Akili, Inc. (NASDAQ:AKLI) Q2 2023 Earnings Call Transcript
Akili, Inc. (NASDAQ:AKLI) Q2 2023 Earnings Call Transcript August 13, 2023
Operator: Good afternoon, ladies and gentlemen, and welcome to the Akili, Inc. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 10, 2023. I would now like to turn the conference over to Julie DiCarlo, Senior Vice President of Communications. Please go ahead.
Julie DiCarlo: Thank you, Chris. Good afternoon, and welcome to Akili’s earnings call for the second quarter of 2023. This is Julie DiCarlo, and I’m joined on today’s call by Akili’s CEO, Eddie Martucci; our President and Chief Operating Officer, Matt Franklin; and our Chief Financial Officer, Santosh Shanbhag. Also joining us for the Q&A portion of today’s call is Akili’s Chief Medical Officer, Scott Kollins. 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 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 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 10, and should not be relied upon as representative of our views of any subsequent date.
We explicitly disclaim any obligation to update or revise our forward-looking statements or our 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 3 as I hand the call over to Eddie for his prepared remarks. Eddie?
Eddie Martucci: Thanks, Julie, and hello, everybody. To orient everyone, for those with slides, let me turn to Slide 4, 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, EndeavorRx and now the adult ADHD market with our recently released over-the-counter product EndeavorOTC. 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 5x 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 bear play out as the number of patients utilizing our patient assistance program increased substantially in Q2.
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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 EndeavorOTC 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 document and 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 EndeavorOTC 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 the new societal shift 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 Santosh to take you through the actual data. Matt?
Matt Franklin: Alright. 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 5. In Q2, we saw continued growth across key indicators of demand for our pediatric product EndeavorRx. 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 2.5-fold increase in the number of caregivers who qualified for free product under our patient 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 EndeavorRx label. Our filing is currently under review with the FDA, and if successful, we look forward to making EndeavorRx available as an alternative for adolescents looking for new treatment options. Now let’s turn to Slide 6, 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 by – on August 1 by FDA and DEA.
With the strength of our STARS adult ADHD clinical trial data and the significant patient need, 8 weeks ago, we entered the adult market with the release of EndeavorOTC 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 non-prescription approach for EndeavorOTC. 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 EndeavorOTC 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 want 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 did see statistical separation between the groups and the primary outcome measure.
However, these are broad-based measures of cognition, not specific to retentional 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 assess 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?
Santosh Shanbhag: Great. Thank you, Matt, and hello, everyone. If you turn to Slide 7. As a reminder, an expanded EndeavorRx label combined with EndeavorOTC 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 #8. From a revenue perspective, we recognized 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 purchased 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 expense 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 million 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.
Our GAAP to non-GAAP 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, reserves capital, especially in these current capital market conditions. With that, I’ll hand it over to Eddie. Eddie?
Eddie Martucci: Thanks, Santosh. Everyone, if you turn to Slide 9, just to wrap. And 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.
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