On Tuesday morning ACADIA Pharmaceuticals (ACAD) silenced its naysayers as it posted the largest one-day gain since Sarepta Pharmaceuticals (SRPT) rallied after announcing its data earlier this year. ACADIA had traded with a modest valuation leading up to its data announcement, and is now poised to trade considerably higher to reflect the potential of its drug. With that being said, I couldn't help but to be amazed with ACADIA's story, its long journey, and how it reminds me of another biotechnology company, Galena Biopharma (GALE).
The result from ACADIA's Phase III trial for pimavanserin in the treatment of Parkinson's disease is already being called "A Home Run". The drug was compared to placebo, with a 40mg dose, and reduced psychotic episodes in patients with the disease. For those who were treated with pimavanserin, a 5.79-point reduction in psychotic behavior was observed, compared to a 2.73-point reduction in the control group. These results are statistically significant, meeting the primary endpoint, and without worsening motor function in Parkinson patients, which met the secondary endpoint of the trial.
ACADIA's drug is being used to treat Parkinson's disease; therefore, how and why would its results remind me of Galena Biopharma? The connection has nothing to do with the similarities of either company from an operational stance, but rather from a historical and perception point-of-view. With a $130 million market cap, ACADIA was considerably undervalued prior to its data-data that we should have expected.
So back to the original question, "Why would ACADIA remind me of Galena?" First, let's review ACADIA's history: Several years ago the company failed to show that pimavanserin was statistically significant in a late-phase trial. The company attributed this failure to better-than-expected placebo results, which is highly possible. There was, however, one other factor at play: there were two different doses of the drug. In the first study, the company tested patients with both 10mg and 40mg doses. The overall result was that ACADIA failed to show a statistically significant result; however the 40mg dosing showed a clear benefit compared to placebo.
Thanks to ACADIA's previous study, the company knew the optimal level of dosing, and realized that the 10mg dosing had negatively affected the outcome of its previous trial. Therefore, in this last study, the company only tested its 40mg dose, and obviously we see the results. For longs who realized this fact, Tuesday proved to be a very rewarding day.
Looking back on ACADIA's previous study and the results that transpired, I sure wish I would have invested in the company. However, the biotechnology industry is large, and this stock simply slipped through the cracks and under my radar, as I did not cover it. But like I said, the results should have been expected with a tailor-made Phase III trial, and this story is very similar to Galena Biopharma.
Galena Biopharma is a Phase III company with a promising product, NeuVax, which if successful could return sales north of $3 billion. The company has followed a similar path as ACADIA in terms of development with NeuVax, as the Phase II trial was not a "Home Run", but it gave the company a guide for what will and won't work, which is what ACADIA did in its most recent study.
In NeuVax's Phase II trial it was just one patient short of being statistically significant. Bears have often argued that Galena searched through the data to find a subset of patients with optimal results. However, that is exactly what ACADIA did in its trial. The company realized that the product was less effective at a 10 mg dose, and then focused the entire trial around what worked, the 40 mg dose.
Back in May I spoke with one of the developers of NeuVax, Dr. George Peoples, and he went through a long list of what was learned from the previous Phase II trial, and what will be done different. Below shows a direct quote from Dr. Peoples about the company's Phase III trial:
"Overall, the Phase II trial was successful with a 50% reduction in recurrence but failed by a single recurrence from being statistically significant (p<0.08). In discussions with the FDA after presenting them the Phase II data, two strategic decisions were made: 1) to concentrate on the HER2 low- and intermediate expressing patients (IHC 1-2+ which makes up about 50-60% of breast cancers) since Herceptin was approved in the adjuvant setting for the HER2 3+ patients during our Phase II, 2) to enroll only node-positive patients (the Phase II had both node positive and high risk node-negative) because the risk of recurrence is higher in these patients making the number of patients necessary for the Phase III smaller leading to a more efficient trial."
"The overall results of the Phase III trial may be better in these patients than in the Phase II since all of the patients in the Phase III will receive the optimal dose of NeuVax (only a third of the Phase II patients received the optimal dose) and all will receive boosters (only half of the Phase II patients received boosters). The best results in the Phase II trial were in the patients that were optimally dosed and boosted."
Just to be clear, in the Phase II study, only one-third of patients received optimal dosing, and the trial consisted of both node-positive and node-negative patients. The company looked at all the data collected, and then determined, along with the FDA in a Special Protocol Assessment (SPA), that NeuVax would perform best if targeting only low-intermediate levels of HER2, NeuVax was tested on only node-positive patients, and if all patients were given optimal dosing and booster shots. Makes sense right? As a result, with NeuVax's Phase III trial being tailor-made to reflect the strengths of the vaccine, Dr. People's comment, "The overall results of the Phase III trial may be better in these patients than in the Phase II" could very well be accurate.
I urge you to read the entire interview, it is a great read, as he discusses the design of the study and past results of NeuVax, click here to read.
Perhaps I am overreacting, or being overly optimistic, but I happen to believe that Galena is following the same path as ACADIA. Both companies took a step back, observed what worked best in previous trials, and then based a study around the most effective workings of each respective drug. The good news for investors of both stocks is that the market has not priced in this fact. The market has punished both stocks for a previous trial that left questions, and was not tailor-made to showcase the strengths of either drug.
I have said it once, and I'll say it again: A clinical study is to test a product and determine its most effective use. The biotechnology space is large and is unforgiving to past struggles; but sometimes these failures of the past create the best opportunity, if the company learns from its mistakes. Personally, I seek such stocks and, in the past, it has worked well for me.
In my opinion, large valuations while in clinical trials are rewarded to those companies that "guess" correctly in early trials, and do not require a different design in later studies. But for companies such as ACADIA and Galena, all potential risk is priced into both stocks, but the upside is great. ACADIA will now have to conduct yet another late-stage study to confirm the results of this past trial. However, it looks as though the company's trial will be a success, as it has found the perfect recipe for success, and has succeeded where other companies have failed at treating this disease. On the other hand, Galena will look to prove its naysayers wrong, and will be announcing final data for its Phase II trial in the next two weeks, which will reflect the potential upside for its stock. With that being said, these will both be interesting companies to watch over the next couple years, as both present limited downside and great upside.
Disclosure: I am long SRPT, GALE.