million of severance and termination-related costs related to this action and expect to record these charges during the current quarter Q1. Please note that these severance and termination-related costs, in addition to stock-based compensation are excluded from the projected full year 2023 non-GAAP total operating expense guidance.

This brings me to our capital plans. We are also reaffirming the cash runway guidance that we have previously announced in January. We expect our cash position at year-end 2022 of approximately $136 million to be able to fund our current and planned operations into the first quarter of 2025. I’ll close on the financial update with this. Our 2023 operating plan allows us to: one, focus our resources primarily on EndeavorRx commercialization and ADHD label expansion; and 2, preserve capital, especially in these current capital market conditions. With that, I’ll hand it back over to Eddie. Eddie?

Eddie Martucci: Thanks, Santosh. If you’d all like to turn to Slide 11, you can see our key takeaways from this quarter. Overall, I think we had a strong quarter. We’re excited by the increasing traction we’re seeing with EndeavorRx. We announced positive top line data from our first pivotal trial designed to expand the EndeavorRx label, and we’re moving forward with the regulatory submission. And obviously, as noted, we’ve structured the business to give us cash runway into 2025. With that, I’ll hand it back to the operator, and we’re happy to take questions.

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Q&A Session

Operator: Our first question comes from the line of Judah Frommer with Credit Suisse.

Nicholas Japhet : This is Nick on for Judah from Credit Suisse. Congrats on the progress. I was hoping if you guys could provide some incremental insight on refills. Are you able to share, just for those patients that are getting refills, how many refills are they getting on average? And is there any time gap between prescriptions?

Matthew Franklin : This is Matt. I appreciate the question. A couple of comments there. First, I mean to, as we announced, we made two significant business changes in Q3 — in Q4. First was the change from 90-day to 30-day prescription and the addition of our direct sales force, where we’re engaging in discussions around retail prescriptions. So with those two significant business changes, we would love to give a little bit more time to see how the retail patterns evolve. So we’re not at this point providing specific guidance. I can state, however, and share that the vast majority of prescriptions that are written, are written with multiple refills. So a new prescription for a child is often written with an initial cycle of treatment, and that includes multiple retail could be 2, 3 or more over time. So we do expect to see continued increases in refills over time.

Santosh Shanbhag : And Nick, I’ll just add, you asked a question at the very end about kind of sequential nature or how quickly. As we’ve said before, EndeavorRX is meant to be an ongoing episodic treatment, right, something that’s used ongoing and may come sequentially or immediately or may bounce in and out. And we are seeing that in the market. So without getting into specifics and metrics, we do see some immediate refill behavior. And then we do see in terms of refills, patients who come back after a gap in time and when they’re reassessing their symptoms with their doctors. So I think this is something that will evolve given this is a really new treatment modality with new dynamics. It will evolve as we continue to scale.

Operator: Our next question comes from the line of Michael Cherny with Bank of America.

Michael Cherny : Maybe if we can dive into a little bit more of the prescriber dynamics, especially as you think about retrenching the business, focusing on the core product candidates. How do you think about that strategic balance of going after new docs versus going after existing docs? And what is, I guess, you don’t have ’23 revenue guidance per se, but what is incorporated in terms of your expectations for how each one of those gets penetrated retention on the returning docs, et cetera?

Matthew Franklin : Thanks, Michael. Again, it’s Matt. I’m happy to take a first crack at that. So I appreciate the question. Q4 as we deployed our sales force, our — as you can guess, our initial focus here is on driving overall prescription growth. So one of the areas that we focused on initially with the sales team is engaging with those prescribers in those newly populated territories going back and reengaging with those historical providers. So we did intentionally place an emphasis on reengaging historical providers and you saw the benefits of that strategy. We saw a significant increase, 60% growth in repeat prescribers. We saw that 200% jump in refill prescriptions. So we were pleased with the results of that initial strategy.

Now that the team has been in the field for a quarter, we’ve taken a more balanced approach. So balancing the time we spend servicing those existing writers and balancing that with engaging, educating new providers. And we do expect to see new prescribers and new prescriptions grow over time.

Michael Cherny : And if I could just dive in a bit on the coverage side, how do you think about the milestones you’re looking for as you continue to focus on covered expansion, given that you obviously have — obviously, a candidate — and candidates in the pipeline relative to coverage from the commercial side, but also you’re having to redefine a new model given that digital therapeutics in general doesn’t necessarily have broad coverage within the current payer landscape?

