Akili, Inc. (AKLI) on Q1 2023 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen, and welcome to the Akili Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on May 11, 2023. I will now turn the call over to Julie DiCarlo, Senior Vice President of Communications. Please go ahead.
Julie DiCarlo: Good afternoon, and thank you for joining us today for Akili's Earnings Conference Call for the first quarter of 2023. This is Julie DiCarlo, and I'm joined today with -- by Akili's CEO, Eddie Martucci, our President and Chief Operating Officer, Matt Franklin; our Chief Medical Officer, Scott Collins; and our Chief Financial Officer, Santo Shane. After the markets closed today, we issued our earnings release, which can be accessed on the Investor Relations section of our website. Additionally, we posted earnings slides on our IR website that we'll reference during today's webcast.
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-K filed on March 9 as well as other subsequent filings with the SEC.
Information provided on today's call reflects our views only as of today, May 11, 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 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 turn to Slide 4 as I hand the call over to Eddie for his prepared remarks. Eddie?
Walter Martucci: Thanks, Julie. Hi, everyone, and welcome to our Q1 2023 earnings call. We've been busy. We had a productive first quarter, growing Endeavor Rx in the pediatric market and positioning ourselves to be able to access the even larger adolescent and adult ADHD markets. And I'm excited to share our progress today and tell you more about some of our recent announcements. In terms of Endeavor Rx and children with ADHD, we're seeing strong results.
In the second quarter of launch with our targeted sales force, we saw an increase over Q4 in essentially every sales metric, especially positive for us as a return to quarterly growth in both new prescribers and new prescriptions, which shows that we're demonstrating increasing control in the model. We're seeing more traction overall and the more doctors are integrating Endeavor Rx into their routine practice. Matt's done a great job leading the team to balance breadth of new prescriber uptake with depth in existing prescribers showing that both of these can be growth areas for us going forward.
As we look to expand the number of addressable patients, our team prioritized and moved quickly on our adolescent regulatory package, which I'm happy to report is now submitted to the FDA, and we've hit that important milestone well ahead of what we had originally anticipated. This is excellent for our business as doctors who see our current patients and children 8 to 12 years old, also see adolescent patients, which means with approval, we should be able to quickly and easily access this larger pool of patients. And it's really important for these adolescent patients who are struggling right now.
While we can't speak for FDA's review process, obviously, we're definitely hopeful that the agency will recognize the urgent need and teens and that we can move quickly to market authorization. And that would double our current addressable market faster than we initially anticipated. But what I'm most excited about right now is the top line data we released last week from our adult ADHD trial. While we've previously shown in published randomized controlled trials that the SSME technology inside Endeavor Rx can treat cognitive dysfunction in adults with depression and MS, we had an explicitly completed a clinical trial in adults with ADHD. Scott will go over the data from this pivotal trial in a bit. But quite frankly, I could say the results are astounding. I've been in this field for more than a decade and the magnitude of these effects even surprised me.
Given a historic undertreatment of adults for their ADHD and their current struggle getting access to treatment, we think we can offer a meaningful treatment option in what is a fast-growing mental health demographic. The adult market is unique from children and adolescents, and we're currently looking at options to speed our ability to get this product into the hands of patients. All in all, our pediatric market, plus adolescents and adults could allow access to at least 14 million patients in the U.S. which is a huge jump from our current market today and helps derisk our label expansion plans.
Before we dive into the earnings details on all of these items, I'd like to quickly address the questions that I know are out there about the health of the digital therapeutic industry. And what I'd like to say is that as with all areas of medicine, we know that not all products are created equal. But the potential for success really comes down to specifics, like the product mechanism, the clinical data, the market the product is entering. All 3 of these for Achille are very different than many other digital therapeutics and give us a unique opportunity to scale like other established areas of medicine.
Our technology is the medicine that's directly stimulating physiology, not just the mechanism to deliver human therapy in an app. And we've seen recently in adults that this can have dramatic clinical impacts. Also, our market is unique. Our adult -- our ADHD market generally and our future mental health markets are broad. They're large and they're comprised of activated patients who are hungry for new therapeutics.
We think that's why we see a willingness to pay out of pocket and already about 10,000 prescriptions written primarily by general practice pediatricians and specialty psychiatrists in every state in the country. These are the things that give me confidence that our products have the ability to grow and scale, and we're well funded into Q1 2025 to do so. So now to dig into the data from this last quarter and our plans going forward, I'd like to turn it over to Matt and team. Matt?
