Acadia Pharmaceuticals (ACAD 0.64%) is probably in better shape now than it's ever been. The biotech won approval last year for its lead product, Nuplazid, in treating Parkinson's disease psychosis. Acadia's stock is up more than 30% over the past 12 months. Additional studies are under way that could expand the number of indications for Nuplazid. But plenty of uncertainty remains. Just how risky is Acadia's stock right now?
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There's no such thing as a free launch
Acadia received the green light from the FDA for Nuplazid on April 29. The company kicked off the commercial launch of the drug just over a month later. It had a national sales force of over 130 representatives. Nuplazid is the first drug to receive approval for Parkinson's disease psychosis, so there wasn't any real competition to go against.
So where do things stand? As of Sept. 30, sales for Nuplazid totaled $5.4 million, most of which was made in the third quarter. During that quarter, though, Acadia spent over $50 million on selling, general, and administrative expenses. There's clearly a long way to go. In fact, Acadia's management team acknowledges that the company will continue to lose money for at least the next few years.
Launching a new drug isn't free -- and it isn't easy. That's especially true when the drug carries a black-box warning that says elderly people with dementia-related psychosis taking antipsychotic drugs are at an increased risk of death, as Nuplazid does.
A successful launch is even more challenging the first time around for a company. This is Acadia's first approved drug. The biotech doesn't have experience with rolling out a new product, which increases the risk that the launch might not successful.
Trials -- and maybe troubles
Acadia's market cap currently stands at $3.8 billion. There are some high expectations for Nuplazid baked into that valuation. To achieve those expectations, Acadia needs to win approval for additional indications.
The company is exploring the potential for Nuplazid in treating five other indications. A late-stage clinical trial is under way for evaluating the drug as an adjunct treatment of schizophrenia in patients with an inadequate response to current antipsychotic therapy. Another mid-stage study began in November for Nuplazid as an adjunct treatment in patients with negative symptoms of schizophrenia.
Acadia is also advancing to a late-stage clinical trial evaluating Nuplazid in treating Alzheimer's disease psychosis. This could be a huge opportunity for the company if it can ultimately win approval for the indication.
The company reported positive results from a mid-stage study focusing on Alzheimer's disease psychosis. If you looked at the details from this clinical trial, though, there were reasons for concern. Reduction of psychosis was observed in patients after six weeks of taking Nuplazid, but the level of reduction was just below the point of being considered statistically insignificant.
It's possible that the larger late-stage study will clearly show Nuplazid to be effective in treating Alzheimer's disease psychosis. However, there is significant risk for Acadia with its clinical trials. A pipeline setback would likely take a big bite out of the company's stock price.
Great potential
Acadia definitely faces considerable risks with the commercial launch of Nuplazid and the possibilities for clinical study disappointments. However, the biotech also still has tremendous potential.
Although sales for Nuplazid didn't soar right out of the gate, part of the problem related to Acadia's providing samples of the drug to physicians earlier in 2016. That should be only a temporary issue. Nuplazid could still reach peak annual sales of up to $1 billion for the Parkinson's disease psychosis indication. Additional approvals would drive that number even higher.
There's also a decent chance that Acadia attracts interest from larger companies looking to make an acquisition. Several biopharmaceutical companies could be good fits. I'd put Eli Lilly (LLY 0.54%) high on the list.
Lilly experienced a big setback with the late-stage clinical study failure for solanezumab in treating Alzheimer's disease. Despite this major disappointment, the big drugmaker continues to invest in developing drugs targeting the disease. Lilly also has early-stage programs focused on dementia and schizophrenia.
Nuplazid would be a solid addition to Lilly's neuroscience portfolio. The company could also bring plenty of experience to bear in marketing the drug. If Lilly is looking to make a significant acquisition in the near future, I wouldn't be surprised to see Acadia in its cross-hairs.
