Acadia Pharmaceuticals (ACAD - Get Report) secured its first-ever U.S. drug approval on Friday. The drug, Nuplazid, is also the first medicine approved by the U.S. Food and Drug Administration to quell hallucinations and delusions often experienced with people with advanced Parkinson's disease.
Yet, investors are shrugging off Acadia's good news. On Monday, Acadia shares opened higher, sank 5% and the rebounded to close up 2%. Tuesday, Acadia is down over 7% to $30.62, likely due to an analyst downgrade.
A number of factors help explain the less-than-celebratory reaction to Nuplazid's approval.
Nuplazid's approval was widely anticipated by the Street following the positive FDA advisory panel in April.
Acadia's market value was approaching $3.5 billion heading into the Friday FDA approval decision date. The stock market is forward thinking, which means investors not only anticipated Nuplazid's approval but had already given the company credit for sales not yet delivered. At Friday's close, Acadia's stock price had already doubled from its February low.
On a Monday morning call, Acadia cautioned investors to expect a "gradual launch" of Nuplazid -- which won't start until June. Acadia management is smart to downplay expectations for a rocket-like commercial launch but investors still dislike words like "gradual" when referencing drug launches.
The Parkinson's psychosis market is big enough for Acadia to garner $1 billion or more in Nuplazid sales but only if doctors get comfortable using the drug widely to treat delusions and hallucinations seen in their Parkinson's patients. That could take some time. Nuplazid, like other antipsychotics, carries a black box safety warning alerting doctors to the increased risk of death in elderly patients. Investors are willing to give Acadia market-value credit today for some Nuplazid sales but not $1 billion's worth -- not yet.
If you're thinking Acadia is a prime "short the drug launch" candidate, there are good reasons to tread lightly.
Baker Brothers Investments owns a big chunk of Acadia. Julian Baker sits on Acadia's board of directors, as does Baker Brothers partner Stephen Biggar. The most logical (and profitable) exit strategy for Baker Brothers is to push for an Acadia sale.
Acadia owns 100% of Nuplazid. An unencumbered, approved (meaning clinically de-risked) drug is a valuable asset. An unencumbered, approved central nervous system (CNS) drug like Nuplazid is both valuable and relatively rare. A number of Big Pharma companies already selling CNS drugs could find Acadia an attractive and profitable addition. Potential suitors include Japanese drug makers like Takeda and Otsuka, both with a reputation for bidding aggressively for U.S. drug assets.
Finally, there's Acadia's efforts to expand Nuplazid into the treatment of psychosis related to Alzheimer's disease to consider. This a high-risk, high-reward development program with a phase II study underway, results expected in the fourth quarter.
Alzheimer's is a very different disease from Parkinson's, so Nuplazid may not work. Any drug seeking an FDA label for Alzheimer's related psychosis will also have to be extremely safe. The risk of death already tied to Nuplazid (and other antipsychotics) makes it tough to handicap Acadia's chances.