When Goldman Sachs analyst Salveen Richter said Acadia Pharmaceuticals (NASDAQ:ACAD) will face a challenge educating doctors and patients about Nuplazid (pimavanserin), she was giving words to what many investors were feeling. Nuplazid may be a success story in so far as the FDA approval is concerned, but by its very nature, it is a drug that will need some hard selling.
ACAD identified some of the main features treating physicians look for in a PDP drug:
- "Does not negatively impact motor symptoms"
- "Resolves psychosis fully"
- "Low incidence of side effects"
(from Corporate Presentation)
This is exactly where ACAD has an uphill task educating physicians; that nuplazid actually meets all three specifications. Not all physicians who treat PDP have expertise in movement disorders. This is a key area where ACAD needs to work to develop a proper education program for prescribing physicians.
On the other hand, nuplazid does have a great future treating other kinds of psychosis. It is already in advanced clinical stages for ADP, or Alzheimer's Disease Psychosis. That could open up a great new market for nuplazid where there are no approved drugs. In fact, the ADP market is three times the size of PDP - 25% of the 5 million AD patients get ADP, while 40% of the only 1 million PD patients get PDP. Then there's schizophrenia, where too ACAD is studying nuplazid and will bring out results in 2018. That is another large market, although there are around 15 approved drugs for broad schizophrenia at present. There are around 4 million schizophrenics in the US, 30% of whom are in need of an adjunct therapy like nuplazid.
ACAD's money troubles
Nuplazid's rollout made it imperative for the company to raise $500 million in dilutive offering. That also brought down the stock. The surge we saw during the approval process pattered out, and those investors who had held on to the stock now saw their portfolios devalued by what is essentially a great drug.
Acadia's operating expenses are going up because it has gone to market with nuplazid without a partner. That may or may not be good in the long run; however, in the shorter term, especially considering that a psych drug is not going to become a blockbuster from day one, nuplazid's sales, although good, are not matching up to the money being spent on launching and marketing it. In Q3, nuplazid managed to sell $5.3 million worth of prescriptions, according to their earnings call, where street expectations were only $2.9 million. From the same earnings call, Acadia's operating costs were $77 million, so it lost $72 million in Q3. Obviously, if you compare this to the pre-launch phase, there's going to be a huge surge in loss - about 4 times. However, that is not a fair comparison because last year, the company had no sales, and this year, it does.
Nuplazid's additional labels and indications
ACAD just recently launched a midstage study of nuplazid in schizophrenic patients showing negative symptoms of the disease like "flat effect, loss of interest, emotional withdrawal and cognitive impairment." This is a 380-patient trial with placebo in the control arm, and it studies nuplazid's effect on these symptoms as an adjunct to standard antipsychotic therapy. About half of all schizophrenics suffer from negative symptoms.
ACAD also has begun a phase 3 study of 380 schizophrenia patients who failed to respond to antipsychotic therapy. This is a different patient population from the other trial I just discussed, and includes up to 30% of all schizophrenics. This includes both negative and positive symptoms.
It is important to note what ACAD says in the earnings call about where nuplazid can be useful. "Despite this large number (of drugs used to treat schizophrenia), drugs used to treat schizophrenia today just do not adequately address some very important symptoms of the disease, and they also carry significant side effects. They also tend to be fairly mechanistically similar. So with these drugs as a backdrop, studies show that approximately 30% of patients with schizophrenia have an inadequate response to their antipsychotic treatment. As a result, it is common clinical practice to prescribe two or more antipsychotics, despite the fact that these drugs all primarily target the dopaminergic pathway."
The other important study, as I discussed at the onset, is Alzheimer's disease psychosis or ADP, which is an 181 patient study being done in London to treat hallucinations and delusions in AD patients. Topline data will be out by the end of the year, which should be an important upcoming catalyst.
Finally there is Alzheimer's disease agitation and aggression. This is a 430 patient study which will use nuplazid as the sole treatment method. Nuplazid's basic capability as a serotonin inhibitor which doesn't activate dopamine receptors makes it an ideal candidate for this kind of patients. If successful, this will open up a major new market for the drug. With an approval already in the bag, supported by a trial that had good safety results, it looks more than likely that ACAD will see success here as well.
Those who rode up to profit during the approval process of nuplazid and then left it alone made anywhere between 30 to 50% in profit in a minimum of a two year window. However, those who are still holding it believe the long term value of the stock will far surpass what they saw before PDUFA.
In my opinion, nuplazid, if it takes off well, will take anywhere between 3 to 5 years to reach full sales potential in PDP. By that time, hopefully, at least one other label will be approved, which will continue to increase revenues. The second label, if it happens, will be easier to sell to physicians because by then nuplazid will be widely known.
That is the upside. The downsides are two - one, from a purely clinical perspective, nuplazid needs to have flawless execution in the broad patient population. As many drug makers have experienced, a trial of even a thousand patients is one thing, and an after-launch field study in millions of patients is another thing. Many things can go wrong. Investors need to stay on top of the situation.
The other problem is corporate execution. There is a school of opinion which doesn't think highly of ACAD management in a post-launch scenario, and would have much preferred a big partner pulling in marketing resources. With no company experience in launching a drug, ACAD faces an uphill battle in that regard. Even a good drug could be damaged if it is not properly marketed and sold. That is another worry for many investors - whether Acadia has the capacity to properly launch and market the drug.
If, however, these things work out well, and at least another major label gets approved, investors who held on to ACAD post approval will have a lot to be happy.
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.