What happened

Acadia Pharmaceuticals (NASDAQ:ACAD) jumped 30.1% in September, according to data provided by S&P Global Market Intelligence, after the company reported positive results for the phase 3 Harmony clinical trial testing its antipsychotic Nuplazid in patients with dementia.

Part of the large jump in the stock price comes from a lack of confidence in Nuplazid after the drug failed a late-stage clinical trial in schizophrenia patients who weren't getting an adequate response to their current therapy. The success in the Harmony study could be the different patient population or it could have to do with the study design since psychiatric drugs have notoriously high placebo effects.

Man with his eyes closed and his hands gripping his head.

Image source: Getty Images.

So what

Nuplazid is already approved to treat hallucinations and delusions associated with Parkinson's disease psychosis, but the new clinical trial results should expand the market for the drug into psychotic patients with dementia.

An interim peek at the data by the independent data monitoring committee showed that Nuplazid increased the time to relapse of psychosis compared to placebo. Acadia Pharmaceuticals didn't release the actual difference, but since it was an interim analysis, the statistical threshold is more demanding, requiring the P value to be less than 0.0033 instead of the usual less than 0.05. Given the large statistical significance, the time to relapse for patients who remained on Nuplazid is likely substantially longer than it is for the patients who were switched to placebo.

Now what

After a biotech skyrockets higher, it'll often take the opportunity to raise additional capital through a secondary offering, and Acadia was no exception. The company raised $250 million by selling shares at $40 per share, only slightly lower than the $41.22 that shares closed at after the Harmony results were released.

Shares are trading even lower now, offering an opportunity to pick up Acadia cheaper than the institutional investors who bought the secondary offering. Just keep in mind it'll take about a year to get the data submitted to and approved by the Food and Drug Administration. Even then, dementia is a large market, so it may take some time for Acadia to ramp up sales.

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