Matthew Franklin: All right. Thanks, Eddie. We've previously outlined 3 strategic areas of focus for our business, and these are outlined on Slide 5. The first is driving awareness and adoption of Endeavor Rx through the addition of our direct sales force now in 25 priority territories covering roughly 40% of the estimated U.S. market opportunity for our initial indication of Endeavor Rx.
The second is removing barriers to adoption by driving expanded coverage for Endeavor Rx and third, continually improving our treatment experience. In the first quarter, we continue to grow adoption and released several new features to improve the treatment experience and made modest progress with payers. Let's look at the highlights from each of these areas, starting with adoption. In the first quarter, we deployed the second wave of our sales team to 12 additional geographic territories, bringing us up to a total of 25 occupied territories. While it's very early, we are encouraged by the initial progress we've seen in these expansion territories.
In Q1, we saw double-digit growth compared to Q4 2022 and nearly all measures of demand. The overall number of prescribers, new prescribers, overall prescription growth, new prescriptions and refill prescriptions. Finally, we are encouraged to see the number of new prescribers as well as repeat prescribers grow. In short, we continue to see strong correlation between direct sales engagement and accelerated growth across key adoption performance metrics. Moving now to coverage. In Q1, we added to our payer coverage, but not as quickly as we added new prescribers and prescriptions. We also continue to see families willing to pay out of pocket for Endeavor Rx, -- and while this is encouraging, we acknowledge that families need expanded access to new non-pharmaceutical treatment options.
We did make progress in Q1 as Endeavor Rx was added to multiple formularies. Of note, Kroger, one of the largest and most innovative retailers in the U.S. is now covering Endeavor Rx for its more than 400,000 employees plus the estimated 6 million affiliated Kroger health plan members. Of course, formulary inclusions is the first step in a multi-step reimbursement process, but we're encouraged by the progress. Finally, on treatment experience, we continue to update and optimize the treatment experience surrounding the products, including our companion application for caregivers, Endeavor Rx insight. In Q1, our enhancements were focused on improving progress tracking features to provide caregivers and health care providers increased visibility into the benefits patients are realizing from Endeavor Rx and to track this progress throughout their treatment.
An important update I'd like to highlight. We've added the ability with an Endeavor Rx Insight app for caregivers to complete the Vanderbilt assessment, a standardized rating scale commonly used by providers to diagnose and assess ADHD. This is now live and being used by caregivers. This is a critical addition that both HCPs and caregivers have asked for and provides a way to systematically monitor improvement during the course of treatment. Turning now to the numbers. The full slate of quarter-over-quarter and year-over-year metrics are on Slide 6. I'll highlight a few of the key metrics, starting with prescriptions. As Eddie mentioned, we saw robust growth in a number of new prescriptions with a 38% increase over Q4 2022 and more than 190% increase over Q1 2022.
And we felt we continue to see positive trends in prescription refills, reporting 23% quarter-over-quarter and more than 400% year-over-year growth. On prescribers, in Q1, we saw more than 900 unique prescribers right prescriptions, a 15% increase over Q4 2022 with new prescribers growing by 20% in the same time period. 35% of the new prescriptions written in Q1 were dispensed during the quarter, down from 40% in Q4. We believe the small decline was driven by the significant increase in number of prescriptions written in late March, which we expect to be filled in Q2. The number of annual prescriptions per patient -- a new metric we are providing that encompasses both new prescriptions and refill prescriptions that are expense for each patient in the prior 12 months was 1.7%, a 17% increase over Q4 2022.
During Q1, we received payment for 95% of dispensed prescriptions. 94% of dispensed prescriptions were paid out of pocket by caregivers, 1% were reimbursed and 5% were provided free of charge to qualifying families under our patient assistance program. Now I'll turn it over to Dr. Scott Collins, our Chief Medical Officer, who will provide an update on our clinical programs.
Scott Collins: Thanks, Matt. As you've already heard, we've had a number of exciting updates from our clinical programs. First and foremost, as Eddie mentioned, we recently disclosed top line results from our clinical trial in adults with ADHD. The findings are highlighted on Slide 7 and were even better than we had hoped. We saw changes on our primary outcome measure of attentional functioning improved significantly from baseline to the end of treatment. The magnitude of change seen in adults was more than twice as large as what we saw in our recent adolescent study and was nearly 7 times greater than what we observed in our initial RCT in children aged 8 to 12 that led to the FDA's authorization of Endeavor Rx.
