What was a big win for Parkinson’s disease sufferers yesterday was an even bigger win for Acadia Pharmaceuticals (NASDAQ:ACAD) shareholders. The stock jumped 64%, all thanks to good news regarding its Phase 3 trials of a drug called pimavanserin.
In simplest terms, Acadia doesn’t have to perform the second Phase 3 trial that’s usually required by the Food and Drug Administration. The government agency has seen enough date for pimavanserin already and is anxious to meet the relatively unmet need for a Parkinson’s disease psychosis treatment (which afflicts more than half of all Parkinson’s patients).
But while exciting on the surface, as is so often the case in the world of biopharma, there’s more to the story … a reality that should land on the laps of Thursday’s euphoric ACAD fans.
Just so there’s no confusion, the FDA did not approve pimavanserin on Thursday. The agency simply bucked convention by saying Acadia Pharmaceuticals had already provided enough information on the drug to go ahead and file a new drug application. It’s entirely possible the Food and Drug Administration could still reject pimavanserin.
In fact, even if the drug is approved, it’s going to be a long while before it bears any revenue. The company still needs to wrap up the first (and now only) stage of Phase 3 testing. Realistically, Acadia won’t even officially request marketing approval until late 2014. It could take the FDA until late 2015 to make a decision.
Still, it’s easy to infer the Food and Drug Administration’s enthusiasm surrounding the drug, and in the world of biopharma, hope is as good as certainty.
The drug looks deserving of hope too. The most recent pimavanserin trial suggested the treatment was almost twice as effective at reducing hallucinations and other Parkinson’s disease-related psychosis symptoms compared to a placebo.
Problem: In two prior tests, pimavanserin didn’t significantly outperform the placebos’ results. It wasn’t until the current trial — after the company reworked the definition of ‘success’ — that the treatment started to look like it worth administering. One has to wonder if Acadia geared the trial’s design to show efficacy based on the results the company knew it would get after two previous rounds of testing.
Doing so doesn’t inherently mean the drug is useless; the FDA only cares that the drug in question is safe and more effective than alternatives. But, depending on how tweaked the new test was, the agency could end up not seeing a meaningful medical benefit.
Down the Road
With that being said, the Food and Drug Administration knows there’s a need for a dedicated treatment of Parkinson’s disease psychosis. Although there are some drugs known to help, their usage is “off label,” and questionably effective. Indeed, some studies suggest that 98% of prescriptions written to treat Parkinson’s disease psychosis have no meaningful effect whatsoever. Pimavanserin has a chance at changing that, just by being prescribed as intended.
The market’s likely to be more than big enough for Acadia too. An estimated 1 million Americans are afflicted with Parkinson’s, and about 60% of them suffer from Parkinson’s related psychosis. Based on those numbers, some experts feel the revenue opportunity lies somewhere between $300 million to $400 million per year.
Globally, there are approximately 8 million Parkinson’s patients, with the same 60% — about 5 million — of them dealing with delusion, hallucinations, and other Parkinson’s disease psychosis. Although Acadia is only looking for a United States approval right now, there’s little doubt that the company wants to cast a wide net. Taking the drug overseas (which is years down the road) could ramp the annual opportunity up to something near $3 billion. That’s not bad for a $1 billion organization with plenty more in the pipeline than just pimavanserin.
Bottom line? An approval of pimavanserin is more likely than a rejection. But, this isn’t about the efficacy of the drug … at least not yet.
For the time being, trading ACAD is nothing more than a game of psychological chess, where profits come from predicting what the masses will be thinking and doing next. One thing is for sure though — there’s no way the stock’s going to be able to hang onto its current price of $13.10 for two years while waiting on the FDA. Trade accordingly.
As of this writing, James Brumley does not have a position in any of the afore-mentioned securities.