Investors Note Acadia Pharmaceuticals' Late Stage Progress

Acadia Pharmaceuticals (NASDAQ: ACAD) has pulled back only slightly after pushing new highs on the prospects of its flagship Parkinson’s Disease Psychosis treatment “Pimavanserin”, which is now undergoing phase III trials. The development of pimvanserin also includes a program for schizophrenia and Alzheimer’s disease, which have progressed into phase II trials.

Though our knowledge of structure and location of neurotransmitter receptors is incomplete, Acadia has developed a molecule that is able to block the activity of receptors that are suspected links to certain psychiatric disorders. The market potential for the treatment of these disorders, on paper, looks enormous. Take Abilify (Aripiprazole), which now generates around $5.5 billion in annual revenue for Bristol Myers Squibb (NYSE: BMY) as a treatment for schizophrenia (and as a secondary medication for more common disorders like manic depression).

Pimavanserin is an inhibitor of a certain class of serotonin receptors (which means that it inhibits the normal biochemical activity of serotonin in certain areas), and may have diverse applications like many of the blockbuster drugs that are generating billions every year. Pimavanserin was specifically tailored to be a potent inhibitor of serotonin receptor 5-HT2A, which is a specific receptor in the brain that is thought to play a vital role in patients that experience psychosis. The 5-HT2A receptor was originally known for being the target receptor of hallucinogens like LSD, but contemporary studies have noticed biochemical downregulation of 5-HT2A under the effects of classical antipsychotic medications. In simpler terms, we saw traditional antipsychotics inhibit the activity of 5-HT2A, which leads us to believe that direct inhibition of 5-HT2A might work as an unconventional antipsychotic treatment.

At first glance, Pimavanserin now sounds incredible to investors, because an older (which implies “inferior” in some cases) compound like Aripiprazole has the capacity to generate $5.5 billion a year. ACADIA’s market capitalization, being about $140 million, would probably be undervalued if Pimavanserin could manage just 3 or 4% of Abilify’s sales. Unfortunately, looking at past examples, you can see that even small percentages of big pharma’s market share in anti-psychotics are very hard to grab. This is also assuming that Pimavanserin, or any other competing drug, would be approved by the FDA in the first place.

Even though the antipsychotic drug market has ballooned to an astounding $20+ billion in annual sales this year, the presence of the big pharmaceutical companies, with their enormous marketing budgets, can prevent most competition from getting any profit whatsoever in the development of antipsychotics. Taking this obstacle into account, we are now looking at pimavanserin with healthy skepticism.

To add more perspective, we go back to pimavanserin’s biggest blunder:

In 2009, pimavanserin failed to meet the primary endpoint in its first pivotal phase III trials which immediately sent shares of ACAD into a violent selloff. The primary endpoint for the study was a statistically significant change in the mean of SAPS (Scale for the Assessment of Positive Symptoms) scores from baseline. What wasn’t really conveyed in the headline was the fact that the 40 mg pimavanserin arm (the group with the highest dose) did outperform on the SAPS, but it wasn’t by enough.

The new phase III trial has been tweaked to highlight differences between the placebo and pimavanserin arms, and should address other issues that may have tampered with the trial’s outcome. We are obviously expecting pimavanserin to meet its primary endpoint this time. In addition to that, we are going to see the conclusion of pimavanserin’s phase III safety study in December 2012, which paves the way for an NDA submission in 2013.
At this point, the big question we want to ask is whether or not pimavanserin is going to sell in the even that it does hit the market. Is there another “inverse 5-HT2A agonist” that would directly threaten pimavanserin?

I did find a few molecules that are blocking 5-HT2A receptor, but there aren’t any other marketed (or developing) inverse agonists for 5-HT2a receptors other than an interesting molecule called Nelotanserin, which was a failed insomnia drug that was abandoned in 2008 by Arena Pharmaceuticals (NASDAQ: ARNA), and another failed sleeping pill called Ciltyri (eplivanserin) which was started and abandoned by Sanofi Aventis (NYSE: SNY). Pimavanserin, as an inverse agonist (which does a little more than inhibit its targeted receptor and actually triggers an “opposite response”) could have some niche potential when it has to compete for the treatment of schizophrenia and Alzheimer’s disease psychosis.

The most important aspect of pimavanserin’s appeal, by far, is its potential as a treatment for Parkinson’s disease psychosis (PDP). The Parkinson’s Disease Foundation provides some eye-popping incidence statistics for Parkinson’s Disease, with estimates of 7-10 million affected worldwide and about 60,000 new diagnoses each year in the United States alone. If we take a very conservative chunk (maybe 500,000) and multiply by the NIH’s 40% estimate of Parkinson’s patients affected by PDP (instead of Acadia’s looser 60% estimate), we have 200,000.

To account for off-label substitutes and untreated people, we’ll cut that population. If the average Parkinson’s patient spends about $2,500 a year on medication, we are looking at a fair, conservative estimate $250 million/year market for medications. If pimavanserin can manage an FDA approval, that implies at least $5/share for ACAD in a rational market. After approval, if pimayanserin had the chance to saturate the broader PDP market while taking market share from off-label usage of other antipsychotics, we’d see plenty of room for additional upside.