Piper: July 12, 2004 ACADIA Pharmaceuticals
Outperform Volatility: High
Initiating Coverage With An Outperform Rating
Shares Out (mil): 16.8
Market Cap. (mil): $100.8
Book Value/Share: $3.05
Cash Per Share: $2.91
* Emerging CNS Franchise. ACADIA is developing small molecule drugs to treat central nervous system (CNS) disorders. CNS therapeutics already represent large and growing markets; however, we believe new drugs could offer breakthrough therapies.
* Potential Blockbuster in Schizophrenia. ACP-104 is the major metabolite of clozapine, providing an established safety profile and a clinically validated mechanism of action. We look for ACADIA to initiate 4 Phase II trials
of ACP-104 this summer and potentially advance the drug into Phase III trials in 2005.
* Adjunctive Anti-Psychotic Therapy. ACP-103 is a specific inverse agonist of the 5-HT2Areceptor. ACADIA is evaluating whether ACP-103 reduces side effects caused by L-dopa therapy for Parkinson's disease in a Phase II trial that should be completed this year. We also look for ACP-103
to advance into Phase II trials this summer as an adjunctive therapy for schizophrenia.
* Successful Collaborations with Allergan. ACADIA has entered into three productive collaborations with Allergan.
We look for Allergan to advance two neuropathic pain drugs into the clinic this year, advancing one of these into Phase II trials in 2005, and potentially a drug for glaucoma (AC-262271) in the future.
* Powerful Discovery Platform. Importantly, all of the drugs
highlighted above were discovered using ACADIA's proprietary chemical-genomics platform. ACADIA has a robust pipeline of preclinical programs that could yield future drug candidates.
* Cash through End of 2005. As a result of its successful IPO in May, we believe ACADIA has cash through year-end 2005, but will have to raise additional funds. New collaborations could extend the cash further.
INVESTMENT RECOMMENDATION:
We are initiating coverage on ACADIA with an Outperform rating and 12-month price target of $11 per share. We project ACADIA's enterprise value should should increase to $180 million based on its clinical pipeline, supporting a market cap of $200 million. We look for ACADIA to create value by conducting three Phase II trials, filing two INDs with Allergan, and potentially entering into new collaborations.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Among the risks associated with shares of ACAD are those typical with all drug discovery companies including developmental, clinical, and regulatory risks, particularly in CNS. ACP-103 and ACP-104 could fail in clinical trials. ACADIA may not enter into new collaborations or achieve milestones in existing alliances. The company will require additional funding. ACADIA could face future unforeseen litigation that could adversely impact business.
COMPANY DESCRIPTION: ACADIA Pharmaceuticals is a biopharmaceutical company located in San Diego developing novel small-molecule drugs to treat CNS disorders. The company's lead drug is ACP-103 in Phase II trials for Parkinson's disease. ACADIA should also commence Phase II trials of ACP-103 and ACP-104 for schizophrenia soon. Partner Allergan should advance two pain drugs into the clinic this year.
ACADIA is a biopharmaceutical company that is developing small-molecule
therapeutics for the treatment of central nervous system (CNS) disorders.
CNS already represent large and growing markets; however, we believe new
drugs could offer breakthroughs in treatment.
* Parkinson's disease affects over 1.5 million Americans, which
should increase in coming years as the U.S. population ages.
* Parkinson's disease costs the U.S. healthcare system $5.6
billion annually with drug sales of $2 billion.
* Approximately 1% of the population develops schizophrenia with
over 2 million Americans and 25 million people worldwide
currently affected.
* In 2003, there were several blockbuster schizophrenia
therapies that achieved over $1 billion in sales including
Seroquel, Risperdal, and Zyprexa.
* The total schizophrenia market was over $12 billion last year.
ACADIA currently has three clinical programs based on two proprietary
drugs. The company's lead drug is ACP-103, a potent and selective inverse
agonist to the 5-HT2A receptor. ACP-103 is currently in Phase II trials
for treatment-induced psychosis in patients with Parkinson's disease. We
also look for the company to advance ACP-103 into Phase II trials for a
second indication as adjunctive therapy for schizophrenia this summer.
ACADIA is also developing ACP-104, the major metabolite of clozapine , for
improved cognitive benefit in the treatment of schizophrenia. We expect
the company to advance this drug into multiple Phase II trials this year
and potentially into Phase III trials in 2005. If successful, this drug
could have blockbuster potential.
