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spk05: Good afternoon, ladies and gentlemen, and welcome to the Akili, Inc. second quarter 2023 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 10th, 2023. I would now like to turn the conference over to Julie DiCarlo, Senior Vice President of Communications. Please go ahead.
spk00: Thank you, Chris. Good afternoon and welcome to Achilles Earnings Call for the second quarter of 2023. This is Julie DiCarlo, and I'm joined on today's call by Achilles CEO, Eddie Martucci, our President and Chief Operating Officer, Matt Franklin, and our Chief Financial Officer, Santos Schoenbeck. Also joining us for the Q&A portion of today's call is Achilles Chief Medical Officer, Scott Collins. We issued our earnings release after the market closed today. You can access the release on our investor relations section of our website along with the earnings slides that we'll reference during today's call. This call is being recorded and we'll make a replay available on our website shortly after 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, involves 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 include such differences include, but are not limited to, those risks and uncertainties set forth in our Q2 2023 Form 10-Q that we're filing today, as well as other subsequent filings with the SEC. Information provided on today's call reflects our views only as of today, August 10th, and should not be relied upon as representative of our views at any subsequent date. We explicitly disclaim any obligation to update or revise our forward-looking statements or outlook. Also during today's call, we'll reference 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 historic 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 now turn to slide three as I hand the call over to Eddie for his prepared remarks. Eddie?
spk11: Thanks, Julie. And hello, everybody. To orient everyone, for those with slides, I'm going to turn to slide four. As the business has evolved since we last spoke, and we're now operating in two markets in the U.S. with two independent products, the pediatric ADHD market with our FDA authorized prescription product, Endeavor Rx, and now the adult ADHD market with our recently released over-the-counter product, Endeavor OTC. For EndeavorRx and the pediatrics business, as you know, we've been live with the sales force for just over three quarters in our current addressable market of just over 2 million children, ages 8 to 12, and we're looking to expand the label to include adolescents with our FDA review that's underway. With EndeavorOTC, we've now entered the adult ADHD market earlier than expected, which is a market five times larger than our current EndeavorRx market at around 11 million patients. This adult market has unique market dynamics, and as we've started to engage directly in the market with a live product, we see enthusiasm for a new treatment focusing on attention issues. In our pediatric ADHD market, we continue to see quarter-over-quarter growth in prescriptions, prescription refills, and prescribers for EndeavorRx. This all tells us that the value of EndeavorRx is resonating with patients and providers, increasingly so every month. That said, revenue was flat. in large part due to insurance continuing to lag and block patient access. We're seeing this insurance barrier play out as the number of patients utilizing our patient assistance program increased substantially in Q2. This is clearly an issue that's broader than our product and market, as I'm sure you've recently seen the White House take the insurance industry to task for not living up to mental health parity. That eventually has to change, but we're pleased to see continued growth in the areas that we can control. Most exciting in the past quarter is our entry into the adult ADHD market. We released Endeavor OTC as an over-the-counter treatment for direct purchase by adults with ADHD. The product went live in the Apple App Store in June under FDA's COVID enforcement discretion policy. It's built on the same tech as our FDA approved product and we decided to release the product while preparing our FDA submission because of our strong clinical data in adults and the documented growing need right now in the adult market. This initial release allowed us to assess consumer demand and inform our regulatory and commercial strategy. We look forward to sharing specific data on Endeavor OTC once we have more time in the market, but what I will share today is that based on what we've seen in the market thus far, we plan to pursue an FDA OTC regulatory path and commercial strategy for the adult market. And during this time, the product will remain on the market as we continue to optimize it. We believe the OTC business model has the potential to efficiently scale to a large market actively seeking treatment with significantly less friction compared to what we see in our prescription model and significantly less reliance on insurers. This move also places us at the forefront of a new societal shift to over-the-counter models for products that are clinically validated and safe. We think we're on the right side of innovation here and are proud to pursue what, if approved, would be the first digital treatment with the FDA authorized OTC designation. At the macro business level, we continue to carefully manage our capital as we operate and grow our business, and we remain able to fund our current and planned operations into Q1 2025, which we believe is important in this current environment. I'll now turn it over to Matt and Santos to take you through the actual data.