On the same validated measure of attention, more than 1/3 of patients scored in the normative range at the end of treatment, meaning they no longer have a measurable attention deficit after using our treatment for 6 weeks. In comparison, in our pediatric population where we have FDA authorization, 11% of patients scored at the normative range at the end of treatment. We also observed significant effects on clinically meaningful outcome measures, including the inattention subscale and the total score of the ADHD rating scale, a widely accepted measure of ADHD symptoms.
Nearly 1/3 of all patients had a clinically meaningful improvement of 30% or more on the ADHD rating scale. These are also greater than what we're seeing in both of our pediatric and adolescent studies.
Critically important from a clinical perspective for the first time in our ADHD studies, we measured quality of life in this adult study with a validated ADHD specific measure. We saw robust improvements with almost half of all participants meeting the prespecified criteria for clinically significant quality of life improvement. We plan to present full data from the stars ADHD adult study at a future scientific meeting. These findings could have significant implications for the millions of adults living with ADHD in the United States. Over the past several months, we've seen near constant reporting on both the increasing numbers of adults seeking care for ADHD as well as the barriers they're facing accessing that care.
This environment makes it even more important that we get our product into patients' hands as quickly as possible, and we're currently evaluating regulatory strategies that will speed delivery of this effective and safe treatment to patients. We look forward to sharing more information about our plans in this regard soon. In addition to these adult study results, which truly exceeded our expectations, we reached another important milestone on the path to access the full ADHD population.
Earlier this week, we submitted our label expansion request to the FDA to expand our Endeavor Rx indication to children aged 13 to 17. This milestone, along with the completion of the adult study I just described, are both well ahead of schedule from what we initially projected. As we shared in January, we showed robust improvements in intentional functioning and related clinical outcomes in adolescents. The mental health crisis that teenagers had, and they too are impacted by difficulties accessing treatment. It's critical for teams to have as many choices as possible to manage their ADHD functioning, and we look forward to being able to give them a new option with Endeavor Rx with respect to our other programs, our pipeline can be found on Slide 8.
Our Phase III study in partnership with Shionogi in Japan as well as our 2 other studies of cognitive dysfunction following COVID infection are on track with time lines we previously reported. In summary, our progress toward expanding our opportunity in the ADHD market is accelerating. Outcomes from our pivotal study in adults were better than expected. Our pivotal trial results in adolescents have been submitted to FDA to expand our existing label and our pivotal trial in Japan is on track for an end-of-year readout. We're excited about this potential to benefit a substantially greater number of patients across their lifespan, and we'll be working hard to help ensure access to this treatment option in the midst of ongoing challenges for patients with ADHD. I'll now turn it over to Santosh for an update on our financials.
Santosh Shanbhag: Thank you, Scott, and hello, everyone. As you just heard from Scott, we have made incredible progress to address the vast majority of ADHD patient population here in the United States. You can see on Slide number 9, we have updated the overall opportunity across ADHD to at least 15 million people here in the U.S. With the imminent launch of our adult product, we undertook a reappraisal of the market opportunity with the expertise of Dr. Collins and have updated our estimates for the total addressable market in adult ADHD.
With strong data in both the adolescent and adult ADHD populations in this quarter, our label expansion, combined with our current population has the potential to reach more than 14 million people with ADHD, and we are advancing these programs well ahead of schedule and helping de-risk our label expansion plans. Now on to the financials on Slide number 10. From a revenue perspective, as you see on the slide, in the first quarter of 2023, total revenues were $113,000. It is similar to our revenues reported in the fourth quarter of 2022. As a reminder, we recognize revenue upon dispense and activation and over a 30-day period. You will therefore notice that our deferred revenue balance increased compared to the fourth quarter of 2022 in our financial statements in the press release today.
This was mainly due to the timing of prescriptions dispensed in the quarter. Moving on to expenses. We incurred approximately $19 million of GAAP total operating expenses and about $14 million of non-GAAP total operating expenses in the first quarter of 2023, which represents approximately 30% reduction quarter-over-quarter. This was primarily driven by the impact of the actions taken earlier in the quarter in the support of our 2023 operating plan, including the reduction in our workforce. And last but not the least, from a capital perspective, we ended the first quarter of 2023 with approximately $117 million of cash, cash equivalents and short-term investments.
