ACADIA Pharmaceuticals (ACAD 0.67%) is a $2 billion market cap biopharmaceutical company that is focusing on therapies for psychosis attributed to Parkinson's and Alzheimer's disease. Parkinson's disease is the second most common neurodegenerative disease, with 1 million sufferers in the U.S. and 50,000 new cases diagnosed each year.
Approximately $2 billion a year is spent on drug therapy for managing Parkinson's disease, although there are no approved treatments for psychosis related to degenerative diseases of the central nervous system. Doctors often have to go "off label" to try manage such symptoms, often at the expense at managing the physical aspects of the disease. There are also significant morbidity and mortality factors to consider in elderly patients with dementia-related psychosis.
ACADIA Pharmaceuticals reported that 60% of patients with Parkinson's suffer from Parkinson's Disease Psychosis, or PDP. ACADIA Pharmaceuticals' primary therapy for PDP is pimavanserin, which is in phase 3 development.
Research opportunities
Few companies have viable therapies far enough along the drug development chain for potential commercial release. International Stem Cell, a barely $20 million market cap company, is investigating stem-cell-based therapies for Parkinson's, but the company lacks the resources to be a viable competitor; it is currently burning over $0.5 million a month, with just $1.8 million in cash for the most recent quarter.
The Michael J. Fox Foundation has funded a number of research proposals involving public companies, including ACADIA Pharmaceuticals. Alnylam Pharmaceuticals (ALNY 0.27%) received funding from the foundation in 2007 for a study with the University of British Columbia in developing RNA-based therapies that would interfere with protein production and disease pathology. The four-year study completed last year, but as of yet there have been no potential therapies that have emerged.
The foundation also helped to fund an Amylin Pharmaceuticals proposal in 2009. Amylin's Byetta therapy, used for the treatment of type 2 diabetes, was also found to modify the progression of Parkinson's disease. Research is still ongoing, although motor and cognitive improvements were reported with treatment. Amylin Pharmaceuticals was jointly acquired by Bristol-Myers Squibb (BMY 0.25%) and AstraZeneca (AZN +0.00%) in 2012. Although Bristol-Myers Squibb recently announced that it was shifting its research focus to deal almost exclusively to cancer therapies, and is likely dropping its neuroscience program, which has two Alzheimer's therapies currently in phase 1.
Going "off label"
Current "off label" management options for psychosis include Abilify, a drug by Otsuka America Pharmaceutical. Abilify is an antidepressant that can be used to manage psychosis, although results can be mixed and may even worsen the symptoms of the disease. Zonegran, by Eisai, improved motor functions in a clinical study run in Japan; the mechanism of its effects have not yet been deduced, however. Forest Laboratories' (NYSE: FRX) Namenda offered improved cognitive ability to Parkinson's disease sufferers against a placebo treatment, although secondary benefits were not reached. Body builder favorite Creatine was also suggested as a management option, although the National Institutes of Health recently stopped a study testing this because it did not offer benefits for people with Parkinson's disease. Unfortunately, none of the aforementioned therapies have FDA approval for Parkinson's disease treatment.
Pimavanserin
The recent clinical study published in the Lancet offered a significant boost toward ACADIA Pharmaceutical's NDA application for pimavanserin. CEO Uli Hacksell noted the "excellent progess" that has been made toward the application process. The drug was reported to have a small adverse effect on heartbeat, causing a "7 to 9 millisecond" increase in the time for ventricular depolarization and repolarization; in a healthy adult male, this typically takes less than 430 milliseconds to complete. If this polarization event pushes above 450 milliseconds, serious health risks and possible death can occur. However, the company was keen to emphasize that the FDA was aware of the safety profile of the drug and did not dissuade it from making an NDA application.
The company is also expecting the information gathered in the NDA application for the FDA to be sufficient for a European drug application, although Hackell admitted "that Europe is still an unknown before we have tested it."
Valuation
Applying a pharmaceutical industry average P/E of 16 to Acadia Pharmaceuticals translates to an EPS of around $1.55 a share at current prices, or nearly $140 million a year in net income. Applying a 3 times multiple of net income to revenue, as found with AstraZeneca or Eli Lilly, would equate to an annual revenue of just $420 million. On the basis of this evaluation, ACADIA Pharmaceutical is currently priced at about half its potential value if pimavanserin turned into a $1 billion per year treatment.
The company has the reserves to see it through pimavanserin approval. It has $196 million in cash and used about $10 million in its third quarter; of this, $7.3 million was spent on R&D. This company's stock is one worth watching.
