What happened

Shares of the mid-cap biopharma Acadia Pharmaceuticals (ACAD -1.19%) fell by as much as 44% in pre-market trading Tuesday morning. The drugmaker's stock is crashing today in response to a regulatory setback for pimavanserin's proposed label expansion as a treatment for dementia-related psychosis.

The Food and Drug Administration reportedly notified the company on March 3 that it had identified deficiencies in the drug's supplemental New Drug Application (sNDA) that preclude discussion of labeling and post-marketing requirements/commitments. Pimavanserin's sNDA review is still scheduled to be concluded by April 3, despite this unexpected development. 

A man with a worried look staring at his laptop.

Image source: Getty Images.

So what

Pimavanserin is currently approved as a treatment for hallucinations and delusions associated with Parkinson's disease psychosis under the brand name Nuplazid. Acadia has been trialing the drug for several years across a variety of broadly similar indications in the hope of expanding its commercial footprint.

Dementia-related psychosis was set to be the first of these additional indications for the drug -- one that would have likely pushed it into blockbuster territory (greater than $1 billion in annual sales) as soon as next year. So with this high-value label expansion now in jeopardy, at least temporarily, it's not surprising to see investors hitting the exits this morning.  

Now what

Acadia noted in its press release that the FDA has yet to reach a final decision on pimavanserin's sNDA. But the company also revealed that the FDA has yet to share the specifics about the application's problematic areas. As such, it's essentially impossible to make a judgment call on whether this is a minor hiccup or a major setback that could take a prolonged period of time to address. Investors in turn may want to exercise caution with this beaten-down biotech stock today.