This brings me to our cash runway. We continue to expect that our cash position at the end of the first quarter of approximately $117 million to be able 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 allows us to, one, focus our resources primarily on EndeavorRx commercialization and ADHD label expansion; and two, preserve capital, especially in these current capital market conditions. With that, I'll hand it over to Eddie. Eddie?
Walter Martucci: Thanks, Santosh. I hope everyone can sense the things we're excited about here on today's call. On Slide 11, we just have a quick summary for you all. Endeavor Rx strong sales metrics, along with our successful clinical trials in adolescents and adults have significantly strengthened our position and has de-risked our plans to access the entire ADHD market. We're well funded into Q1 of 2025 to pursue our goals and advance our growth. I'd like to thank you all for joining us today. We look forward to keeping you apprised of our progress. And at this time, I'd like to turn things back over to our operator, who will open the call to questions.
Operator: [Operator Instructions] The first question comes from the line of Charles Rhyee from TD Cowen.
Lucas Romanski: This is Lucas on for Charles. I wanted to ask about the adult data. Curious as to why you guys are seeing such improved results in adult patient populations compared to pediatric and adolescents. You commented a little bit on the last call, but I would like to hear if you guys had a chance to come to some more concrete solutions as to why adult populations seem to have better outcomes in the younger populations?
Scott Collins: Yes. This is Scott. I'll take that, and thanks for the question. Yes, as we talked a little bit about this following the report of the adolescent data, and I actually think if some of our hypotheses were confirmed with the adult data. These are patients who are -- they are taking control of their own treatment. They're -- we think that they are likely to be more motivated. An adult who's enrolling in a clinical trial is seeking care because their current treatment options aren't working, which is a different scenario than a 10-year or 11-year old being enrolled into a clinical trial by their caregiver. We're interested in exploring sort of more quantitatively and objectively how we might confirm that hypothesis. But from what -- from everything we've seen in the data, that's our best guess right now.
Lucas Romanski: Okay. Great. And then can you remind us what the time line for approval of the label expansion is -- assuming it's shorter than 5-10K and then obviously, pending approval, how quickly will you guys be able to launch the adult version of the product kind of working on the assumption that you'll be selling into different physician types.
Scott Collins: Yes. So yes, so for our adolescent submission that we just had earlier this week, that's a standard label expansion. The guidance from FDA is 90 days. That doesn't include opportunities for us to respond to questions that they might have. And of course, we -- they're not legally bound to that time line, and we can't predict what the FDA is going to do. And then with respect to the adult data, we are still evaluating our regulatory strategies for that, and we'll have more information later.
Operator: [Operator Instructions] Your next question comes from the line of Judah Frommer from Credit Suisse.
Judah Frommer: Congrats on the progress. Maybe first, could you just remind us how standard of care for ADHD compares in adults versus adolescents and how those deals calls could potentially be different between the 2 physician and patient communities.
Scott Collins: Yes. So I can take the first part. There's a couple of pieces there. So how standard of care compares between adults and adolescents and kids. A lot of -- as I alluded to in my comments, a lot of what has been reported on is, I think, one article even referred to the treatment of adult ADHD is the wild West. Because there's -- it's not as well established. Pediatricians managed the vast majority of pediatric ADHD. Primary care docs who take care of adults are not trained in the same way that pediatricians are to manage ADHD. So there's a real gap in terms of who's able to. So that -- I can speak to the standard of care. And in terms of the sales call, I'll turn it to Matt.
Matthew Franklin: Yes. I mean, I think initial thoughts for the adolescent expansion, it fits seamlessly into our current call point. So we're extremely excited to get that. I think it multiplies the opportunities we have. On the adult market, as Scott mentioned earlier, we're still looking at all the different regulatory strategies, commercial strategies. So that work is still in progress today.
Walter Martucci: This is Eddie. What I'm excited about with what Scott mentioned in terms of the gap in care there is because there's not a kind of standard singular treatment algorithm that is applied broadly. We believe there's a real opportunity for EndeavorRx to fit in, in a meaningful way as we go forward in terms of bringing the products to patients.
Judah Frommer: Okay. Got it. And I think Santos mentioned kind of taking the opportunity to recharacterize the addressable market, specifically in adults. Correct me if I'm wrong, I think you guys had talked about the entire ADHD market as being about 11 million people prior, and now it looks like there's about 11 million adults. So can you just help us with some of the analysis, your KOL brought too late? And then separately, I think we'd also talked about nonstimulants being sort of a guide for where market share could head for digital therapeutics in the space? Should we think of that bar the same way for adults as we do for kids and adolescents.