Eddie Martucci : Sure. Thanks, Michael. This is Eddie. So I think you’re right that this digital therapeutics — prescription digital therapeutics as a class kind of hasn’t seen broad coverage yet, absolutely. We’re pleased with the interactions we have. When we have our teams dig in with payers, we’re seeing engagement. We’re seeing that the clinical data is sufficient. And generally, we get feedback that they’re impressed with the level of clinical data, obviously, because we’ve run multiple prospective trials for this clinical program. So we’re not guiding on — and we don’t announce individual coverages. We’re not guiding on expectations on number of coverages or covered lives or things like that. From our perspective, the milestones are really doing the work to essentially educate this payer landscape on this product.

I think broadly, what I see is that payers here are like very generally surface level aware, more and more, they are going deeper product by product into the data, and that’s where we believe we’re going to start to see the success, because of our investment in our data because of our outcomes to date. So it’s really doing internal milestones is really stacking up those meetings doing the work to go deep with each of these payers, which takes time.

Operator: Our next question comes from the line of Rahul Rakhit with LifeSci Capital.

Rahul Rakhit : Given the pretty impressive adolescent data, I was wondering what the feedback was from your existing prescriber base? And also that feedback, how do you think that will ultimately shape adoption amongst adolescent patients upon clearance and commercial launch?

Scott Kollins : Yes. Rahul, this is Scott. So it’s early. We just announced them. We haven’t presented the data yet or published, but the general reaction from providers as well as everybody else that we talk to is very positive. I mean this is a very underserved population. It’s going to double the number of kids that can get access to an effective treatment. So the reaction has been overwhelmingly positive.

Rahul Rakhit : Got it. Okay. That’s helpful. And then I know you guys are expanding your sales territories. I guess in terms of how you think which territories to expand into, is there any thinking around going into the areas with existing reimbursement coverage? Or are you just trying to cash this wider than that as possible in terms of driving script growth?

Matthew Franklin : Yes, Rahul, it’s Matt. Yes, a number of factors that we consider. I would imagine it’s similar to other pharmaceutical, biotech, medical device launches. We look at overall opportunity in terms of addressable patient population. We look at prescriber density. We look at geographic boundaries as well, making sure that these are small enough where we can get to these physicians on a frequent basis, right, to really maintain that reach and frequency. So I think we’re looking at it in terms of opportunity. The one thing we do, do is, we do integrate our market access with our sales strategy. So we are engaging with the commercial plans in those areas that we have existing sales force. So we’re able to pull it through. For example, last call, we talked about Highmark. We do have active sales presence in Pennsylvania. So just an example, again, how we’re integrating all of these different aspects of our commercial team.

Rahul Rakhit : Got it. That’s really helpful. I appreciate it. And I guess just one more for me. I was just wondering if you could kind of touch on the portion of new patients that are coming through in the telemedicine platform to your website versus your sales force on the ground?

Santosh Shanbhag : Yes, we haven’t provided specific guidance. Telemedicine continues to be, what I would say, a modest but meaningful contributor to our prescription volume. We’re pleased that we have that capability. I think it may be more important as we expand into the adult population, so more to follow-on that.

Operator: Our next question comes from the line of Vikram Purohit with Morgan Stanley.

Vikram Purohit : Two from our side, both on your commercial efforts with EndeavorRx. So I guess, first, what is the typical profile of patients that are demonstrating receptivity to EndeavorRx in terms of their pretreatment status and the status of their condition overall when they present to the providers who eventually end up prescribing them in EndeavorRx? And secondly, which aspects specifically of your commercialization and messaging efforts do you think are helping to drive the quarter-over-quarter increase in scripts that you reported in 4Q. I mean, when you reflect on the initial phase of your commercialization effort, like what’s resonated and what do you think really hasn’t so far?

Matthew Franklin : All right. Again, it’s Matt. Thanks for the question. I’ll do my best to address that multipart question, keep me honest to make sure I don’t forget any. I think first, on the patient profiles, one of the things that I really appreciate about EndeavorRx and the investment that team’s made in the clinical pipeline is that, it has been studied and been demonstrated to be effective as both a standalone treatment as well as combination with medical therapy, and it can fit seamlessly into any child treatment plan, right, in conjunction with the physician and the caregivers input. So it’s very flexible. With that said, we do see in our early engagements to patient profiles really stand out. The first is newly diagnosed patients.

So those who have recently been diagnosed who are interested in exploring or a caregiver is interested in exploring non-pharmaceutical treatment. So that’s the first. Second area that we’re seeing a lot of demand is for those patients that are not well controlled on medical therapy they may be experiencing side effects that often come with these prescription drugs, the stimulants and are looking to explore alternate non-pharmaceutical options. So those are really the two areas. Those use cases, if you will, or patient profiles as we discuss those with physicians have been an area of interest and uptake. So I think going through the clinical data, demonstrating the flexibility demonstrating the impact of our treatments in conjunction or as a standalone therapy have been very compelling.

So I would just highlight those are sort of the initial — the feedback we’re getting from the team.