By Jason Napodano, CFA

NASDAQ:ACAD

On August 5, 2014, Acadia Pharmaceuticals (ACAD) reported financial results for the second quarter 2014 ended June 30, 2014. Revenues in the quarter totaled $28,000 compared to $451,000 for the second quarter of 2013, with the decrease primarily due to the conclusion of Acadia’s 2003 research collaboration with Allergen in March 2013.

Net loss for the second quarter totaled $21.5 million, or $0.22 per share, compared to a net loss of $9.1 million, or $0.11 per share, in the second quarter of 2013. The net loss included $4.3 million in non-cash, stock-based compensation expense. This was up substantially from the second quarter 2013 based in part by early vesting from the retirement of former Chief Financial Officer, Thomas Aasen. In July 2014, the company appointed a new CFO, Stephen Davis. Mr. Davis will also assume the role of Executive Vice President and Chief Business Officer. Mr. Davis profile can be seen in the blurb from the press release announcing his appointment below:



R&D expenses increased to $12.7 million in the second quarter 2014 compared to $6.6 million in the second quarter of 2013. The increase was primarily due to an increase of $5.0 million in external service costs, including costs associated with NDA-enabling clinical and manufacturing activities in the pimavanserin development program. Specifically, the company initiated a Phase 2 program with pimavanserin in Alzheimer’s Disease Psychosis (ADP) in late 2013. G&A expenses increased to $4.7 million in the second quarter of 2014, compared to $1.9 million in the second quarter of 2013. This increase was primarily due to $2.6 million in increased stock-based compensation expense, including $1.1 million in stock-based compensation expense associated with the retirement of Mr. Aasen. Also contributing to the increase in G&A expenses was a $2.0 million increase in external service costs largely related to the company’s preparations for the planned launch of pimavanserin and $0.6 million in increased personnel costs.

Acadia exited the second quarter with approximately $354.5 million in cash, cash equivalents, and short-term investments. The cash position was strengthened by a $196.8 million equity raise in March 2014. We model Acadia still having over $300 million in cash, cash equivalents and short-term investments on hand at the end of the year. We forecast that this will be enough cash to fund the company into 2017.

Clinical and Regulatory Update

There were a number of updates provided during the second quarter conference call, which we summarize below.

Acadia continues to make steady progress in the Parkinson’s Disease Psychosis (PDP) development program, including stability testing of pimavanserin registration batches and supportive studies, which include standard drug-drug interaction studies. During the first half of the year, the company completed an assessment of the initial three and six months of stability data from the pimavanserin registration lots and confirmed that the data are consistent with historical data observed with the clinical trial formulations. Registration batches have been successfully manufactured and the company believes it will have the full twelve-month stability data in accordance with ICH guidelines around the end of the year.

There was substantial progress made with supportive studies that include customary short duration drug-drug interaction (DDI) studies during the first half of the year. This is important because patients with PDP are frequently on a number of concomitant medications. Thus far the safety profile of pimavanserin appears consistent with what has been observed in clinical trials and the long-term PDP safety extension studies.

Management continues to indicate that they remain on track for a planned NDA submission near the end of 2014. In support of this, pre-NDA meetings with the FDA have commenced. Results from the -020 Study showed strong statistical significance and clinical impact on secondary endpoints, allowing Acadia to seek approval for pimavanserin after only one positive Phase 3 trial.



The Phase 3 PDP open label safety extension trial (-015 Study) is designed to continue until pimavanserin is commercially available. This study has provided the company with a large amount of valuable, long-term safety data regarding the use of pimavanserin in PDP patients. The company has already far exceeded the ICH guidelines for required one year exposures with well over 250 patients having been treated for one year or longer, over 100 patients having been treated for at least two years, and the longest patient exposure exceeds eight years. To date, Acadia has amassed over 800 years of patient exposure in PDP.

In regards to registration in the EU, there has been an initial series of interactions with the regulatory agencies from several EU member states. Management has even contracted with outside consultants on the regulatory process for Europe. The company has decided not to apply for scientific advice from the EMEA prior to filing the Marketing Authorization Application (MAA). Management noted on the second quarter call that the scientific essence of the MAA is identical to the U.S. NDA. Acadia believes they have strong scientific rational for filing the MAA application without seeking advice from the EMEA or conducting a European-centric Phase 3 trial. Management believes the best path to approval in the EU is to file the MAA and either receive approval or a formal response. The current guidance from management is that the MAA will be filed approximately six to nine months after the U.S. NDA filing.

Acadia owns unencumbered worldwide rights to pimavanserin. In the U.S., we fully expect management to commercialize the drug on its own. However, in Europe, we believe Acadia will seek to partner pimavanserin for commercial launch. That being said, we believe a partnership seems unlikely prior to MAA approval.

