2012-11-07 17:25:19 -

By Jason Napodano, CFA

When Acadia Pharmaceuticals (NASDAQ:ACAD) held its third quarter conference call
on Nov 5, 2012 (webcast link) management noted that top-line data from the
company's phase 3 trial, dubbed Study-020 (ClinicalTrial.gov
Identifier: NCT01174004) studying pimavanserin in Parkinson's disease patients
with psychosis is expected later this month. We suspect that will be the week of
November 26th.

In the past we've written extensively on the redesigns management has instituted
in the -020 trial versus the failed -012 and -014 studies. Our article from
January 2012, "Will Third Time Be A Charm For Acadia Pharmaceuticals?" provides
a good analysis of these changes.

A Little Background On PDP

Parkinson's disease psychosis, or PDP, is a debilitating psychiatric disorder
that occurs in up to 50% of patients with Parkinson's disease. In the U.S., we
estimate this is   500,000 patients. PDP is characterized by the presence of
hallucinations and delusions. Hallucinations are most common and are often
visual, but may also include somatic or other sensory phenomena. Delusions
commonly involve paranoia, and can be profoundly disturbing and debilitating.
PDP represents a major inflection point in the course of Parkinson's disease
progression, and is the number one driver of why patients enter nursing homes or
long-term care facilities.

PDP is associated with increased caregiver burden and increased mortality.
Currently, there are no therapies approved to treat Parkinson's disease
psychosis. We attended Acadia's Analyst & Investor Day on PDP back in May 2012
(webcast link). At the event, management had two prominent physicians and key
opinion leaders in Parkinson's disease treatment, Dr. Stuart Isaacson, M.D.,
Director of the Parkinson's Disease and Movement Disorder Center in Boca Raton,
Flordia, and Cr. Clive Ballard, M.D., Professor of Age Related Disease at King's
College London Institute of Psychiatry. Both doctors outlined the significant
challenges in treating PDP patients, and the medical need for a drug like
pimavanserin.

Specifically, both physicians and Acadia management believe that pimavanserin
has the potential to effectively treat Parkinson's disease psychosis without
impairing motor function, a major side effect of current off-label antipsychotic
use, and thereby significantly improving the quality of life for patients with
the disease.

Sizing Up Pimavanserin

The Parkinson's Disease Foundation estimates approximately one million Americans
living with Parkinson's disease, along with another 60,000 diagnosed each year
(source). Management at Acadia has cited studies noting between 40% and 60% of
these patients developing psychosis within five years of diagnosis of
Parkinson's disease. These numbers are in general agreement with what we were
able to find independently via medical journals (source, source).

Clinical management of PDP starts with primary prevention; but PDP progresses
rapidly as the Parkinson patient deteriorates, and often ends with the
undesirable use of atypical antipsychotics.


Prescription tracking data shows that half of Parkinson's disease patients are
taking antipsychotic agents to control PDP (source), which may lead to worsening
Parkinson's symptoms. A paper published by Dr. Laura Marsh, MD, in
Primary Psychiatry (2005;12(7):56-62) does an outstanding job of highlighting
the issues with the current treatment paradigm for PDP. From the paper:

Atypical antipsychotics with a low potential for inducing parkinsonism
(rigidity, bradykinesia, and tremor) are used in PD. Among those currently
available (clozapine, risperidone, olanzapine, quetiapine, ziprasidone, and
aripiprazole), only quetiapine and clozapine are consistently recommended.

Clozapine is currently the gold standard of antipsychotic agents in PD given its
demonstrated safety and efficacy in controlled trials without worsening
parkinsonian symptoms. Sedation or confusion can occur at low doses in this
fragile population and most patients respond to <50 mg/day, though some require
higher doses or an additional low dose in the mornings. The most common side
effects are sedation, orthostasis, confusion, and drooling. Motor fluctuations
worsen in some patients, but dystonia, dyskinesias, and tremor can improve.
Weekly phlebotomy is required to monitor for potential agranulocytosis. Any
inconvenience of this is offset by therapeutic benefits.