ACADIA continues to work closely with Allergan having entered into three
collaborations since 1997. We look for Allergan to advance two compounds
into the clinic for neuropathic pain this year (AGN-XX/YY) and potentially
advance one of these into Phase II trials in 2005. In addition, Allergan
has selected AC-262271 as a preclinical candidate for glaucoma. Each of
these areas represents large, growing, unmet medical needs with
blockbuster market opportunities.
* Neuropathic pain is a chronic condition that represents a
clear unmet clinical need.
* Last year, Pfizer's Neurontin, the only currently approved
therapy, generated sales of $2.7 billion.
* Glaucoma is the leading cause of blindness affecting 3 million
Americans and 65 million people worldwide.
ACADIA has assembled a strong team of industry-experienced executives and
world-class advisors to direct the development and commercialization of
its programs. Importantly, all of these drugs and clinical candidates
highlighted above were discovered by ACADIA's proprietary chemical
genomics platform. Core to this approach is the R-SAT functional cell
assay system focusing on the GPCR and nuclear receptor gene families.
We are initiating coverage on ACADIA with an Outperform rating and 12-
month price target of $11 per share. We project ACADIA's enterprise value
should grow to $180 million by mid-2005, supporting a market cap of $200
million. This projected market capitalization is in line with the
company's CNS peer group. We look for ACADIA to create value by conducting
three proprietary Phase II trials, partner Allergan filing two INDs, and
ACADIA potentially entering into new collaborations. ACADIA completed its
IPO on May 26, 2004 raising cash of $35 million, which should last through
year-end 2005.
EXPECTED UPCOMING MILESTONES:
* Commence four Phase II trials of ACP-104 in schizophrenia to evaluate
safety and preliminary efficacy data; potentially advance into Phase III
in 2005.
* Complete on-going Phase II trial of ACP-103 in Parkinson's disease by
year-end.
* Initiate Phase II trials of ACP-103 in schizophrenia.
* Allergan should file two INDs (AGN-XX/YY) this year for neuropathic pain
and potentially advance one of these into Phase II trials in 2005.
* Allergan may also file an IND on AC-262271 in glaucoma in the future.
* Potentially enter into additional drug discovery and development
collaborations.
ACADIA'S TARGET MARKETS AND CLINICAL PIPELINE
PARKINSON'S DISEASE
Parkinson's disease is a chronic and progressive degeneration of dopamine-
producing neuronal cells in the brain. Dopamine is a neurotransmitter that
signals from the substantia nigra to the corpus striatum-- parts of the
basal ganglia that are responsible for directing motor activity.
Parkinson's Disease causes a loss of muscular control resulting in tremor
(trembling of hands, arms, legs, jaw, and face), rigidity (stiffness of
limbs and trunk), bradykinesia (slowness of movement), and postural
instability (impaired balance).
As dopamine-producing cells die, the neurotransmitter signals become
weaker, resulting in over activity and misfiring of the striatum. Research
indicates that patients who develop Parkinson's disease may lose 80% or
more of the dopamine producing cells. The cause of cell death is not
known, but basic research continues so that we may better understand this
unmet medical need. Various hypotheses exist including neuron damage by
oxidative free radicals, damage from environmental toxins, a genetic
defect in the gene for the alpha-synuclein protein, or even as a part of
the normal aging of dopamine producing cells.
The National Parkinson Foundation estimates that Parkinson's disease
affects 1.5 million Americans. Since Parkinson's disease is most prevalent
in the elderly, it is widely believed that the affected patient population
will increase in coming years. Parkinson's disease represents a
significant expense to the U.S. health care system costing an estimated
$5.6 billion annually. Parkinson's drugs already represent a large market
with annual sales of greater than $2 billion worldwide.
There are no cures for Parkinson's disease. The current gold standard is
levodopa (L-3,4-dihydroxyphenylalanine) or L-dopa therapy. Levodopa is
essentially a precursor molecule to dopamine that can cross the blood
brain barrier and is used by the body to produce dopamine. (Dopamine
itself is not administered, as it cannot cross the blood brain barrier.)
Levodopa is often given with carbidopa as sinemet , which delays the
conversion of levodopa to dopamine until it crosses the blood brain
barrier. This combination makes the levodopa therapy more effective with
fewer negative side effects. Also, a new drug called tolcapone, when taken
with sinemet, prevents the breakdown and metabolism of levodopa, thereby
extending therapeutic benefit.