The Phase 2 clinical trial of pimavanserin in ADP, Study-019, is currently underway and will follow a similar design of the successful Phase 3 trial in PDP in incorporating a screening period with brief psychosocial therapy and a limited number of trained raters. Study-019 is a randomized double-blind, placebo-controlled study seeking to enroll about 200 patients. The study will be conducted through a network of research care facilities established as part of the Biomedical Research Centre for Mental Health at King’s College, London. This institution incorporates a geographically focused network of nursing care homes that will facilitate the use of a limited number of raters. As in the PDP trial, this is expected to limit statistical “noise” in the efficacy analysis. Patients will be randomized 1:1 between pimavanserin and placebo, treated for 12 weeks, with the primary efficacy endpoint being the change from baseline to Week 6. Endpoints will include the neuropsychiatric inventory and the nursing home (NPINH) scale with measurements of psychosis, aggression, agitation, sleep, nighttime behavior, and other exploratory endpoints. We believe this study will report out in late 2015.



In addition to ADP, the company is planning a number of new studies to examine additional indications for pimavanserin. One particular area of interest to the company is sleep disturbance, which is a frequent problem to patients with neurological disorders including both PDP and ADP. The company has observed long sedating sleep related benefits of pimavanserin including in the -020 Study, where pimavanserin demonstrated significant improvement in nighttime sleep, with the improvement not accompanied by any sedation effects. In addition, pimavanserin produced a significant improvement in daytime wakefulness in PDP patients, with patients having severe nighttime disturbances benefiting the most from pimavanserin therapy. Interestingly, the positive effects of pimavanserin nighttime sleep and daytime wakefulness did not tolerate the psychosis measures, indicating that sleep and wakefulness may represent independent treatment benefits of pimavanserin use. The company indicated that additional studies in sleep disturbances may allow for further characterization and highlight the potentially important clinical benefits associated with pimavanserin use. We believe Acadia will explore the utility of pimavanserin in a sleep-specific study to start late 2014 or early 2015. With could provide additional meaningful label-expansion to the drug.



Another area of focus for broadening the pimavanserin clinical program is schizophrenia. The company believes that pimavanserin’s selective mechanism of action and attractive clinical profile may enable it to be used in multiple ways to improve the therapy for patients with schizophrenia. First, pimavanserin may be used as a co-therapy together with low doses of existing atypical antipsychotic drugs to enhance the clinical profile. Secondly, pimavanserin may be used as a monotherapy in the maintenance phase of schizophrenia treatment, as the selective action of the drug may allow for effective symptom control while avoiding interactions with dopamine and other receptors that are linked to many of the side effects caused by existing antipsychotics. The company’s commercial assessment has reinforced the idea that schizophrenia treatment represents a sizable commercial opportunity and study designs in the schizophrenia program are currently on-going with the company set to share further details on this program in 2015.



Our enthusiasm for the use of pimavanserin in schizophrenia is lower than other indications such as PDP, ADP, or in sleep disturbance due to the significant number of generic typical and atypical molecules on the market. We question whether or not combination therapy will be attractive to treating physicians and we do not believe the efficacy of pimavanserin monotherapy is strong enough to drive meaningful use.

The company briefly discussed some of the other programs in the R&D portfolio. Acadia has two clinical stage programs in partnership with Allergan, Inc. (AGN) in the areas of chronic pain and glaucoma, along with preclinical development of an additional compound as a potential new treatment for glaucoma. The company also has two additional preclinical programs, the ER-beta and Nurr-1 programs, which are being pursued as potential treatments for Parkinson’s and other neurological diseases. The ER-beta program is being supported by a grant from the National Institute on Neurological Disorders and Stroke, with preclinical studies in the Nurr-1 program being supported by a grant from the Michael J. Fox Foundation. We assign no value to these programs. Clinical work with Allergan has been stalled for years and we do not include pre-IND candidates in our valuation models.



Conclusion

Pimavanserin is looking like a blockbuster drug for PDP and ADP. We encourage investors to read our article from November 2013 outlining our beliefs as to why we believe this will be the case:

http://seekingalpha.com/article/1830812-acadias-pimavanserin-is-the-next-blockbuster-for-psychosis



However, despite our enthusiasm for the drug, we continue to rate the shares ‘Neutral’ as there will be limited meaningful new “news” over the next six months to drive the stock price. We anticipate the NDA filing late 2014. The expected PDUFA will be 12 months later, or late 2015. We are not anticipating results from the Phase 2 ADP -019 trail until late 2015 as well. We believe 2015 will be a pivotal year for the company and would recommend to investors to establish a position once the U.S. NDA has been accepted for review by the FDA. Our target is $25 per share.

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