COMPASS Pathways plc (NASDAQ:CMPS) Q3 2023 Earnings Call Transcript

COMPASS Pathways plc (NASDAQ:CMPS) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Good day, ladies and gentlemen, and welcome to the COMPASS Pathways Third Quarter 2023 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 call, Stephen Schultz. You may begin.

Stephen Schultz: Welcome all of you, and thank you for joining us today for our third quarter 2023 results conference call. Again, my name is Steve Schultz, Senior Vice President of Investor Relations at COMPASS Pathways. Today, I’m joined by Kabir Nath, our Chief Executive Officer; Mary-Rose Hughes, our Interim Chief Financial Officer; and Dr. Guy Goodwin, our Chief Medical Officer. The call is being recorded and will be available on the COMPASS Pathways’ Investor Relations website shortly after the conclusion and will be archived for a period of 30 days. 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 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.

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

Kabir Nath: Thank you, Steve. Good day, everyone, and thank you for joining us. Let me begin by welcoming Mary-Rose Hughes to our call as Interim Chief Financial Officer. Mary Rose has been with COMPASS since May 2020 when she joined as our second finance team member. She’s been instrumental in laying the foundation for our finance organization and led the finance team through our NASDAQ IPO and 3 subsequent equity and debt financings. Mary Rose, leads and manages all aspects of our finance operation with the exception of Investor Relations, where she’s begun to partner more extensively with Steve. I want to thank Mike Fabi for his service and contributions as CFO and in particular, for the significant financing we executed in August.

We’ve now initiated an active search for a new CFO, and you should expect a smooth transition as we’re in discussions with several strong candidates. After some introductory remarks about the business in the third quarter, I will hand the call over to Guy to provide clinical and regulatory updates and then to Mary Rose for the financial update. COMP005 and COMP006, our Phase III trial in treatment-resistant depression, or TRD, remain on track, and we continue to expect primary endpoint readout in summer 2024 and mid-2025, respectively. Guy will provide more detail on our TRD trials and our other clinical programs in a moment. Looking at the external environment, we also continue to see strong esketamine sales sold under the brand name Spravato, which achieved global sales of $183 million this quarter, an increase of 82% compared to the third quarter of last year.

This puts Spravato on a run rate of well over $600 million for 2023, continuing to demonstrate the unmet need in TRD. We believe this growth continues to be an important driver for the infrastructure of interventional psychiatry facilities and other treatment centres that we expect will be capable of delivering COM360 treatment, if approved. We find this continued development, very encouraging. This quarter, we also welcomed Daphne Karydas to the COMPASS Board of Directors. Currently, President and Chief Financial Officer at Flare Therapeutics, Daphne is a terrific addition to our Board as her biotech experience includes corporate financial management, investment management and investment banking. A deep biopharma industry experience and her understanding of investor priorities will help ensure that COMPASS remains on firm financial and strategic ground.

Finally, in August, we completed an up to $285 million private placement financing with $125 million in gross proceeds upfront and up to an additional approximately $160 million in proceeds if the warrants are fully exercised. The financing structure was dictated by the investors involved and was very attractive for COMPASS with the upfront investment accompanied by a warrant at a 30% premium to the last sale price. This effectively functions as an additional financing vehicle, if and when the investors exercised their warrants. This financing supported by a group of premier specialist biotech investors, extends our cash runway to late 2025 through multiple planned pivotal readouts. This strong financial foundation permits COMPASS to move forward confidently with our clinical programs as well as all supporting studies for a potential new drug application filing with the FDA.

We also continue to invest in our pre-commercial work to ensure we’re prepared for a successful COMP 360 launch, if approved, all with the aim of providing broad and equitable access to patients in need of better treatments. With that, let me now hand the call to Guy to update you on regulatory and clinical news during the quarter. Guy?

