ACADIA Pharmaceuticals (NASDAQ:ACAD) significantly exceeded the Q3 revenue consensus last week. Q3 revenues were $5.3 million, almost double the analyst consensus of $2.9 million. The company's early launch efforts are focused on improving access and increasing awareness and the results look good on both fronts. The company is also giving away a lot of free samples and has a 30-day free trial in place, which is negatively affecting near-term revenues, but these efforts should significantly improve the long-term uptake for Nuplazid. I believe that the underlying growth trends are actually much better than they seem at first glance and think the company will easily exceed the Q4 analyst consensus (if it stays around current levels, of course). The pipeline is progressing nicely as well with three new clinical trials and the company should report phase 2 trial results in ADP before 2016 is over, which is the most important near-term catalyst for the stock.
Nuplazid exceeds expectations in Q3
Nuplazid's Q3 net sales were $5.3 million, and have significantly exceeded the $2.9 million analyst consensus. The Q3 showing is really impressive if we consider how early in the launch Nuplazid is and that:
- The company is giving away a lot of free samples.
- The company has a 30-day free trial in place, and sometimes even longer if reimbursement takes more than 30 days.
- Coverage is always a problem early in the launch.
I believe that the underlying growth trends are actually much better than the Q3 numbers imply. This assumption is based on aggressive sampling and the 30-day free trial. We were just four months into the launch when Q3 ended, which means that very few patients were on the drug in Q2 and there were probably a lot of patients on free trials and samples for the better part of Q3. This is just a theoretical exercise, but if we assume that 100 patients received the free product in July, 200 in August and 300 in September, at least half of patients on the drug would have had Nuplazid for free during Q3. Of course, the demand is not linear as I implied, but I think that at least 25-30% of patients were on the free trial at the end of Q3, with the percentage probably being higher. As time passes, these trends should subside and the percentage of patients on free trial should drop significantly, thus positively affecting sales growth.
On the other hand, reimbursement is always an issue early in the launch, but ACADIA has done a great job on that front as well. Medicare Part D is almost 100% covered and around 35% of commercial lives too. The company noted that the majority of plans require prior authorization that simply confirms the PDP diagnosis. Commercial coverage should improve significantly over the next few quarters and should positively affect demand in 2017.
It is also important to note that physician feedback has been really positive and that those that are subscribing Nuplazid are seeing results that are consistent with the clinical trial results, including some cases of complete remission of hallucinations and delusions.
So, Nuplazid is off to a strong start. Management said on the Q3 earnings call that "it seems like consensus estimates for the fourth quarter center in the 8 million to 9 million range, which is consistent with how we see the remainder of the year shaping up." But they also noted that they are not providing guidance yet since the error bars are still pretty wide, so, I think they are actually being very conservative with Q4 expectations. Based on improved coverage, increasing awareness, continued strengthening of demand for the product and more patients transitioning from the free product, I think that ACADIA should easily outperform the Q4 consensus of $9.3 million (assuming it stays there or trends slightly higher). But, since we have just one full quarter of sales, predicting the actual level is pretty hard. I believe anything above $11-12 million would be perceived as really good.
I also think that the Q3 results bode well for the 2017 growth outlook. Substantially better coverage (especially commercial coverage) should positively impact sales in 2017 and a lot of physicians will probably get really comfortable with the drug by then, and I think there is room for the company to significantly exceed the 2017 revenue consensus, which currently stands at around $83 million.
I believe that the early uptake is supportive of my long-term sales expectations for the PDP indication and that the company can eventually achieve the targeted annual sales at mid-range and possibly at the high end of the range, which translates to a NPV range of $22 to $33 (see previous article). This means that ACADIA can deliver modest (based on the mid-range) and very solid (based on the high end of the range) long-term gains even if the rest of the pipeline ends up being worthless.
Pipeline expansion is on track
ACADIA has significantly expanded its pipeline over the last few weeks:
- Phase 2 study of pimavanserin (Nuplazid) in Alzheimer's Disease Agitation. There is currently no approved drug for this indication.
- Phase 3 study of pimavanserin for adjunctive treatment of schizophrenia in patients with an inadequate response to current antipsychotic therapy. Around 30% of schizophrenia patients do not achieve an adequate response to a single antipsychotic medication and Nuplazid can potentially improve clinical outcomes by "both augmenting the efficacy of currently used antipsychotics and lessening the undesirable side effects associated with polypharmacy."
- Phase 2 study of pimavanserin for adjunctive treatment in patients with negative symptoms of schizophrenia. Around 40-50% of schizophrenia patients suffer from negative symptoms and there are no FDA-approved treatments. The company believes that Nuplazid can improve clinical outcomes for these patients.
These three indications could significantly expand Nuplazid's addressable market and it will be interesting to see whether the product can be used with other antipsychotics.
In addition to these three trials, the company expects to report phase 2 data in Alzheimer's Disease Psychosis, or ADP, by the end of the year. This is the most important near-term catalyst for ACADIA and could unlock significant shareholder value as this indication has more potential than the currently approved PDP indication. There are approximately 5.3 million Alzheimer's disease patients in the U.S. with half of them diagnosed and with 25% of 50% diagnosed patients having ADP. This translates to at least 800,000 patients in the U.S. and up to 1.7 million, or a $14-28 billion U.S. market for Nuplazid (assuming a 25% gross to net discount). Capturing 10% of the addressable market translates to $1.4-2.8 billion in annual sales for Nuplazid, but expectations heading into this trial seem low considering management comments on the Q3 call (emphasis mine):
I would have a little bit of distinction between the 019 Study that will read out about in the studies that we're initiating. The 019 Study is really designed and executed as really a very exploratory study. And we talked about this in the past, of course it's all one symptom and is there are other things that are unique to that study that I think give us a certain whims to look here in terms of what the data will give out.
I think probably likely they will give will achieve the definite study and that is give enough information to have a full view about what to do next… And there's a whole lot of grey area in between and in these early explorative studies, you wind up in the grey area more often than not. So, we just don't know, this we just gone onto the study results, so we're very eager to get this study results but we think there is a very good likelihood and always happens with these subjective endpoints and CNS that a very good likely that that will give, will achieve the objectives of the study, and get information which tells what to do next.
This doesn't sound very optimistic, but I guess we have to wait and see the results as well as the company's interpretation of those results with a possible way forward for this indication. There is also a chance for the company to extract something from the results even if they are not completely satisfactory.
The pipeline remains the real growth driver for ACADIA in the following years. Getting just one of these indications approved could translate to significant long-term gains.
I am encouraged by the Q3 results and believe Nuplazid is on its way to exceed Q4 and 2017 revenue expectations. The substantially improved coverage, the rising awareness and the positive physician feedback should lead to higher prescription growth in the following quarters. However, the pipeline remains the real growth driver and the ADP trial results in late 2016 are the most important near-term catalyst for ACADIA. It is also worth noting that institutional support remains at a high level and that almost all large holders have added to their stakes in Q3, including the Baker Bros hedge fund, which has a 23% stake in the company.
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Disclosure: I am/we are long ACAD.
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.