spk10: Matt? All right. Thanks, Eddie. I'll first start with an update on our progress in the pediatric market, then share some insights from our early experience in the adult ADHD market, and then wrap up with an overview of top line results from our COVID fog studies. As highlighted on slide five, in Q2, we saw continued growth across key indicators of demand for our pediatric product, Endeavor Rx. We added over 500 new prescribers during the quarter and grew overall prescriptions by 27% compared to Q1. This demand was offset by a 7% decrease from Q1 and the 30-day dispense rate for new prescriptions and a two and a half fold increase in the number of caregivers who qualified for free product under our patient's assistance program. This wasn't unexpected given the continued lack of insurance coverage. We also made progress on the regulatory front. As a reminder, we submitted data to FDA to include 13 to 17-year-olds in the Endeavor Rx label. Our filing is currently under review with FDA, and if it's successful, we look forward to making Endeavor Rx available as an alternative for adolescents looking for new treatment options. Now let's turn to slide six in our early experience in the large adult ADHD market. There are approximately 11 million adults with ADHD in the U.S. whose daily lives are impacted by attention issues. These individuals are increasingly demanding safe and effective non-pharmaceutical treatments, especially as they continue to experience widespread stimulant medication shortages. The shortage was the focus of the joint statement issued on August 1st by FDA and DEA. With the strength of our STARS adult ADHD clinical trial, data and the significant patient need, eight weeks ago we entered the adult market with the release of Endeavor OTC for adults with ADHD. This product release gave us access to the adult market sooner than expected and, as Eddie shared, allowed us to gauge consumer demand and viability of reaching consumers directly through an over-the-counter model. As adults have the ability to manage their own health care, we intentionally chose to remove payers and prescriber intermediaries and use a non-prescription approach for Endeavor OTC. The OTC model enables us to make our treatment extremely easy to access. Today, it can be downloaded directly from the Apple App Store and subscription initiated after answering a few basic eligibility questions. As Eddie mentioned, based on what we've seen so far with the Endeavor OTC release, we've made the decision to pursue an OTC regulatory and commercial strategy for the adult market. One note, we received a number of questions about the over-the-counter designation and want to be clear. An OTC designation is an FDA authorized medical device, but one that does not require a prescription. We're on track to submit for FDA authorization as an over-the-counter product later this year. We're now optimizing key components of the business model. For example, we're testing multiple monthly and annual pricing plans. We're refining our messaging and core visuals and identifying the most cost-effective promotional channels. We're also tailoring the game experience for adult users. We have product updates coming soon and continue to gather feedback from users that will help guide future product enhancements. Again, it's early, but we like the OTC model for this adult ADHD market. And I look forward to sharing detailed data once we have a bit more time on the market. Finally, while we're on the topic of adults, I wanted to share a brief update on the Cornell and Vanderbilt trials evaluating our technology in adults with cognitive dysfunction following COVID infection. These independent proof of principle randomized controlled studies were designed to identify signals for potential future exploration and top line analysis has been completed. We didn't see statistical separation between the groups on the primary outcome measure. However, these were broad based measures of cognition, not specific to attentional control where we'd expect to see the most direct effects of our treatment. We did, however, observe compelling improvements in a number of secondary measures that assessed functional outcomes, such as fatigue, depression, anxiety, quality of life, as well as cognitive measures associated with attention control. Across these functional and cognitive outcomes, changes were statistically significant or trending towards significance when compared to the control group. We're working with the study investigators to present these data at an upcoming scientific meeting, and with these encouraging data, we'll be engaging in discussions with potential partners on opportunities to advance research in this area. I'd now like to turn it over to Santosh, who will walk us through the key financial metrics. Santosh?