L-dopa therapy does enable Parkinson's patients to regain motor skills and
live normal, productive lives. Unfortunately, levodopa does not slow the
progression of Parkinson's disease and is often associated with side
effects such as nausea, vomiting, hallucinosis, and psychosis, as well as
dyskinesia (uncontrollable movements of the limbs characterized by
twitching, nodding, and jerking). According to a 1983 study by Stocchi et
al , dyskinesia can affect over 75% of patients within five years of L-
dopa therapy. Further, long-term use of levodopa can result in a "wearing-
off" effect where the efficacy and duration of therapeutic benefit
diminishs. This often requires increased concentrations of levodopa
therapy and thus more severe side effects as well.
ACP-103: Treatment-Induced Dysfunction in Parkinson's Disease
ACP-103 is a small molecule drug designed to help Parkinson's patients
deal with the dose-limiting side effects from levodopa therapy. ACP-103 is
a selective 5-HT 2A inverse agonist that blocks the activity of the 5-HT
2A receptor, which responds to the neurotransmitter serotonin ( Note: 5-HT
= serotonin ). 5-HT receptors are a part of a family of receptors
including 5-HT 1 through 5-HT 7 and multiple respective subtypes (A, B, C,
etc.). It is believed that the 5-HT 2A receptors play a role in the
control of the voluntary movement of smooth muscle cells and in the
regulation of psychosis as found in schizophrenia. Parkinson's results in
over-activity of the basal ganglia and thus inhibition of 5-HT 2A
receptors may help control the involuntary movements associated with
dyskinesia and psychosis from levodopa therapy.
ACADIA's studies have demonstrated that the generic drug clozapine , which
is known to block the 5-HT 2A receptor, appears to reduce the side-effects
of dopamine replacement therapy without increasing motor dysfunction. ACP-
103 is selective in that it only targets 5-HT 2A receptors and does not
interfere with any of the dopamine receptors in the brain. Thus, ACADIA
believes that ACP-103 may treat the psychosis, hallucinations, and
dyskinesias that result from levodopa therapy without disrupting the motor
control benefit of L-dopa itself. The compound appears to be active in
animal models of psychosis and dyskinesia. If successful, ACP-103 will
prove to be a good candidate for adjunctive therapy by allowing for higher
doses of levodopa.
ACP-103 is currently in a multi-center, double-blind, placebo controlled
Phase II trial to examine the drug's ability to treat side-effects from
levodopa therapy without decreasing motor function. The trial is taking
place at 11 centers across the United States and seeks to enroll 60
patients. Each Parkinson's disease patient will receive either ACP-103 or
placebo once-a-day for four weeks. Patients will be evaluated based on
standard tests to measure hallucination, psychosis, and dyskinesia. We
expect this trial to complete this year and look for data to be presented
in 2005. If successful, we look for ACADIA to advance ACP-103 into Phase
III Parkinson's disease trials to support regulatory filing with the FDA.
ACADIA has already completed several trials of ACP-103 including a Phase
Ib/IIa trial, two Phase I safety trials, and a dose-receptor occupancy
study. Most recently, the Phase Ib/IIa trial was completed in February
2004. Twelve Parkinson's patients were administered either 25mg or 100mg
of ACP-103 once-a-day for 14 days. The study demonstrated that ACP-103
appears to be safe and well tolerated with no decline in motor ability. In
a subset of patients who exhibited treatment-induced dyskinesia, ACP-103
appeared to reduce symptoms. We do believe this trial provides a strong
clinical rationale for success in the on-going Phase II trial.
A study at the Karolinska Institute in Sweden used Positron Emission
Tomography (PET) to examine the occupancy of 5-HT 2A receptor binding
sites by ACP-103. The study evaluated single doses of 1mg, 5mg, and 10mg
of ACP-103 and demonstrated sufficient receptor occupancy for therapeutic
effect.
Two Phase I trials were completed in 2003 to examine the safety,
tolerability, and PK of ACP-103 in 49 healthy volunteers. Patients in the
single-dose cohort received 20mg-300mg of ACP-103, while those enrolled in
the multiple dose-escalation trial received three doses from 50mg-150mg
delivered once daily for 14 days. Results from this study indicated that
ACP-103 was safe and well-tolerated, with no serious adverse events.
Further, PK analysis suggests that ACP-103 has a half-life sufficient for
once-daily dosing. |