Quetiapine is a common first choice because it can be used without the risk of
agranulocytosis and weekly blood monitoring. However, quetiapine has not been
subject to controlled trials. Its safety and efficacy profile in open-label
studies is favorable, but inadequate symptom control or increased parkinsonism
or motor fluctuations can occur. Lower doses are used initially because patients
with hypotension or orthostasis may not tolerate higher doses. Sedation and
confusion are common side effects, but a recent open-label study showed improved
cognitive functioning on quetiapine.

For the reasons outlined above, we see pimavanserin as serving a fairly high
unmet need. We know of no other drug under late-stage development for PDP. We
are familiar with Addex Therapeutic's (OTC:ADDXF) dipraglurant for Parkinson's
disease Levodopa-Induced Dyskinesia (PD-LID) (see our analysis of dipraglurant
here), but pimavanserin could have meaningful market exclusivity upon launch. As
such, obviously depending on the results of the -020 trial, we think that Acadia
and its partner could capture up to 25% of the market. At a price similar
to antipsychotics, pimavanserin offers a $312 million U.S. opportunity.

$312 Million = 1 Million PD patients x 50% with Psychosis x 25% Penetration x
$2,500 per year.

Label Expansion Key To Sales Upside...

Beyond the initial indication in PDP, we believe pimavanserin has potential
utility in Alzheimer's disease psychosis (ADP), a disease with similar
manifestations to PDP, and as an adjunct therapy for the treatment of
schizophrenia.

The ADP market plays out in similar fashion to the PDP market, only potentially
five times as large. Statistics show the number of American's living with
Alzheimer's disease to be roughly 5.4 million (source), roughly 50% of which
will develop some form of psychosis as the disease progresses (source). In July
2012, management reported promising mechanistic data with pimavanserin in a
preclinical rodent model of the disease (press release). The data was published
in Behavioural Pharmacology (Price et al., "Pimavanserin, a 5-HT2A Receptor
Inverse Agonist, Reverses Psychosis-like Behaviors in a Rodent Model of
Alzheimer's Disease,") in July 2012. If pimavanserin is a $300+ million drug in
the U.S. for PDP, and management can show similar results in ADP, it might be a
blockbuster drug.

In March 2007, Acadia reported the results from a phase 2b trial studying
pimavanserin as an adjunctive therapy for the treatment of schizophrenia (press
release). Management recently published the full data from this trial in
Schizophrenia Research in July 2012 (download the publication). We see use of
pimavanserin as an adjunctive therapy as a small market. For the purpose of our
model, we've added in only $30 million in additional sales beyond PDP and ADP.

...And So is Partnering

Following the release of the top-line data from -020 in late November, we expect
management to do two things. Firstly, they will immediately begin working to
initiate the next study, -021. We expect many of the same sites will be used in
-021. Management may look to expand more in Canada for -021, but we do not
expect any significant enrollment outside of North America. Acadia remains
squarely focused on the U.S. market for pimavanserin, at least for now. Acadia
owns worldwide rights to the drug, including in China, India, and Japan, but for
now this all remains on the back-burner.

The second thing we expect, if the -020 trial is successful, is for Acadia to
quickly find a partner. We remind investors that Acadia was originally partnered
with Biovail on pimavanserin development prior to the failure of the -012 study.
Biovail paid Acadia $30 million upfront with the potential for $365 million and
15-20% royalties on sales back in May 2009 (press release). Acadia also had a
co-promotion option. Much of the back-end potential was based on expanding the
label into ADP and schizophrenia.

We think Acadia will be looking for a similar deal in early 2013. Management
believes that pimavanserin is a pipeline product, and ADP and schizophrenia are
as important to the future potential of the drug as the current plans in PDP.

What's It Worth?

Acadia is currently trading with a market capitalization of nearly $140 million
(using 56.6 million shares outstanding as of the Nov 5th Form 10Q filing). We
put together a 10-year discounted cash flow (DCF) model, which you can see here,
along with further discussion of where Acadia could go after its upcoming data.
Click below to continue reading.

See "Acadia's Value Heavily Dependent On Pimavanserin Data" in its Original
Form

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