spk04: Great. Thank you, Matt, and hello, everyone. If you turn to slide seven, as a reminder, an expanded Endeavor Rx label combined with Endeavor OTC in the adult market has the potential to reach close to 17 million people with ADHD, and we have made incredible progress to address a large part of this population here in the United States. Let's take a look at our second quarter financials on slide number eight. From a revenue perspective, we recognize approximately $114,000 within the quarter, which were relatively flat when compared to the prior quarter of this year. We also added a new non-GAAP metric, total billings, to give a better sense of actual product purchase in that period. Total billings are revenues plus the change in deferred revenue. Essentially, this is what people paid us during the quarter. Total billings were $170,000 for the second quarter, which is about a 34% increase over the first quarter of this year. Moving on to expenses, we incurred approximately 15 million of GAAP total operating expenses and about 13 million of non-GAAP total operating expenses in the second quarter. The reduction in expense you see compared to the prior quarter was primarily driven by reduced G&A spend and the wind down of our clinical trials. As indicated on the slide, we continue to expect to see our non-GAAP total operating expenses for 2023 to be within the $55 to $60 million range we had provided earlier this year. GAAP net loss was about $12 million in the quarter compared to a net loss of approximately $21 million in the first quarter of this year, and non-GAAP net loss was approximately $13 million compared to a net loss of about $14 million for the first quarter of this year. A gap to non-gap reconciliation is available in the appendix. And last but not least, from a cash runway perspective, we ended the second quarter with approximately $106 million of cash, cash equivalents, and short-term investments. As indicated on the slide, we continue to expect that our cash position at the end of the second quarter will be sufficient to fund our current and planned operations into the first quarter of 2025. I'll close on the financial update by reiterating that our current operating plan, one, builds on the continued commercial expansion into ADHD populations beyond pediatrics, and two, preserves capital, especially in these current capital market conditions. With that, I'll hand it over to Eri. Eri?
spk11: Thanks, Satosh. Everyone, if you turn to slide nine just to wrap, you can see our highlights here. We have seen continued growth in our business model over the quarter. And we're excited about some of the upcoming developments that we've seen. And we do believe we're in a strong position to continue to execute on our goals. And so I'll turn it back over to the operator to initiate the beginning of the Q&A period.
spk05: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift a handset before pressing any keys. Your first question comes from Judah Frommer, Credit Suisse. Judah, please go ahead.
spk03: Yeah. Hi, guys. Thanks for taking the questions, and congrats on the progress here. A couple related to the OTC designation. How long do you anticipate you'd stay, I guess, on the apps or under the COVID public health emergency? And what do you anticipate FDA is largely focused on in assigning the designation? Is it largely the safety profile of the product? Anything else we should be looking for there? And what's the timeline and when you think you might actually receive the designations?
spk11: Sure. Thanks, Judith, for the question. Good questions. This is Eddie. So as a brief answer, and then I'll turn it over to Scott, our CMO, for more details. So we do intend at this point to have the product remain on the market as we continue to optimize it during the health emergency. Still a health emergency and still a lot of need out there. And we'll be following the guidelines for submission, which is both efficacy and safety. That'll be the dependency of the review. Scott, do you want to say a bit more about the timelines associated with this?
spk01: Yeah, thanks, Eddie. So the timeline, the enforcement discretion from the FDA for the COVID-related marketing ends in November. So our plan is to submit our application before then and have it under review before that time in November. And then just to add on what Eddie said in terms of, you know, the basis for the application, it will be similar to what we had for our adolescent submission, which is a 510 . As Eddie said, focus mainly on the efficacy and safety that we observed in our adult clinical trial.
spk02: Okay, got it. And then just one quick follow-up on refills. Any trends you're seeing in terms of timing of refill? Do you find that patients are doing kind of one after the other, or are they taking a break in between? Like, I think you had in one of your trials, you had a one-month break. Thanks.
spk11: Sure, thanks, Trude.
