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Acadia Pharmaceuticals May Just Be the Best Long-Term Play on the Alzheimer's Disease Treatment Market

By David Liang - Apr 25, 2017 at 6:25AM

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After a significant pullback in April, is now the right time to jump into Acadia?

Investor confidence in a potential acquisition of Acadia Pharmaceuticals (ACAD 1.77%) seems to have waned, and the stock's price has suffered as a result. However, with share prices at their current depressed level, Acadia could be a bargain should its key drug Nuplazid succeed in Alzheimer's disease psychosis.

Alzheimer's is a tough nut to crack

For pharmaceutical companies, a treatment for Alzheimer's disease (AD) has remained the holy grail. This devastating disease impacts millions of people, and potential treatments have garnered significant attention from patients and investors alike.

Famous "breakthrough" therapies such as Pfizer/Johnson & Johnson's bapineuzumab and, most recently, Eli Lilly's solanezumab have all failed to demonstrate disease-slowing effects in late-stage clinical trials. In fact, over the last decade, it has been estimated that around 99% of potential Alzheimer's treatments have failed.

The issue with each of these products is that they all realy on the "amyloid hypothesis" of understanding Alzheimer's disease. The underlying cause of AD is still unknown, but scientists have a theory based on the observation that a protein called "amyloid-beta" tends to build up in large quantities in the brains of patients with AD. These proteins then group together to form a plaque, which blocks cell-to-cell communication. The amyloid hypothesis (which is as yet unproven) says that the underlying cause of AD is this buildup of amyloid-beta plaque.

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Assuming the amyloid hypothesis has merit, the next logical step would be to destroy the plaque buildups in patients' brains. And that's exactly what the aforementioned bapineuzumab and solanezumab set out to do. Both drugs were highly effective in clearing amyloid plaques from the brain. However, in long-term, phase 3 studies, neither drug showed an ability to halt or slow the progression of the underlying disease.

Following the failures of bapineuzumab and solanezumab, the industry has now turned its watchful gaze to Biogen's aducanumab, which is currently in phase 3 trials. Although this drug did show potential efficacy in phase 2 studies, this product still fundamentally adheres to the amyloid hypothesis of Alzheimer's. Although the entire Alzheimer's disease community would love to see aducanumab succeed, the odds are long.

Could a different approach hold the solution?

Acadia's main product, Nuplazid, takes a different approach to the treatment of Alzheimer's. Rather than attempting to halt or slow the progression of the underlying disease, Nuplazid is being studied in Alzheimer's disease psychosis (ADP), a psychiatric condition associated with the progression of Alzheimer's disease.

Nuplazid is currently approved as a treatment for Parkinson's disease psychosis (PDP). According to company estimates, Parkinson's disease affects an estimated 1 million Americans, and around 40% of this population is affected by PDP. Since Nuplazid is currently priced at $24,000 for an annual treatment, the U.S. market alone is, in theory, worth $9.6 billion. As Nuplazid is both the first and only drug approved for this indication, Acadia shares could have more room to run based on continual growth in PDP alone.

The Alzheimer's disease psychosis market has even more potential: Alzheimer's disease affects an estimated 5.4 million people in the United States alone. The company estimates that between 25% to 50% of patients diagnosed with Alzheimer's will eventually develop ADP. Should Nuplazid succeed in phase 3 studies for ADP, assuming annual pricing remains similar to PDP, Acadia would be targeting a total addressable market of between $32 billion and $65 billion.

In December of last year, Acadia released positive top-line data for Nuplazid in a phase 2 study in ADP. In this 181-patient study, Nuplazid met its primary endpoint of demonstrating significant improvement over placebo at week 6 of the study. The company has indicated that it intends to begin phase 3 trials in the second half of 2017.

Aside from Alzheimer's disease psychosis, Acadia is also in the process of advancing Nuplazid in mid-stage trials as a treatment for Alzheimer's disease agitation as well as adjunctive therapy for both schizophrenia and major depressive disorder. As all three of these are large indications with patient populations numbering in the millions, a hit in any one of these indications could be huge for Acadia. 

The risks involved

While Nuplazid has multiple large shots-on-goal, this stock is definitely not for the faint-of-heart. As I have pointed out before, while Nuplazid did succeed in its phase 2 study as treatment for ADP, this study was not without its controversies. Namely, while the results were significant, they were barely so, with Nuplazid beating placebo at a p-value of .0451 (for reference, the cutoff for p-values is .05, and the closer to "0" the better).

In addition, while Acadia ended 2016 with $163 million in cash and cash equivalents, commercializing a drug is expensive. The company may need to undergo future equity raises -- thus diluting existing shareholders.

Finally, it must be said that even for PDP, the results are still too early to discern trends. First launched commercially in May of 2016, Nuplazid has only been on the market for 11 months now. However, with so many shots-on-goal and the potential to tackle one of the largest indications out there, I would say Acadia is well worth the risk. After a significant pullback in April, I'd say now is a good time for risk-tolerant investors to consider buying shares of Acadia.

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