Acadia's Phase III Trial Reboot Presents An Undervalued Opportunity

| About: ACADIA Pharmaceuticals (ACAD)

Acadia (NASDAQ:ACAD) is a biotechnology company with a market capitalisation of ~$80 million. Acadia's current share price is $1.51, a far cry from the lofty heights it reached in August 2007, when the share price was $16.40! Which begs the question, what has happened since then (GFC aside)? Well firstly, Acadia has its own drug discovery platform and it has traditionally licensed early stage products to other companies. It currently has partnerships with Allergan (NYSE:AGN) and Meiji Seika Pharma (2269), and was formerly in partnership with Biovail, who were developing Pimavanserin for use in Parkinson's disease psychosis, as well as for Alzhiemer's disease and Schizophrenia.

Unfortunately in late 2009 Pimavanserin failed to produced clinically significant results to prove treatment efficacy in the first Phase III trial for Parkinson's disease psychosis. This was reportedly due to a high response rate to the product in the placebo group of the clinical trial. Then, in 2010 Biovail was acquired by Valeant (NYSE:VRX), and Pimavanserin did not fit into "strategic focus" of Valeant. However, Acadia has since regained all rights to Pimavanserin and is now in the middle of another Phase III trial for Parkinson's disease psychosis. The results of this trial should be known by the 3rd quarter of 2012. At this stage Pimavanserin is unlicensed, and it does seem a little like uncharted territory for this company. However, if they produce promising Phase III results, I imagine that they will get significant interest from other companies, and hence the funding and experience required to bring the product to the market.

To understand where Pimavanserin fits in clinical practice, let's first take a look at Parkinson's disease. Parkinson's disease is a neurological condition that is caused by the degeneration of specific cells in parts of the brain. The reason behind this occurring is unknown. These cells are responsible for producing a chemical called Dopamine. Dopamine deficiency can eventually result in symptoms such as tremor, muscle rigidity, slow movements (e.g. slow walking, reduced facial expressions), reduced concentration and memory, as well as psychotic symptoms such as hallucinations (seeing or hearing things) and delusions (e.g. severe paranoia). Parkinson's disease is much more common in older people, occurring in over 1% of people aged over 60, and there are approximately 5 million people worldwide with the disease. It has been estimated that up to 40% of people with Parkinson's disease develop psychosis. In the aging populations of the developed world, the potential market for Pimavanserin is significant.

Parkinson's disease psychosis is in part due to the disease process itself and in part due to the dopamine replacement medication used in treatment. Management of the psychosis primarily revolves around reducing the dose of medication used or adding on an antipsychotic medication. The problem with reducing the dose of medication is that it could result in increased motor symptoms. So there is a fine balance. In terms of antipsychotic medication, there are 2 that are used in clinical practice, Clozapine (manufactured by Novartis (NYSE:NVS)) and Seroquel (manufactured by AstraZeneca (NYSE:AZN)). Several generic versions of both drugs are already available. Clozapine, traditionally used for treatment-resistant Schizophrenia, has proven efficacy for patients with Parkinson's disease psychosis, and at low doses does not exacerbate motor symptoms - unlike most other antipsychotics. However, it carries with it a risk of agranulocytosis. Agranulocytosis is a severe reduction in white blood cells, the cells that fight infection. As a result, patients on Clozapine require regular blood tests, as often as weekly or fortnightly. Seroquel, although generally used first-line, does not have as much solid evidence behind it. It does not appear to exacerbate motor symptoms either, but out of 5 randomized, doubled-blinded, placebo-controlled trials, only 1 showed evidence that it was more effective than placebo. Despite this it is still widely used on the back of several positive open-label studies. Note that both of these drugs are associated with several other side effects such as sedation, weight gain, diabetes, and high cholesterol, as well as increased morbidity and mortality when used in the elderly.

So what exactly is Pimavanserin and how does it act? Pimavanserin is a serotonin receptor inverse agonist. Serotonin receptors are found on the surface of cells in the brain, spinal cord, and nerves. An agonist is a chemical that binds to the receptor and stimulates the release of other chemicals. An inverse agonist will bind to the same receptor, but have the opposite effect to the agonist. Now there are number of different types of serotonin receptors and Pimavanserin appears to be selective for the 5-HT2A type, found in the brain. It is also thought that hallucinations and delusions may be related to overstimulation of this receptor. We know that low dose Clozapine has a similar affect on this receptor, and we know that it works in treating Parkinson's disease psychosis. High dose Clozapine and other antipsychotics tend to have a greater effect on dopamine receptors as well as serotonin receptors. When the dopamine receptors are blocked or antagonized, this can result in lower dopamine levels and hence a worsening of the motor symptoms of Parkinson's disease.

So based on this, the hope in theory is that Pimavanserin should be able to reduce psychosis without exacerbating motor symptoms. What we already know about Pimavanserin is that has evidence of good safety and tolerability from previous clinical trials, without worsening of motor symptoms. But if this product has already failed a Phase III trial, why am I even talking about it? I understand that the company has identified weaknesses in the design of the previous trial that may have affected the treatment efficacy results. If this is the case and the new trial has a positive outcome, as it stands now Acadia appears to be relatively undervalued with huge upside potential. Having said that, bear in mind that is still very difficult to predict even after Phase III results whether the FDA will ultimately approve this product.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.