Dr. Guy Goodwin: Thank you, Kabir. As you’ve heard, both of our Phase III trials in TRD continue to advance with active recruitment. At this time, 3/4 of the COMP005 sites have been initiated. And 006, we now have approval for sites in the U.S., Canada, U.K. and a number of EU countries. Patient demand is strong, given the degree of unmet need in this population. As I have said before, the process of getting clinical sites up and running is a complex one, especially navigating the additional administrative details of working through the DEA licensing and Schedule I requirements. Screening and scheduling visits is also demanding for new sites. These complexities can impact the rates of early recruitment. So as you would expect, we are paying very close attention to these factors and implementing all steps to ensure we remain on track.

Patient demand is strong, however, and is the key to maximizing eventual rates of accrual at each site. Looking across our area of science, the expertise we have developed in managing the complexity of the Schedule 1 and meeting the clinical and patient management requirements for robust global trials of psychedelics represents a competitive advantage. Beyond treatment-resistant depression, our open-label Phase II study in post-traumatic stress disorder, evaluating safety and tolerability is fully recruited. We expect the top line readout this year and presentation of full data set to follow next year. As we’ve said before, anorexia nervosa is challenging. Patients do not necessarily recognize their need for treatment. This is one reason why it is so difficult to address and why it is so important that we work to find a solution.

Anorexia nervosa carries with it the highest mortality rate of any mental health conditions, and there are no FDA-approved treatments available today. We are not yet ready to update the guidance on completion of this study, but we have taken some steps, including adding 2 additional clinical sites in Ireland and Texas, phone-based screening, reduced numbers of in-person visits and other protocol amendments to reduce the burden on the patient. I will now hand the call to Mary Rose for the financial overview.

Mary-Rose Hughes: Thank you, Guy. I’ll now cover the highlights of our third quarter financial results. Comparing this year to last, for the third quarter of 2023, net loss was $33.4 million or $0.67 per share, including noncash share-based compensation of $4.4 million. Compared to a net loss of $18.4 million or $0.43 per share, including noncash share-based compensation of $3.5 million for third quarter 2022. I will now turn to the analysis of our current third quarter results compared to the prior second quarter results. Our current quarter financial results reflect our continued success in advancing our Phase III trials in treatment-resistant depression and encouraging progress in extending our cash runway with the proceeds from the August financing.

Cash used in operations in the third quarter were $17.1 million. Towards the higher end of the guidance range we provided last quarter due to the R&D tax credit not yet being received. We now anticipate receiving the credit in the fourth quarter. In this quarter, net loss was $33.4 million or $0.67 per share compared with a net loss of $28.3 million or $0.62 per share for the prior quarter. These results include noncash share-based compensation of $4.4 million in this quarter and $4.6 million in the prior quarter. R&D expenses were $21.5 million in this quarter compared with $19.8 million in the prior quarter. The increase was mainly due to external development expenses related to progression of our Phase III program. G&A expenses were broadly consistent in both quarters at $12.5 million in this quarter and $12.8 million in the prior quarter.

Turning to our balance sheet, cash increased by $99.9 million in the third quarter of 2023. In August, we entered into a securities purchase agreement and received net proceeds of $116.9 million upon closing. And if investors exercise their warrants, we will receive upon an additional approximately $160 million in cash proceeds. Long-term debt under our Hercules loan facility was $28.4 million at the end of the third quarter. Regarding fourth quarter financial guidance, we expect net cash used in operating activities to be between $9 million and $15 million. We are now expecting to receive our estimated $14 million R&D tax credit in the fourth quarter. However, the timing of this is uncertain. Turning to full year financial guidance, we are narrowing the range for cash use in operations to between $79 million and $85 million.

We have narrowed our full year range as we approach the end of the year and are able to forecast remaining spend in 2023 with greater accuracy. COMPASS continues to maintain a strong financial position with cash and cash equivalents of $248 million at September 30, 2023, compared with $143.2 million at December 31, 2022. The August financing has extended our runway into late 2025, which we will continue to manage carefully in order to continue advancing our pivotal programs and achieve important milestones that we believe will create value for our shareholders. Thank you. I’ll now turn the call back to Kabir.