spk10: I'll have Matt go ahead and answer that one. Yeah, I think one of the beautiful things about Endeavor X is it can be flexible and accommodate each individual patient's needs. So we are actually seeing kind of a wide variety of utilization. The majority of patients who get refilled typically will take a break, so a month of active treatment, a break, and then reinitiate a second cycle similar to the clinical study. But we also see a growing number that use it in kind of a sequential month over month. So again, a little bit of a wide range there. Great. Thanks.
spk05: Perfect. Thank you. Your next question comes from Charles Rhee, TD Cowan. Charles, please go ahead.
spk07: Hi, this is Lucas Opper-Charles. Obviously, it seems like the OTC product is doing well. I would be curious, I know you guys started making that available in June. I'd be curious to hear, one, what sort of contribution you could see it having throughout 2023, and then two, just kind of curious, given you guys are now running two parallel products, just kind of what is your marketing focus on or Obviously, you want to focus on ramping the adolescent product, but just kind of curious to see what resources are going to the OTC product.
spk11: Sure. We'll take the first part of that. Good question, Lucas, and then I'll pass it to Santosh for a bit. So, at a high level, we're not guiding on anything related to contribution in any of the metrics at this point. we are looking, as Matt talked about, to continue to lean into optimizing the model and learning more as it's on the App Store. I think at this point we've had a limited kind of early set of weeks here on the market. I think there's a lot more we can optimize and continue to learn, and so we will invest into that. As we've talked about, we are not going to increase our OPEX this year. And so as we look at investing across markets, these various opportunities across the ADHD market, we will juggle those and we will optimize in the way we think best, including some earlier and more optimization in this OTC path.
spk04: Yeah, thank you, Eddie. Just to add to that, I would say, like Eddie said, we are not providing guidance on revenues, as you know. We do expect to see the Endeavor OTC continue to remain live in the market, so there will obviously be some contribution of revenues through OTC. From an expense perspective, we are looking at balancing our total expenses and investments in marketing versus what we need to support the Rx business as well. But keep in mind, we are reiterating our total operating expense guidance of $55 to $60 million for the current year, and we don't plan to change that at this current point in time.
spk07: Okay, I appreciate that. And then in terms of progress with payers, last call you guys noted that Kroger's health plan adopted coverage across their members. Curious to hear where you guys are at with conversations with other payers. Do you get the sense that payers are waiting for real-world evidence data? Just kind of curious to hear an update on that.
spk10: Matt? Yeah, hi, it's Matt. Yeah, on the insurance front, unfortunately, no new news to report there. And there's no question that this process is taking longer than we want. You know, it's interesting. Eddie highlighted some of the challenges are not necessarily unique to Achille. We saw, you know, the White House release a memo highlighting some of the disparities in mental health care. We continue to engage with the payers and to answer your question, it's really kind of unique to each payer. You know, we're working with them through their process. We're continuing to work as aggressively as we can to expand access for our patients and their families.
spk11: Yeah, I'll say very clearly, I think it's clear from my perspective, from our perspective, this is not about additional data. For Endeavor Rx, this is not about a specific product. This is about inertia in the system, which is why we continue to engage. It's why we continue to push on this because it is an important factor for access to patients. And so I think this is just a process that has to play out.
spk07: Okay. Yeah, understood. And then I guess the last one. Have you guys, you might have said it earlier. Have you guys given an expected timeline for when you believe you can get the label expansion for adolescent population? I know you submitted on May 8th. Maybe could you remind us of the timeline for that?
spk11: Sure. So there's no explicit timeline stated. The FDA has internal guidance in terms of, you know, their own clock and how they want to review. But there's no date. There's no, in this regulatory type, there's no kind of PDUFA, MDUFA date. And so it is, we can't say it's actively under review. We're working with FDA, but we can't guide on an exact timeframe when, you know, a final decision would be reached.
spk05: Okay. Sounds good. Thanks for the questions. Great, thanks. Thank you. Your next question comes from Vikram Purohit, Morgan Stanley. Vikram, please go ahead.
