Is Acadia An Acquisition Target?

| About: ACADIA Pharmaceuticals (ACAD)
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After the full presentation of Pimavanserin's phase III data at the 2013 AAN (American Academny of Neurology) annual meeting, shares of Acadia Pharmaceuticals (NADSAQ: ACAD) rallied to a new 52-week high of $8.81/share. This reflected investors' renewed confidence in pimavanserin years after the company received a complete reponse letter (CRL) from the FDA due to a previous phase III trial that failed to meet its endpoint.

The general consensus is that Acadia's structuring of the previous phase III trial put pimavanserin at a disadvantage, which was adjusted with the more recent -020 trial, which passed all its endpoints with statistical significance.

More details can be found in my recent write-up on Acadia's full phase III results, but most importantly:

-Pimavanserin was able to demonstrate statistically significant improvement in Parkinson's Disease Psychosis (PDP) patients as measured by the SAPS-PD (Scale for Assessment of Positive Symptoms for Parkinson's Disease) scale, with p=0.001.

-There was statistically significant improvement in PDP for the pimavanserin arm versus the placebo arm as measured by a Clinical Global Impression rating scale, with p=0.001 and p=0.002 for the responder analysis.

-Pimavanserin's safety profile looks quite strong, with main points of concern being the higher rates of urinary tract infections in the pimavanserin arm (which doesn't seem to be caused by the drug) and two incidents of psychotic disorder reported by the pimavanserin arm that can be linked to underlying PDP.

Pimavanserin is an inverse agonist of the serotonin receptor 5-HT2A. Molecules working through the same mechanism of action have had limited success so far, which is why pimavanserin in a particularly attractive molecule right now that may pique the interest of other pharmaceutical companies interested in expansion of their psychotic drug pipelines.

This, combined with Acadia's (still) low market capitalization of ~$660 million (at the time of writing) makes Acadia a prime acquisition target for big pharmaceutical companies, particular those that are struggling with their top-line growth.

One that comes to mind is AstraZeneca (NYSE: AZN), which is one of the big pharmas that has seen particularly weak growth in sales. Because of this, shares of AZN have been rangebound for the last three years, and has underperformed the S&P 500 this year by roughly 4%. The company needs more exciting candidates in its pipeline that have blockbuster potential - like pimavanserin.

Pimavanserin will sell to a patient population of ~300-400,000 PDP patients, with the potential to expand into Alzheimer's and Schizophrenia indications which allow it to target millions of patients.

M&A speculation is not something that risk-averse biotech investors (if those exist) should engage in, although I think Acadia should look quite attractive at this point. At this point we can't determine how profitable pimavanserin will be due to lack of information about its cost of manufacturing and its pricing power, although we do know that this drug will be aiming for an enormous patient population down the road.

This is something big pharma excels at, which makes an acquisition of Acadia a win-win for any larger pharmaceutical company that trusts the drug's chance at an FDA approval after a supplemental NDA submission.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ACAD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.