Why Is Acadia Pharmaceuticals (ACAD) Stock Down 33% Today?

Editor’s note: This article was updated on June 22 to correct that the FDA’s advisory committee voted against Nuplazid on Friday, June 17. 

  • Acadia Pharmaceuticals (ACAD) announced Friday that the U.S. Food and Drug Administration’s (FDA) advisory committee voted down its lead drug candidate.
  • The company’s Nuplazid treatment for Alzheimer’s-related psychosis will likely not be approved.
  • About a third of the company’s market capitalization has dissipated on the news.
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Today’s broader market recovery is a welcome sign for investors, following weeks of intense selling pressure. But not all stocks are feeling the love. Rather, investors in Acadia Pharmaceuticals (NASDAQ:ACAD) are feeling pain following a more than 30% drop in ACAD stock.

This afternoon’s move comes after an FDA panel voted down the company’s Nuplazid Alzheimer’s psychosis drug. A treatment for hallucinations tied to the disease, Nuplazid is one of its lead drug candidates. In response, the market has shaved approximately $1 billion off Acadia’s $3 billion valuation (as of yesterday).

Apparently, a lot was riding on this key drug. Although the FDA has been in some hot water for previous approvals of Alzheimer’s treatments, investors appear to have been pricing in a rather bullish argument for Nuplazid.

Let’s dive into what to make of the FDA announcement and the drop in ACAD stock.

ACAD Stock Plummets on Thumbs Down From FDA Committee

On Friday, the Psychopharmacologic Drugs Advisory Committee voted down Acadia Pharmaceutical’s Nuplazid drug in a 9-3 vote, following a “lengthy discussion.” The panel’s decision was based on a lack of evidence supporting the treatment.

Of course, the FDA doesn’t necessarily need to follow the panel’s recommendation. So, the drug is not officially out of the picture and there is a small chance for approval. However, in most cases, the FDA tends to side with the panel, meaning the market isn’t assigning Nuplazid much of a probability of success.

Some on the panel said they would like to see a “randomized study” of the drug in Alzheimer’s patients. Others suggested that the inclusion of Parkinson’s patients in the study could have “skewed the results.” Accordingly, with additional studies, the drug could be able make a comeback.

However, with more studies comes additional cost and an elongated timeline. In this market, that isn’t going to be viewed positively. This all makes ACAD stock difficult to invest in, even at these lower levels.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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