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Why Is Acadia Pharmaceuticals Falling Today?

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Acadia Pharmaceuticals’ stock price movements

Yesterday, Acadia Pharmaceuticals (ACAD) closed at $25.97, 1.05% higher than the previous close. However, the stock crashed by 15.63% to $21.91 in the after-market trading session. The company is also down by 16.25% to $21.75 in the pre-market trading session today. It seems investors are pessimistic about the company due to the failure in the Phase 3 ENHANCE trial.

Yesterday, Acadia Pharmaceuticals reported top-line results from the ENHANCE trial, evaluating Nuplazid in schizophrenia. Patients in the study were also on background antipsychotic therapy. The drug failed to meet the primary endpoint measured using the PANSS (Positive and Negative Syndrome Scale) score. The drug was being tested as an adjunctive treatment option for schizophrenia patients who are not responding sufficiently to existing antipsychotic drugs.

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Investors were disappointed since this is an area with huge unmet demand and no approved FDA therapy. According to the American Psychiatric Association, around 1% of US adults suffer from schizophrenia. Around 30% to 60% of these patients respond insufficiently to existing therapies. Thus, an FDA approval as adjunctive therapy in the schizophrenia indication would have expanded Nuplazid’s addressable market by 700,000 additional patients. Acadia Pharmaceuticals, however, is up by 60.61% in 2019 YTD.

First-quarter performance

In the first quarter, Acadia Pharmaceuticals reported revenues of $62.96 million, a YoY rise of 28.83%. The revenues surpassed the consensus estimate by $2.03 million. The company reported non-GAAP EPS of -$0.59, a YoY decline of 34.09%. This is lower than the consensus estimate by $0.06.

Acadia, however, increased the lower end of its fiscal 2019 revenue guidance from $275 million–$300 million to $280 million–$300 million. The new guidance implies 30% YoY growth at the midpoint. After the announcement, the stock jumped by 4.0% to $26.52.

Nuplazid (pimavanserin) is the only commercialized asset in Acadia Pharmaceuticals’ portfolio. The drug is also the only FDA-approved therapy for treating hallucinations and delusions associated with PD (Parkinson’s disease) psychosis.

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Nuplazid in PD psychosis

In the first quarter, Nuplazid reported increasing uptake across both specialty pharmacy and specialty distribution channels. The company has also stopped selling the 17-mg tablet of the drug. Instead, the company is now marketing its 34-mg capsule. Nuplazid is also benefitting from its inclusion as the only efficacious and clinically useful medication in International Parkinson’s and Movement Disorder Society’s updated treatment recommendations for PD psychosis.

In the first quarter, Nuplazid reported sales of $63.0 million, a YoY rise of 29% and YoY volume growth of 19%. According to the first-quarter earnings call, this performance was driven by the increasing number of new patient starts and expanding the prescriber base. At the end of the first quarter, around 125,000 PD psychosis patients were using the drug.

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Challenges

Nuplazid, however, has faced multiple challenges since its launch. In November 2017, the Institute for Safe Medication Practices released a report highlighting 244 deaths reported since its launch up to March 2017. On April 9, 2018, a CNN article further highlighted the safety events and fatalities associated with Nuplazid. After the news, the stock crashed by 23.37% and closed at $16.50 on April 9.

However, on September 20, 2018, the FDA reaffirmed the favorable risk-benefit profile of Nuplazid in PD psychosis indication. The stock then jumped by 26.56% and closed at $19.11 on September 20. To know more, please read Look at Acadia Pharmaceuticals Stock: It Rose 7.9% on Tuesday.

In March 2019, the US Department of Justice (or DOJ) initiated an investigation into Acadia Pharmaceuticals’ sales and marketing practices for Nuplazid. The company had received civil investigative demand from the DOJ requesting disclosure of certain documents and information about sales and marketing of Nuplazid in September 2018.

The fate of Acadia Pharmaceuticals depends completely on that of its lead asset, Nuplazid. Thus, any untoward event related to the drug has a dramatic impact on the company’s share prices.

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Nuplazid label expansion

The next major clinical trial readout for Acadia Pharmaceuticals should come out towards the end of fiscal 2019. Acadia is awaiting top-line results from the Phase 2 ADVANCE study, evaluating Nuplazid as adjunctive therapy in schizophrenic patients experiencing prominent negative symptoms. These patients are also on adequate antipsychotic therapy.

Acadia Pharmaceuticals has estimated the addressable market for Nuplazid in this indication to be around one million patients. There is no FDA approved therapy for this indication. However, Nuplazid’s failure in the Phase 3 ENHANCE study may cast a shadow on investor optimism for the ADVANCE study.

Acadia Pharmaceuticals has also initiated its Phase 3 study, CLARITY, to evaluate Nuplazid in the MDD (major depressive disorder) indication. The company estimates the addressable market size for MDD adjunctive therapy in the US to be 2.5 million patients.

Acadia is also studying Nuplazid in DRP (dementia-related psychosis) in the Phase 3 HARMONY study. The company expects to release interim data in the second half of 2019 and the final results in fiscal 2020. Acadia Pharmaceuticals estimates the number of dementia patients in the US to be 8 million. Of these, 2.4 million experience psychosis. Around 1.2 million people are diagnosed with this condition. Despite the significant demand, there is no FDA-approved therapy for this condition.

Acadia Pharmaceuticals’ valuation

Acadia Pharmaceuticals is trading at PS (price-to-sales) and PB (price-to-book) multiples of 16.01x and 8.92x, respectively. The 12 analysts tracking the company have an average target price of $32.09 on its stock, which indicates a potential upside of 23.57% in the next 12 months.

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