This article was written by Rajesh Patel, Ph.D.
Acadia Pharmaceuticals (ACAD) has been running up ahead of anticipated clinical trial results to be released next month. After a recent consolidation, ACAD may be ready to breakout for a second leg up in the coming weeks as we discuss herein.
Reading The Chart
In our previous article about ACAD, we suggested that ACAD was poised to gain 100% by December. At that time, ACAD was trading at $1.92 and in the following week the stock rose by 43%, only to give back a good portion of the gains in trading sessions to follow. Based on the recent trading activity, ACAD has been forming a bull pennant formation which is a continuation pattern indicating that a stock has more upside in the current trend. After a strong upward move in a stock, a pennant forms when there is a brief consolidation marked by decreasing highs and lows coupled with decreased trading volume.
The six-month chart for Acadia below (data originally from yahoo finance) has been annotated to illustrate the pennant formation and the breakout. While the chart below does not show the daily trading volume, the volume trends support a pennant formation.
Typically, in a flag or pennant formation, the "flagpole" is the price difference between recent support and recent resistance. Once the pennant breaks out, the further upside in the trend is considered to be the equal to the length of the flagpole.
For ACAD, the recent support and resistance points of $1.80 and $2.80 suggest a flagpole of $1. This suggests that ACAD has the potential to climb by another $1 within the current trend. The price range suggested by this technical indicator is in-line with the prediction we made earlier which was based on the past performance of ACAD ahead of major clinical trial data.
One thing that is different for ACAD during this clinical trial data release compared to its previous release in 2009 is that ACAD now owns the full rights to pimavanserin. Should the clinical trial show a statistically significant effect for pimavanserin, ACAD will have a potential front-line therapy for Parkinson's disease psychosis (PDP), as well as a planned label expansion into Alzheimer's disease psychosis.
According to the National Institute of Neurologial Disorders and Stroke, approximately 500,000 people in the united states have Parkinson's disease and approximately 50,000 new cases are diagnosed each year. Acadia estimates that about 60% of all Parkinson's disease patients will experience PDP at some point. According to the Alzheimer's Foundation of America about 5.1 million people in the United States have Alzheimer's disease. Clearly these are large markets and provided that the data is positive and can be confirmed in a second clinical trial, ACAD has a potential blockbuster drug in pimavanserin.
According to recent reports, Roth Capital is bullish on ACAD due to the modified clinical trial design and due to the potential for off-label use for treatment of schizophrenia. Its target for the stock is $3.
Timing of Data Release and Effect on Trading
ACAD has guided that top-line results from the trial would be released "by the end of November". The -020 trial has a 6-week treatment period which is preceded by a 2-week run-in prior to randomization to drug or placebo arm. The company's press release regarding full enrollment came out on September 5th. If one assumes that the last patient was enrolled the same week as the press release, and that the run-in period had not yet been completed, then the last patient last visit should occur around October 31st. Depending upon how long it takes for the data to be analyzed, top-line results could come just before Thanksgiving.
Speculators who are trading the stock in advance of the clinical trial data release may begin exiting the stock by the second week of November. November options expiration promises to be a particularly volatile time for ACAD if the data has not been released by then.
We note that, relying on large gains after a data release is generally a riskier proposition that trading the stock ahead of the event. Holding through a trial release carries the major risk that gains can be wiped out by data that misses an endpoint or whose statistical significance is equivocal. In ACAD's case, the post-hoc analysis of the -012 study results suggest potential for a positive outcome for the present study. While we believe that pimavanserin is likely to show positive data in November, investors would do well to have a plan that either hedges against selling pressure on the stock, or books some gains in November prior to the data release.
Disclosure: I am long ACAD.