Why Acadia Is A Promising Investment

Acadia Pharmaceuticals (ACAD) announced the results of the phase III trial of its drug "Pimavanserin" in treating patients with Parkinson's disease psychosis, or PDP. In this pivotal study, Pimavanserin achieved both the endpoints demonstrating significant reduction in psychosis and maintaining the motor control in patients with PDP. After 43 days of treatment, 37 percent of patients have reported vast improvement on a scale of psychotic symptoms compared to 14 percent of those who were treated with placebo.

Parkinson's disease is a disorder that disturbs the movement and balance in a patient. In this disease, patients experience abnormalities such as shaking, stiffness, slowness of movement, and instability, while in psychosis, a patient may experience symptoms such as hallucinations and non-bothersome illusions.

Market opportunity for Pimavanserin in PDP

PDP is the 14th leading cause of death in the U.S. Approximately one million people are affected with the disease, and around 60,000 new cases are expected to be diagnosed each year in the U.S. Roughly six million people worldwide suffer from this mental condition. 60 percent of patients with Parkinson's disease develop the symptoms of PDP.

The study data indicates that Pimavanserin has a meaningful clinical benefit in patients with PDP and can be an important drug for improving the patient's condition. As there is no FDA approved therapy for the treatment of PDP, I expect the positive outcomes from Pimavanserin trial studies will expedite its regulatory approval. Further looking at this trial phase results, the FDA has invited the company to file the New Drug Application, or NDA, for Pimavanserin. And the FDA is expected to declare its decision regarding approval in next 12 to 18 months.

Pimavanserin up for Alzheimer's disease psychosis

Acadia initiated the phase II feasibility trial, the "019 Study," which is a randomized, double blind, placebo-controlled study that examines the efficacy and safety of Pimavanserin in about 200 patients with Alzheimer's disease psychosis, or ADP. Around 40 to 50 percent of Alzheimer patients are affected with psychosis. This disease is the sixth leading cause of death in the U.S., and more than 5 million U.S. residents suffer from it in 2013.

Opportunity in Schizophrenia

Acadia also has a great opportunity to treat patients suffering with schizophrenia, or SZ. In a phase II study for treating SZ, the company evaluated the efficacy of Pimavanserin in combination with "Risperidone", an anti-psychotic drug. It has demonstrated that this combinational therapy and a low sub-therapeutic dose of Risperidone provided a superior safety and efficacy profile comparable to a high standard dose of Risperidone, significantly reducing motoric symptoms as well as side effects. By evaluating these factors, Acadia is planning to initiate additional studies with Pimavanserin for this indication.

Combining Pimavanserin with a low dose of Risperidone, may enhance efficacy with lesser side effects relative to existing antipsychotic treatments, thereby serving the SZ patients with an improved therapy and, potentially, related psychiatric disorders.

Growth factors

There is no drug approved by the FDA to treat ADP and the off-label use of current antipsychotic drugs leads to serious adverse events that affect mortality and cognitive decline in patients. After demonstrating the significant improvement in a phase III study for treating PDP patients, I believe this drug may demonstrate improvement in ADP patients as well. Acadia is in the development stage for Pimavanserin, and based on the positive results in the trial phases, expects to receive FDA approval comfortably. Further, by looking at the growth prospects in the PDP and the ADP market and, that there is no drug approved by FDA to treat these diseases, I believe that after its approval it may emerge as the blockbuster drug.

According to pharmaceutical analysts' estimates, Pimavanserin could generate revenue of $900 million in the U.S. for treating PDP patients. They had assumed Acadia, with Pimavanserin could grab one-third of the PDP market, and expect the price of Pimavanserin's to be around $6,000 per year, which is equivalent to other antipsychotic drug prices. I believe the company will have larger market opportunity in the ADP and SZ drug market, once Pimavanserin is approved for these indications.

In the competitive field

There is no drug approved for PDP and ADP, however, big players such as Johnson & Johnson (JNJ) and AstraZeneca (AZN) are offering antipsychotic drugs. JNJ was recently fined for illegal practices for wrongly advertising its antipsychotic drug Risperdal, which is manufactured by its subsidiary Janssen. JNJ has agreed to pay $2.2 billion for illegally advertising Risperdal to treat disorders such as Attention Deficit Hyperactive Disorder, or ADHD, autism, dementia in the elderly, and pediatric uses for children. This claim will affect the company's bottom-line, but with its strong presence in the drug market can still meet its 2013 earning guidance of $5.44-$5.49 per share.

On the other hand, the FDA recently denied an application for AstraZeneca's antipsychotic drug "Seroquel" patent extension. The FDA said that the test results haven't shown substantial changes to the medication's label to warrant the additional exclusivity. On November 29, the FDA approved Indian pharmaceutical company, Jubilant Life Sciences, to develop the generic version of Seroquel for the treatment of SZ and acute manic episodes associated with bipolar disorder. Jubilant is expected to launch its drug in the fourth quarter of 2014. On the other hand, I think AstraZeneca, with its wide drug portfolio and its strong drug pipeline, will develop new drugs, offsetting revenue loss due Seroquel's patent expiration.

Conclusion

In the third quarter ended in September 2013, Acadia had cash and cash equivalents of $196.18 million, while its research and development expenses were $7.25 million. In analyzing Acadia's current financial standing, the company can smoothly finance its research and development of Pimavanserin more effectively and treat all the three indications discussed above.

Investing in development -- stage pharmaceutical companies that have potential for future growth can create opportunities for investors. Every investor has the question, does the drug has the potential to generate returns or lead the company in the drugs market?

Acadia's Pimavanserin has demonstrated significant improvement in patients with PDP in the trial phase and is expected to report the same efficacy in the trial phase II for the treatment of ADP. Looking at the strong financial backing, Acadia is a promising investment.

Source: Why Acadia Is A Promising Investment

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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