Brett Johnson: We are here with David Baker from Alcobra Pharmaceuticals talking about the company and this development of their ADHD drug. Thanks for joining us today. Can you tell us, what does Alcobra do?
David Baker: Alcobra is a CNS specialty pharma company. We only have focused on CNS products up until now. Our lead area of focus has been ADHD.
BJ: The company has had some changes in strategy over the last six months. Can you talk a little bit about that?
DB: I wouldn’t necessarily characterize it as a change in strategy, but we’ve clearly changed the focus in terms of the development program. The company was founded in 2008 and went public in 2013 and was mostly focused on the development on what was our former lead asset, MDX, Metadoxine Extended Release, which is a compound that we were developing for ADHD and also for other cognitive impairments including Fragile X Syndrome where we have fast track designation Orphan drug status.
We put most of the effort, in term of the clinical development, into the ADHD program and starting with an adult ADHD program. Unfortunately, in January we had the read out of our second phase 3 adult ADHD trial and unfortunately we did not separate from placebo. Based on that set back, I think we’ve come to appreciate how much of a challenge it is to show efficacy in adult ADHD, particularly with non-stimulant product. In fact, we are one of three companies that had setbacks in a matter of the last 3 months in failing clinical trials in adult ADHD.
Based on that experience, we decided to put that effort on the side. We’re looking to monetize that asset for its possible application in Fragile X Syndrome but we have turned our attention to a new lead candidate which we refer to as ADAIR. It’s an Abuse Deterrent Amphetamine Immediate Release. This is a program that we have been working on for about the last 18 months under a service agreement with Capsugel, a global leader in developing various formulations, different capsule formulations.
Essentially what we are trying to do is to develop a product which would have abuse deterrent products to minimize the risk of abuse, particularly through snorting or injecting. That is, unfortunately, very common with psychostimulants such as Ritalin or Adderall.
BJ: So you’ll change the physical structure of the drugs?
DB: What we do is we take dextroamphetamine, which is the active ingredient, and it is essentially embedded into a semi-solid, waxy, gel-like matrix. By essentially sequestering the API, the dextroamphetamine, in this gel or this paste that’s inserted in the capsule, you’re not really changing the activity of the amphetamine if it’s taken as it’s prescribed.
If it’s swallowed, we’ve done dissolution work to show that it releases very similarly to dextroamphetamine so we would expect it’s going to have the same clinical effect. But by embedding this dextroamphetamine in this paste, this matrix, this gel it makes it extremely difficult for someone to grind it up and snort it or to mix it in water or ethanol and inject it.
Snorting or injecting are much more serious routes of misuse, actually, abuse of the stimulants which have much more serious consequences. Essentially what we are doing is we are trying to minimize the maximum risk that’s associated with these stimulants.
BJ: Can you talk a little bit about the problem you are solving?
DB: Sure. The psychostimulants, the Adderalls, the Ritalins, the Concertas, the Vyvanses of the world, these are are very effective drugs for treating ADHD. They have been used since the 1950’s to treat ADHD. Unfortunately, because they are controlled substances and they have potential for abuse and misuse, they are very frequently misused.
They are one of the most commonly misused or abused medications that’s available. The U.S. Government, through their NSDUH, the National Survey of Drug Use and Health survey, estimates that 5 million people a year end up misusing or abusing psychostimulants. Interestingly enough, when we dug into those data, we found that 90% of those 5 million people who are misusing or abusing a prescription psychostimulant, it’s an amphetamine type of product. An Adderall type of product. That’s the compound, the active ingredient we are working with.
BJ: So is your notion then that once your formulation is organized that physicians will prescribe your drugs as a delivery mechanism to avoid the abuse?
DB: So the idea here is that instead of prescribing a dextroamphetamine or mixed amphetamine salt tablet, which can easily be crushed and mixed with water and injected or crushed and snorted, we would offer this capsule which offers this extra protection so that we would minimize that potential risk. We’ve gone out and we have spoken to high prescribing physicians of ADHD products.
We’ve introduced them to the product concept because we wanted to see the reaction. The physicians were very favorable in their reaction. Their point of view was, “Look, if this is not cost prohibitive then why wouldn’t I prescribe this instead of generic Adderall or generic Dextrostat or Dexedrine, because it’s giving me, from what you’re telling me, all the same clinical efficacy, the same side effect profile except it’s going to protect against the patient who might misuse or abuse it or it’s going to protect against the non-patient who this medication, unfortunately, may get diverted to by being sold or given away.”
Unfortunately, it is really common with psychostimulants. If fact, there’s reports in the literature that over 60% of college students who have a diagnosis of ADHD and are prescribed stimulants admit that at some point they have diverted. They have given away or sold their prescription medication to someone who doesn’t even have the condition.
BJ: Can you talk about the economics today of what drugs you’re selling for the generics and the branded and where you will fit into that spectrum?
DB: Sure, it’s a great question. So, if you look at the cost of the branded ADHD drugs, the prices range from about $200 a month to about $350 a month, depending on which medications you’re talking about. Our best understanding is that the generics, like a generic stimulant, a generic Adderall, is probably costing about $50 a month.
