Atai Life Sciences: Optimizing Drug Development By Avoiding Big Pharma’s Past Missteps

In the early days of the psychedelics industry, financial reports mean very little. Unless a company wildly misses its operating spending budget and hemorrhages cash by more than expected, the report is basically a synopsis of a given company’s highlights and milestones over the previous quarter. But occasionally, a prescient nugget or two can be gleaned from the post-earnings conference call; a period of candidness by C-Suite which outlines operating philosophies that can drive long term company success. That moment came yesterday for atai Life Sciences N.V. (NASDAQ: ATAI) as the conversation moved into the lessons gleaned from Johnson & Johnson’s (NYSE: JNJ) disappointing experience with SPRAVATO, the esketamine drug touted at the time of approval as the first antidepressant medication shown to improve depressive symptoms upon first dose.

According to Pharmaceutical Technology, Spravato has struggled to gain market traction since its high price tag and abuse potential often outweigh the significantly added efficacy. Finding health providers who offer SPRAVATO and insurance companies willing to reimburse the high cost has been a problem, according to Dr. Mark Zimmerman, professor of psychiatry at Brown University. Furthermore, J&J has not released Spravato sales figures in its latest quarterly earnings—usually a telltale sign that sales aren’t going so well.

But before we dive in, atai Life Sciences delivered a plethora of positive business highlights which strengthened confidence that its business trajectory remains solidly intact.

Foremost was the affirmation of a robust cash position, which at March 31, 2022 totaled $335 million and provides at least six quarters of operating runway through 2023. Net use of cash ($27 million) was primarily used in operating activities with a lesser sum attributed to additional investments in the platform companies. As Chief Financial Officer (CFO) Greg Weaver put it, atai has enough cash to achieve “multiple key clinical milestones over the next 2 years”.

If endpoints from multiple concurrent clinical trials are achieved, atai should be in favorable position to raise capital at higher aggregate valuations than are currently witnessed in today’s volatile market climate.

Furthermore, the company reported progress on at least three clinical trial programs:

GABA Therapeutics – GRX-917: Topline data for Phase 1 dosing trial for general anxiety disorder, initiated June 2021, is expected mid-year. The commencement of a Phase 2a proof-of-concept trial is anticipated in the second half of 2022 following positive results.

Kures – KUR-101: Topline results from an ongoing a Phase 1 trial for Opioid Use Disorder, initiated March 2022, are expected in the second half of 2022.

Recognify Life Sciences – RL-007: Expected to initiate a Phase 2a proof-of concept trial in CIAS in the second half of 2022, with the goal of demonstrating the pro-cognitive benefit of RL-007 in Cognitive Impairment Associated with Schizophrenia.

In addition, atai launched Invyxis in late January 2022 to accelerate discovery of next generation mental health treatments. Invyxis will add proven medicinal chemistry and comprehensive biological evaluation capabilities to grow atai’s portfolio of new chemical entities (NCEs).

All in all, it was a productive quarter that materially advanced the company’s clinical trial pipeline within budget. At these nascent early stages, that’s really all investors can ask for.

atai Learns From Big Pharma’s Past Missteps To Improve Developed Drug Outcomes

As noted in the outset, there are occasionally windows of insight during a company’s quarter-end conference call that provide clarity on the operating philosophies of a company. They can vary from subtle elucidations on directional roadmap to clear declarations of forward-looking strategic thinking. Atai Life Sciences provided insight that was somewhere in the middle by proving how malleable and adaptive it is in regards to its clinical trial program.

That moment presented itself approximately nine minutes into the call, in relation to a question asked by Senior Biotechnology Analyst and Managing Director at Cowen, Ritu Baral. Regarding the clinical trial progress of Perception Neuroscience compound PCN-101 (R-ketamine)—a stereoisomer of ketamine being developed for Treatment Resistant Depression—she wanted to know whether atai had gleaned valuable lessons from Johnson & Johnson’s subpar experience with related esketamine drug, SPRAVATO:

Ritu Baral: Let’s dive into some questions on the pipeline now, and maybe start with Perception PCN-101. That trial is ongoing, but as you look at the lessons and landscape, what do you think were the biggest mistakes in the commercial profile and launch prep for SPRAVATO that, you know—that product has vastly underperformed and missed expectations with really modest commercial uptake. What are the lessons learned for you guys as you think about the 101 opportunity?

Florian Brand (CEO): I think it’s important to emphasize that we’re differentiated from esketamine in our target profil,e but also commercial profile that you mentioned is differentiated from SPRAVATO and esketamine with our ketamine that we are developing for at-home use… Having said this, a lot of our therapies are, of course, thought to be administered in the clinic. For instance, our DMT program. And so observing what J&J’s SPRAVATO has done, it tells a lot of things that we can build upon and learn from… In the meanwhile, we have over a thousand clinics—licensed clinics—in the U.S. that actually can administer SPRAVATO. I think that’s great news for patients, and it will build as a basis for our rollout—or it can serve as a great starting point for our rollout as we actually designing the duration of effect to neatly slot into the therapeutic—into the window that—or into the paradigm that J&J has established with SPRAVATO. So for us, it’s actually in this case, a good thing not to be a first mover, but learn from the first mover and use basically what has been built out by the first mover to our advantage.

From our perspective, the answer demonstrates that atai Life Sciences doesn’t just view its own clinical trial programs in isolation. It is actively striving to add value to them by studying the past successes and mistakes of Big Pharma. In this case, CEO Florian Brand is positioning PCN-101 to avoid a primary defect that has prevented widescale adoption of SPRAVATO: the lack on at-home use option and post-hoc monitoring requirement after treatment (along with cost). In today’s world, home use beats spending 3-hours in a clinic every single time.

Although it’s just a standard conference call response, Mr. Brand’s words speak volumes. Regardless of the go-forward path of PCN-101, investors should be pleased with executive management’s disposition on developing better pharmacological outcomes. This top-down company philosophy should serve atai well as it competes in the highly complex domain of pharmaceutical drug development.

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