Are Investors Wrong About Acadia Pharmaceuticals?

Short interest is a key metric to pay attention to because it may signal that a stock could be ready to fall -- or continue a recent downturn. 

Acadia Pharmaceuticals (NASDAQ: ACAD  ) has been one of the top performing biopharmas even since its experimental treatment for Parkinson's disease psychosis called pimavanserin met its primary endpoints in a late-stage study in 2012. As the company is getting closer to a regulatory filing for the drug, however, short-sellers have started to move into the stock in a big way, illustrated by the chart below. With this in mind, let's take a look at three reasons why shorts are targeting this developmental stage biopharma. 

ACAD Chart

ACAD data by YCharts

Reason No. 1
Acadia is presently in the throes of completing the required supportive studies for a New Drug Application, NDA, for pimavanserin. These studies include drug-drug interaction studies and CMC development. 

What's important to understand is that clinical setbacks in these additional studies could significantly delay a regulatory filing. Although the company expects to submit an NDA by the fourth quarter of this year, an unexpected clinical problem could push this date back or even sink the filing altogether.

It's a good idea to bear in mind that the 020 study was pimavanserin's only successful late-stage trial and the drug did fail to meet its primary endpoints in another pivotal trial as a treatment for PDP. In short, a major clinical setback in these follow-up studies might be unlikely, but it's also not totally out of the realm of possibility.  

Reason No. 2 
Another reason shorts could be targeting Acadia is because the supportive studies may produce a result that limits pimavanserin's label and hence, its commercial potential. On this front, I think the drug interaction studies are key to pay attention to moving forward.

Patients suffering from Parkinson's disease are often taking a wide variety of drugs to help manage their symptoms and pimavanserin could produce an undesirable side effect with any one of them. What this would mean is that pimavanserin's use would be restricted to a select subset of patients, hurting the drug's commercial potential.

Reason No. 3
Even if everything goes smoothly in the supportive studies, Acadia isn't expected to become cash flow positive in the next few years due to the expense of launching a new drug (although, with almost $370 million in the bank and a relatively low cash burn rate, it looks like they've got plenty of time to work on this). Because Acadia choose not to partner for pimavanserin, they are responsible for the cost of manufacturing the drug on a commercial scale and raising a sales force to effectively market the drug. Moreover, the FDA could require expensive postmarketing studies that would also need to be borne solely by Acadia, forcing the company to raise additional funds through a secondary offering.  

Foolish wrap-up
Although pimavanserin looks like an important breakthrough in the treatment of PDP based on the 020 study results, the company is facing a number of risks that could negatively impact its share price going forward. Under ideal circumstances, pimavanserin's supportive studies will conclude without a hitch and the cost of marketing the drug won't be overly burdensome. But in the real world, such blue-sky scenarios don't always pan out.

Moreover, Acadia has little else to fall back on in case it hits a major speed bump with pimavanserin. The company's collaborations with Allergan (NYSE: AGN  )  have some potential future milestone payments which are tied to the successful advancement of an applicable product candidate -- but with the potential additional money totalling $15 million for a glaucoma candidate and $10 million for a chronic pain candidate, there isn't that much juice left pre-commercialization (and these are early to-mid stage assets). Also note that the recent takeover attempt of Allergan by Valeant Pharmaceuticals could delay this process or even scuttle it entirely. On the bright side, Allergan is steadfastly resisting Valeant's overtures. 

Overall, Acadia's risk factors are par for the course for clinical stage biopharmas and should be viewed squarely in this context. At the same time, there aren't many biopharmas that sport multibillion dollar market caps based on the potential of basically a single drug. As such, investors with a long-term outlook might want to take a cautious approach with this one until some of these clinical and regulatory issues have been resolved.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2014, at 6:34 PM, biobetter wrote:

    Reason 1 says CMC stability could be a problem for pimavanserin but it is not a biologic and ACAD already has 3 yr stability data on trials. Pima has had no drug-drug interaction problems in trials with PDP patients who as you state correctly already use many drugs.

    Reason 2 was addressed by ceo yesterday and he said he expects NO restrictions on Pima's label. Of course docs could continue to use Seroquel which is black-boxed for use in the elderly and has flunked ALL of its placebo controlled PDP trials.

    Reason 3 is nonsense. PDP will require only 75 reps to reach the neuro docs who do most of the prescribing. The FDA told ACAD last year they didn't need to do a 2nd P3. So I doubt the FDA will suddenly insist on more trials when they just told ACAD fewer trials would be needed for Pima.

  • Report this Comment On June 26, 2014, at 8:03 PM, baloneyspotter wrote:

    With all due respect this has to be one of your (MF's) worst of all articles I have ever read. Acadia (and I do not own many shares anyway), has already done the phase III requirements for this future blockbuster drug, and those extra studies could even be done post approval. What really has to be done is just the manufacturer data and other minor usual add on data, which is no rush...imo. To think that you would attempt to minuscule this company is just hilarious, when there are so many more that you could attack. Sure, if you do not know what you are talking about this company could look expensive, but by the time Pima is launched this market cap will be even higher.

  • Report this Comment On July 01, 2014, at 11:23 AM, NOTASHORT wrote:

    This article is irresponsible and if anyone follows the "advice" that it spews as it is an obvious short attack will be ruined as ACAD is oh so close to filing an NDA. I cannot believe that the Motley Fool will publish this on it's site.

  • Report this Comment On July 01, 2014, at 7:33 PM, baloneyspotter wrote:

    Looks like very smart investors told you that 'they' are definitely not wrong about Acadia ~ what say you now? Looking forward to more amazing articles on it....not!

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