Our view is that, in order to make this attractive for patients, for parents of patients, and for manage care payers, we are looking at pricing this probably on the low end of the branded pricing range. In our discussions with payers, when we presented them with this concept and said, “We’re looking to charge at the low end of this $200-$350 price range” they, the manage care payers, thought that was reasonable.
They said, “Number 1: we expect you as a new product, you’re a branded product, and you’re going to charge branded prices.” Relative to what they’re paying for generics, they didn’t think it was a substantial premium. They didn’t think it was an egregious kind of premium we were proposing. The other component is for the payers. When you’re talking about a product that’s $200-$350 a prescription, that’s not a big ticket item for them on an absolute basis. Therefore, it’s not something that gets a lot of their attention.
They told us, “We don’t manage the ADHD category the same way we manage other categories like the new cholesterol agents or hepatitis C medications or other specialty pharma products that are costing them thousands of dollars a month. In fact, you may be aware, until you get to about $600 a month, you don’t trigger this kind of specialty pharma level in the minds of managed care payers or various government payers. We’re trying to stay below that threshold so that we are charging a brand price premium over generic but it’s not a tenfold, twentyfold kind of increase that they don’t like.
The other component of this that, I think is very important is talking to the consumers. We’ve done research with parents of teenagers and young adults who have ADHD and are prescribed these short acting stimulants and showed them the product concept.
They were very intrigued by the concept. They said that if the product were available, they’d ask their physician about it. Most importantly, they said that they’d be willing to pay a higher insurance copay for their medication. I can’t remember the exact figures but I think 75% of them said they would pay $10, $20, $40 more a month.
Basically, from their perspective, depending on what a parent was paying right now in the way of a copay, they’re willing to pay up to about twice the copay that they were currently paying in order to have this medication that would have this extra protection built in.
BJ: How big of a market will there be for this drug?
DB: If you look at the ADHD market overall today, or in 2015 there were about 67 million prescriptions written. We estimate that as 10-11 million people who are taking these medications. Of those 67 million prescriptions, 24 million were for immediate release or short acting stimulants, which is kind of the segment that we are focusing on.
In our mind, we feel that if we can just penetrate of the IR stimulants, even just a subset of that as the IR Stimulant amphetamine based products, we can get 1 out of 10 or 1 out of 12 prescriptions. That makes this a very financially attractive product for us.
BJ: How big of a market would that be in terms of gross sales, do you think?
DB: We’ve calculated, based on that estimate with pricing at the low end of the branded pricing range and capturing 1 out of 12 scripts for immediate release amphetamines, within 3 to 4 years we would be talking net sales in excess of $300 million a year.
BJ: In high margins, I assume?
DB: What I can say is that Dextroamphetamine as an API is not an expensive API. Even the technology that we are working with, the platform that we’re working on with Capsugel as our partner; it’s not very expensive. Let’s just say you’re in the range of what you would expect for typical traditional pharmaceutical margins.
BJ: Which are typically what? What are the typical pharmaceutical margins these days?
DB: Cost of goods sold for most pharmaceutical products, to my understanding, is well under 10%.
BJ: Interesting. Can you talk a little bit about your background and how you got involved in the company?
DB: Sure. I’m kind of a career pharmaceutical guy. I came out of graduate school and was recruited by Merck and worked in a variety of sales, marketing, market research and development positions. I was at Merck for about 14 years. I’ve worked in a number of therapeutic areas: cholesterol management, osteoporosis, migraine. I was recruited over to Shire to head up the marketing of their ADHD products back in 2004.
I was at Shire for about 10 years in various positions, mostly commercial positions leading the commercialization of their ADHD product line. I eventually became the global manager for Vyvanse, which I think is still Shire’s biggest product. It sells over $1.5 billion a year now. In my last couple of years, when I was at Shire, I started working with colleagues on the R&D side of things to do assessments for new CNS products to potentially bring in and fill Shire’s pipeline of CNS products.
In the process of doing that, I stumbled across Alcobra as they were reporting out some phase 2 clinical data on the earlier compound that we spoke about. As they were getting ready to enter phase 3, I reconnected with their CEO and joined them at that point to become the first commercial person in the organization. I’ve been there 3 years now.
BJ: Any last summary takeaways that you would want to share with prospective investors in Alcobra?
DB: Well, I think Alcobra’s got a great, experienced management team. I think we have an underappreciated asset and the ADHD market space is a very attractive space. It’s close to $10 billion a year in revenue in the U.S. alone and in many ways, it’s an underappreciated space.
This whole idea of developing and abuse deterrent product, I think is an underappreciated opportunity. We feel that just by tapping into a very small segment of what is and continues to be a growing market, we have something that can be very financially attractive and, frankly, can be the launching point for us expanding into other areas within CNS.
BJ: Thanks for joining us today.
DB: Thanks a lot.
BJ: That is David Baker, Chief Commercial Officer for Alcobra Pharma.