The performance of an exciting biotech can really pack some punch in your portfolio, but some of them simply aren't built to last.
One candidate for that category is San Diego-based Acadia Pharmaceuticals (NASDAQ:ACAD). The clinical-stage biotech's shares shot upward 16% just last Tuesday, to reach an all-time high and top $4.5 billion in market value, all on three times average daily volume.
According to FierceBiotech and other sources, Acadia's shares spiked upward because top management didn't show up at two healthcare investor conferences. Based on the no-shows, rumors sprang up of Acadia's supposedly imminent takeover.
Reality popped this bubble quickly, when Acadia was forced to walk back some bullish prognostications for its Parkinson's disease psychosis drug Nuplazid. Approval submission for Nuplazid will now be delayed to the second half of the year. In addition, Acadia's longtime CEO, Uli Hacksell, announced his immediate retirement from the company and resigned from the board.
Because of the delay in the new drug submission, or NDA, and the CEO exit, the stock tanked 22% after hours, and it kept falling from there.
If you're not an investor in Acadia, you could brush off this chart and be glad you dodged a bullet. But not so fast. Inside Acadia's boom-to-bust cycle are some practical lessons that could be applied to coming stock picks, particularly biotechs, and provide you a better chance of finding a company built to last.
There is one thing even more important than taking off: landing.
A company can really take off when it gets a candidate drug successfully through clinical trials, but it still has a very dangerous maneuver ahead of it: commercialization. Acadia provides a good example of how tricky this can get, because last week wasn't the first time it put Nuplazid's NDA on hold. Four months ago, the biotech also delayed its NDA, with Acadia's management saying the company hadn't yet prepared its FDA pitch.
This time, Acadia's acting CEO, Steve Davis, who replaced previous CEO Uli Hacksell after his sudden retirement earlier this month, said: "We have concluded that additional time is needed to complete the readiness of our commercial manufacturing systems. We are working expeditiously to ensure that our systems are robust and ready for FDA review and commercial launch."
As Motley Fool biotech writer George Budwell pointed out, Nuplazid reported strong late-stage clinical trial results way back in 2012. Since then, Acadia has had over two years to work out the kinks and hasn't been able to do so. That's a whopping red flag that this company isn't built to last.
The company's words would have you believe that there's nothing to be concerned about; Davis affirmed, "We remain confident in the safety and efficacy package supporting the NDA of Nuplazid."
But here's the thing. Acadia's management can insist all it wants that this new delay is not the result of any interaction with the FDA, or of a problem with this dug. However, management's claims have to be considered in light of the its prior insistence (before the previous NDA delay) that everything with the drug's regulatory submissions were on track.
And look at how that ended.
So what's afoot? For a company to take this long to file an NDA is extremely unusual. While the company could have some recently discovered concerns with the drug, that seems unlikely. Nuplazid had a breakthrough designation from the FDA, which makes it highly probable that the clinical data is good enough for an FDA approval.
Taking the next steps
Acadia's previous CEO was with the company for over 16 years, presiding over its growth from a start-up to a full-fledged biotech. Haskell's success at getting things done in the clinic led to huge gains for this stock. When Nuplazid achieved its primary endpoint of a phase 3 study, shares spiked 145% to $5.64. Acadia has also two clinical collaborations with Allergan on a promising phase 2 chronic pain drug, as well as a phase 1 glaucoma therapy.
But the skills required to get a drug into and through the clinic are different from the skills required to get it through commercialization. That's particularly true with a potential blockbuster like Nuplazid, since the FDA will require evidence that this company can manufacture the drug in sufficient quantity to meet demand.
According to the National Institute of Neurological Disorders, at least a half million people in the U.S. suffer from Parkinson's disease. Psychosis tied to the disease can strike as many as one in five Parkinson's patients. Guaranteeing a sufficient supply of Nuplazid is thus a tall order, and having a safe and effective commercial manufacturing procedure in place is essential before the FDA will grant approval.
Acadia has badly needed to find a third-party manufacturing or marketing partner for several years. Despite that, probably because it fears signing away a future revenue stream, the company has repeatedly said it prefers to market Nuplazid alone. For example, in a presentation at the Oppenheimer Healthcare Conference, Hacksell said the company wanted to use "the commercial phases of Nuplazid to form the foundation for a successful neurology company in the U.S., and perhaps also outside the U.S." In case his meaning wasn't clear enough, he added, "We want to commercialize Nuplazid ourselves in the U.S." Outside the U.S., he conceded, "We may or may not partner."
During the presentation, Hacksell focused a great deal on Nuplazid's potential. While his pride in the drug is understandable, I couldn't help thinking of one of my favorite installments of the comic strip Peanuts. In his wonderfully understated manner, cartoonist Charles Schultz had Linus say, "There is no heavier burden than having great potential."
Many small- to mid-size biotechs fall into this trap. The scientists and entrepreneurs who build these companies are highly skilled in assessing the clinical value of their product. But a drug launch is its own complex, resource-intensive process requiring a large headcount experienced in regulatory issues, market access, marketing, sales, medical affairs, communications, distribution -- you get the idea.
Occasionally, refusing to out-license to a pharmaceutical partner, or seek a collaborator, works out. But it usually extends the launch time dangerously. It also puts significant fixed costs on the books at a time when financial flexibility is greatly needed.
In the very worst cases, great and needed drugs remain where Acadia's drug is -- stuck. In Nuplazid's case, Parkinson's psychosis is a completely unmet medical need. Right now, the drug could be helping patients cope with a very difficult neurodegenerative disorder, and it has other potential applications as well, including Alzheimer's psychosis and psychiatry areas such as schizophrenia and bipolar mania.
Delays can't always be avoided with drug commercialization, but it's how delays are handled that makes the difference. Acadia has done two bailouts now, and it has yet to communicate to investors how it plans to get Nuplazid to market. Nor has it indicated how it is going to get its own house strategically in order -- meaning that, at the very least, it needs to put resources into finding a new CEO with commercialization experience.
Acadia has produced a drug for a needed indication, but it appears to lack the ability to take the strategic actions necessary to move to the next level. In terms of the company's investors, having this amount of difficultly getting together a regulatory review doesn't bode well for Nuplazid's future commercialization.
But here's the broader lesson to learn: Biotechs achieve greatness with exuberance, not with excuses, and with leaders who don't try to retain full control when it's not in the best interests of the company's future. It's best to avoid these companies that are simply not built to last.