Acadia Pharmaceuticals (NASDAQ:ACAD) shareholders received good news today when an FDA advisory panel voted to approve Acadia's drug Nuplazid, which is being developed for the treatment of Parkinson's Disease Psychosis. While the FDA is not bound by the decision of its advisory panel, the advisory panel signing off on the drug should help to make investors confident that approval is imminent. There are many areas that investors should watch for going forward, and a few concerns that were raised by the panel.
There were fourteen members of the panel, and they were asked to vote on three specific questions. The first question was whether or not Acadia demonstrated substantial evidence of efficacy. The panel came back 12-2 in favor of Acadia on this question. While the panel was concerned by what some of the members seemed to characterize as low efficacy and a small sample size, it appears that this overwhelming endorsement of the efficacy of Nuplazid should help to solve the problem for the FDA as the company moves towards its PDUFA date.
The second vote was equally important. This vote covered whether or not Acadia has properly characterized the safety profile of the drug. The discussion for this question seemed to get rather concerning, as the panel members were concerned about a low sample size, and some of the metrics used for measuring the safety of the drug, as well as a lack of information regarding the long term use of the drug. While there were some concerns, the panel voted 11-3 in favor of Nuplazid approval. This view of the safety of the drug should help Acadia substantially when it comes to obtaining FDA approval. With the first two questions in the bag, the third question regarding a recommendation of approval became almost a given.
On the third question about whether or not the benefits outweigh the risk (which is essentially a question about whether or not to approve the drug), the panel came back 12-2 in favor of Acadia. Many of the members expressed the need for a rather extensive black box warning about the potential side effects and small sample size. Another important concern was that the FDA needed to limit the scope of the label sufficiently so as to deter off label usage of the product. This seemed to be a rather big concern throughout the trial. One interesting note about the third question is that the patient representative voted no on the question about whether or not the benefits outweigh the risk. While this may have just been an outlier statistically, investors should watch to make sure that patients find the drug beneficial.
Overall, the hearing was positive for Acadia, but with the concerns raised by the panel it is clear that there is likely to be extensive post approval testing requirements, as well as a black box warning.
I believe that the drug will be approved by the FDA on May 1st, if not before then. Investors will need to be watching closely any developments regarding the black box warning. While this might not explicitly hurt the sales of the drug in Parkinson's Disease Psychosis, it could be a concern if the drug continues towards approval for schizophrenia, given that there are other treatment options approved for that indication. While I do not anticipate a black box warning hurting sales for the more selective indications, when Nuplazid is weighted against other drugs in the market, investors should be very careful about the language of the black box warning.
In the meantime when heading towards FDA approval, Acadia should continue to build up its in house sales force in order to be ready for the launch of the drug. This will be important so that as soon as the drug obtains FDA approval, Acadia will be able to capitalize. Obtaining FDA approval should also be important for the broader potential of Acadia's research pipeline. With the same compound being researched not only in PDP, but also in Alzheimer's Disease Psychosis, Alzheimer's Disease Agitation, and Schizophrenia, it is important that Acadia proves that the drug is safe and effective. I fully anticipate that the drug will be able to sale through to FDA approval.
Acadia is well positioned in order to be able to finance its growing sales force. At the end of last quarter, the company had $215.1 million in cash. The company also completed a secondary offering that added another $300 million in cash. This will provide a substantial cash pile from which the company should be able to build out its sales force. A concern moving forward will be the cash burn rate. The SG&A expenses are expected to increase, and with the company not slowing down the research for Nuplazid I would only expect to see R&D costs increase as the drug progresses through clinical trials. This suggests that while financing is not currently a concern, with the company posting total operating expenses of $45.6 million last quarter, shareholders should pay attention to the company's efforts to extend its cash runway. The company will either need to seriously consider trying to sign an agreement with a partner to market Nuplazid in Europe, or it may have to turn to equity markets for additional cash should sales not be achieved as quickly as previously thought. I do believe that the company is in a solid cash position, but shareholders need to continue to monitor the news coming out of Acadia.
With a positive panel decision, it appears as though Nuplazid is poised to gain FDA approval. Even with the overwhelming votes in favor, not everything was rosy at the panel. Investors need to pay attention to the language of the FDA on approval and to the potential black box restrictions imposed upon Acadia. FDA approval will help to validate the rest of Acadia's pipeline, and should help to make investors confident in the ability of management to execute moving forward.
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