spk08: Hi, everyone. Congrats on the quarter. This is Gaspol on for Vikram. We have one question, and the question is, what have been some of the key areas of user feedback on Endeavor, and what are the key product updates your team is currently working through based on the feedback that you have been receiving?
spk10: Vikram, this is Matt. Are you referring to Endeavor OTC or Endeavor RX?
spk09: Endeavor RX. Endeavor RX. I mean, I guess, I mean, let's make it general then. Let's make it general.
spk10: Okay, yeah, no problem. Yeah, I just want to make sure I address your specific question. I mean, I think in general, what we are hearing is an incredible unmet clinical need, right? I think we're seeing, as you saw, both products increase in demand, right? So there's an unmet clinical need out there. From a clinician perspective, from a patient perspective, I think they also find comfort in the rigorous science and clinical data, right? The rigorous data that backs these products and also the engaging entertainment video game format, particularly in the pediatric market. We've seen continued progress with maintaining engagement over time as well, so.
spk11: Yeah, just to add on, this is Eddie. It's a good question. There, you know, we believe that Things like continuing to add features that people are asking for in terms of engagement, continuing to add data and tracking features, all of these are things that actually come up in our feedback. And because we're in now two different markets and our volumes continue to grow, we're able to actually get a lot of volume of this feedback. And so in those areas, kind of engagement features and data and tracking, These are all areas that, one, we have on roadmap, and two, what's really great about digital therapeutics is we have a lot of potential and latitude to add features directly to the product and release on a timely cadence. So, we definitely intend to have updates coming, as Matt said, near-term updates in OTC as well as updates in RX aimed at these areas.
spk10: Yeah, and specifically in the adult market, we're just getting started. So we are actively in the process of optimizing that product for the specific adult users that we've engaged with. And excited, as Eddie mentioned, that we can – one of the unique advantages of our product is that it can be kind of evergreen and refreshed to continue that cadence of updates.
spk09: Awesome. Thank you very much.
spk05: Thank you. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your touch-tone phone. Your next question comes from Rahul Racket, LifeSci Capital. Rahul, please go ahead.
spk06: Hey, guys. Thanks for taking the question. You know, I know it's pretty early, but I was just wondering if you've seen any kind of trends in the OTC product about where patients are kind of leaning in terms of subscriptions. Are you seeing more patients opting for, you know, one or two months subscriptions versus the full year? Any color year would be pretty helpful.
spk11: Sure, thanks. Great question, Rahul. I think it's a mix, and actually one thing that we've really leaned into in these early weeks with Endeavor OTC is a lot of testing. And so what you'll note, well, you may not be going on on different devices every single day, but we are testing a range of different types of packages, pricing, etc. This is very much for us a data gathering and optimization exercise at this point. And so the best we can say really is that there's a mix and we do see kind of monthly packages and we do see annual subscriptions. So both of those are are things that we actually see actively in the marketplace. There's not a kind of singular thing that people are relating to. And so that's, we'll keep that in mind as we think about when we finalize pricing, what options we'll keep available for patients.
spk06: Got it. Okay. And just kind of going off of that and knowing that this one might be a little harder to answer, of the people, you know, who are opting for the one or two month descriptions, can you give me an you know, at least in terms of kind of trends, what percentage are coming back, as well as what percentages are kind of making it through, you know, the full courses of treatment?
spk10: Hey, Rahul, it's Matt. Yeah, I mean, pretty early. We're only on the market for three weeks here in Q2. So we do plan on, in the future, providing a full set of metrics to help address questions like that. But again, early, early days for us right now with the OTC model.
spk06: Got it. Not until I understand. Yeah, no, I think that's it. Thanks for taking the questions, guys.
spk05: Awesome. Thank you. Thank you. There are no further questions at this time. Please proceed.
spk11: All right. Thank you, everyone. Thanks for your attention for this quarterly call, and thanks for the engagement and questions, and we'll talk to you in the future. Thanks.
spk05: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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