Kabir Nath: Thank you, Mary Rose. Let me say again that we are pleased with our ongoing progress. Phase III clinical site initiations continue to grow in both trials and in numerous countries. We’re less than a year from our initial Phase III top line data. So 2024 should be an exciting year for COMPASS, and we look forward to updating you further as we approach this milestone. We’re also encouraged that interventional psychiatry treatment infrastructure continues to evolve and expand. The growth of Esketamine is evidence that people living with TRD need novel, rapid-acting treatments. We believe COM360 will be an important option for these patients. From January 2024, the new CPT 3 tracking code for the provision of services associated with psychedelic medications, which we’ve discussed extensively in previous calls, will also be effective.

This may well contribute to the development of both awareness and infrastructure ahead of any potential launch of COM 360, if approved, and it’s an important component of ensuring broad and equitable access to treatment for patients. In closing, with our strong balance sheet, we can navigate these challenging market conditions. We will invest the funds raised in our financing wisely. Our Phase III program in treatment-resistant depression and our follow-on indications are our clear focus. On behalf of the entire COMPASS team, I want to thank those investors who participated in the August financing. Thank you again for your participation in today’s call. We will now turn to Q&A. So I’ll hand the call back to the operator.

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Q&A Session

Operator: Thank you. At this time, we’ll conduct the question-and-answer session. Our first question comes from Ritu Baral with TD Cohen.

Ritu Baral: Kabir, to ask you for a little more detail if you have it around this question of administration centres, potential administration centres. Do you have an idea right now as to the number of clinical centres that are giving Spravato or even esketamine. And what percentage of the existing centres may be appropriate, have the potential expansion capacity for CoMP360. And then as a quick follow-up to that, as you open your sites, clinical sites and congrats on getting all the 051 open, as you finish opening them and they start enrolment, do you feel that they have, in effect, been completely trained to act as commercial centres or a post potential approval, would there have to be further training and set up before they could flip to commercial.

Kabir Nath: So to the first question, we don’t have exact numbers, but our belief is that there are several hundred treatment centres today that are able to offer esketamine. And that’s a mix of some of these interventional psychiatry centre that we’ve talked about, but also the fact that it’s clearly being administered within regional health systems within some of the larger clinics. I think it’s important to distinguish that from esketamine clinics. And again, we’ve seen clearly that those that were just offering off-label esketamine have struggled economically and there are more of those, but we don’t necessarily see those as appropriate sites for the potential delivery of Com 60. But essentially anywhere that is today offering Spravato, we certainly see as being potentially adaptable for the delivery of COM 360, and we see the numbers continuing to grow.

Part of the pre-commercial work we are doing is clearly to acquaint ourselves with some of those to start talking to regional health systems and so on around how they would see the opportunity to bring COMP 60 on board. In terms of sites, and again, just to clarify, we have the majority of sites for 005 now up and running with a few more site initiations to go. So as we’ve said in the past, our sites are a mixture. They’re a mixture of some truly academic sites that you wouldn’t necessarily expect to be significant from a commercial perspective, but then a number of others that we absolutely do believe will be able to scale rapidly into commercial. In terms of the training, I’ll comment, but I will also ask Guy to add his thoughts. Clearly, the training we’re delivering today is intensive and designed for a clinical trial setting.

And obviously, that’s a unique and a very different setting from what we would expect a real-world commercial setting to be. By definition, the therapies there are getting very comfortable with the support of patients during the administration of Psilocybin, but your specific question as to whether there may need to be some different modest tailored training for commercial is one we are continuing to work through because it is clearly a different setting from a clinical trial set. Guy, do you want to add anything to that?

Dr. Guy Goodwin: Just to say that I think our training program has evolved really well in the last year, the stimulus being the trial, and it will continue to evolve as we move towards commercialization. We work with providers to think about exactly how it will work in practice. So I think we’re well on track to see changes, which will be beneficial in the long term.

Operator: Our next question comes from Charles Duncan with Cantor.

Charles Duncan: First of all, congratulations on the progress with site openings. I had just a couple of questions. When you consider the rate limiting steps to progress in 005 and 006, I’m wondering if you believe that site openings are perhaps a bigger modulator than patient demand. And for those sites that you have opened for 005, are you seeing more than, call it, a single patient being enrolled?