Walter Martucci: That's a great question. I mean the KOL is sitting in the room, so I'm going to hand it over to Scott. He can help us -- help you with that question on the market opportunity.
Scott Collins: So on the market opportunity, I'll say that -- so I came in December and in the midst of getting the adult data, we took a hard look at previous assumptions, and we concluded that our previous estimates were they were supported, but they were extremely conservative. So we revised it based on just a fresh look at all of the available data.
Judah Frommer: Got it. And then just nonstimulants, I guess, starting as a guide for market share in the adult population potentially.
Santosh Shanbhag: Yes. I mean this is Santos. In terms of market share and how we think about it, I think it's a little early right now, Judah. We would still -- we are still evaluating all our regulatory strategies, our go-to-market strategies. And I think once we have a point of view on that, we'll share that with you, and that will obviously inform how we think about the market share at that point in time.
Operator: Your next question comes from the line of Rahul Rakhit from LifeSci Capital.
Rahul Rakhit: I was just wondering if you can kind of help us on and the refill dynamics that you're seeing. Are you seeing patients refill kind of month-over-month. Are you seeing some gap between the scripts? And also given that we have a couple of quarters log between the limited virtual launch of the full launch. Can you maybe speak to the proportion of patients that are you starting to see refill more than once?
Walter Martucci: Yes, happy to address that. So as we presented in sort of the key metrics, we did see continued growth quarter-over-quarter in the overall number of refills. It is interesting. One of the strengths of EndeavorRx is the flexibility that it can be incorporated into various different treatment scenarios can really accommodate the unique needs of each child. So we see a wide range in the market today or with our customers today. Some children, as you mentioned, use it every single month.
Others are just starting treatment. They're on their first experience with EndeavorRx. We do see the majority of the new prescriptions that are written come with refill prescriptions. So we do anticipate that the refills per patient will grow over time. We're not providing guidance on the pace of that -- it's a new metric early for us. But as we continue to grow as our sales force is out engaging with clinicians educating we are hopeful that we'll continue to see that grow.
Rahul Rakhit: Got it. That's helpful. And switching over to the study. Can you explain -- is there any particular reason why you guys extended that treatment period for the adults from 4 weeks to 6 weeks. And then are there any implications from there for adults in terms of how you guys are thinking about prescribing patterns or how long a script mail can we last.
Walter Martucci: Sure, Rahul. This is Eddie. Thanks for the question. So as we've gone into different populations with the technology, we -- you've seen that the most -- the 2 most common paradigms are either 4 weeks or 6 weeks that we've tested -- and so this is true across different populations. We tend to work with key opinion leaders and investigators about what they think an ideal but minimal time frame would be to see the best benefits, at least at an early look at clinical. And so that's how we took the approach. We take each population differently kind of work with the experts there. And so for this study, we chose the 6-week treatment period. We obviously don't have combinatorial studies where we look at every different possible option that we could run, but that's how we designed this study prospectively.
Rahul Rakhit: Got it. Okay. And I guess in the label expansion going into the adult population, do you expect that course of treatment to still be 4 weeks, like it is with the current population? Or would you look to kind of spread that out to a 6-week treatment?
Walter Martucci: Yes. I think, again, as we're evaluating all the different options and also further diving into the data, we'll make that decision.
Rahul Rakhit: Got it. And then last one for me, I saw this morning the DEA extended the capabilities to -- for telemedicine prescribing or sold substances. Given one that we're seeing the increase in rates of diagnosis of adult plant, as an ADHD one are you guys expecting to see some kind of tailwinds from additional patients kind of going on medication. And do you think there's an opportunity there for you guys as well?
Scott Collins: Yes. I mean I can -- this is Scott. I can comment at least from a clinical perspective, I will just say that there is a pretty dramatic need. And that's what you're seeing in a lot of the popular press we're starting to see it in the scientific literature in terms of rates, patients need options. And they -- not only of the existing options kind of historically, not all that effective. Now those options are being even further limited.
Walter Martucci: Yes. And I think what you're referring to as well, Rahul, really shows that interestingly, the concern around the use of stimulant medications in society seems to be even more acute. The concern seems to be even more acute in the adult population. So as we bring a non-pharmacological option into that population, we're very excited about that opportunity.
Operator: [Operator Instructions] There are no further questions at this time. Please continue.
Walter Martucci: Okay. Thank you so much, everyone. That wraps up the call, and we will talk to you later on. Thanks for the attention. Bye-bye.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
