After years of dismay, Acadia Pharmaceuticals' (NASDAQ: ACAD) long-term shareholders have a new reason to cheer for the company's only drug, Nuplazid. Successful results from a dementia-driven psychosis study recently added to gains fueled by better-than-expected Nuplazid sales in the second quarter.
From the day the FDA gave Nuplazid a green light to treat Parkinson's disease-associated psychosis in 2016 until the day before Acadia announced success with dementia-driven psychosis, the stock had fallen 26%. Thanks to a surprise success in a pivotal study with different forms of dementia, including Alzheimer's disease, the stock shot up 63% in a single day.
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Nuplazid's latest pivotal trial success will probably lead to a huge expansion of its addressable patient population in 2020 and send sales rocketing higher.
Can Nuplazid perform well enough to drive Acadia's recent $5.6 billion market cap even higher? Let's have a closer look to find out.
A much larger population
Around 60,000 Americans are diagnosed with Parkinson's disease each year, and 50% to 80% of them experience dementia at some point during their disease. Around half of the people with dementia caused by Parkinson's will be hobbled by debilitating delusions and hallucinations during the course of their disease. In other words, there just aren't a lot of patients out there capable of getting Medicare to pay for Acadia's only drug.
Each year in the U.S., a whopping 485,000 older adults develop Alzheimer's disease, and up to 70% of this group eventually develop delusions, such as a sudden belief that their house isn't theirs or that their caregiver is a clever imposter.
The Harmony study enrolled patients with Alzheimer's and four other types of dementia. Although Alzheimer's is responsible most of the time, it isn't the only type of dementia that can detach people from reality. For example, around 80% of people with Lewey body dementia experience visual hallucinations. At the moment there are already around 1.2 million patients in the U.S. diagnosed with dementia-related psychosis.
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Winners quit early
Physicians have known for a long time that atypical antipsychotic drugs are generally more effective and more easily tolerated than typical antipsychotics, but none have been approved to treat psychosis caused by any form of dementia except Parkinson's disease.
In late 2017, Acadia began a pivotal study named Harmony that independent data monitors halted early. If you're new to the world of biotech stocks, stopping early might seem like a disaster, but it's really the opposite. That's because independent data monitors know which patients received Nuplazid and which ones were getting a placebo. During a planned observation partway through the trial, the monitors measured a benefit strong enough to be nearly certain that it wasn't random chance.
A label upgrade?
Atypical antipsychotics have been used to treat patients with dementia-driven psychosis for years, but they're also known to disrupt the normal rhythm of the heart. Nuplazid's prescribing label contains a dreaded black box warning that tells physicians that elderly patients with dementia-related psychosis were 1.6 to 1.7 times more likely to die during clinical trials with atypical antipsychotics than patients in different placebo groups.
Immediately below the increased risk of death warning is a clear reminder that Nuplazid is not approved to treat psychosis caused by anything but Parkinson's. Physicians can prescribe Nuplazid to patients with psychosis related to any dementia they want, but ignoring a black box warning usually isn't a great career move.
If the FDA grants a label expansion to treat the larger population of older adults with dementia-driven psychosis, Nuplazid's not-approved warning should disappear -- giving sales the boost they need.
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Reasons to wait
While it looks like annual Nuplazid sales have a chance to grow from $224 million last year to more than $1 billion by 2023, that success has already been baked into the price. That means Acadia shares will plummet if attempts to expand Nuplazid's patient population are stalled for any reason.
Acadia finished June with $382 million in cash and securities after burning through $140 million during the first half of the year. At this rate, Acadia will probably need to hold another dilutive share offering before the FDA officially begins a months-long review.
Stay patient a little longer
There's still a lot that can get in the way of Nuplazid before it has a chance with a larger population, and it's probably best to wait for more information or a more reasonable valuation. Acadia hasn't shared any details from its latest clinical victory, so investors should at least wait for the company to present the results at an upcoming scientific conference.
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