citi: ACADIA Pharmaceuticals Inc (ACAD) Target price
Phase IIb Trial of ACP104 fails; Reducing Price Target to $4 change Y
Estimate change
* What's New - ACAD announced negative results from the Y
Phase IIb trial of ACP104, for the treatment of
schizophrenia. Both doses (100 mg and 200 mg doses of the
drug) failed to meet primary endpoints of antipsychotic
efficacy, as measured by mean change from baseline in the
Positive and Negative Syndrome Scale (PANSS) total score
versus placebo. Secondary endpoints were also failed. Dose
related adverse events included, increase salivation,
tachycardia and dyspepsia.
* ACP104 Program Discontinued - Management does not intend
to further pursue the ACP-104 program and will focus on
development of Pimavanserin and its partnership. Management
does not expect today's news to negatively impact the timing
of potential partnership for Pimavanserin.
* Changes to the Model - We have removed ACP104 revenue
estimates from our model. Our 2012-13 ESP estimates are
reduced to ($0.68) and $0.54, respectively, from $0.07 and
$1.43. Thus, our TP goes from $10 to $4.
* Next Catalysts - Phase III results for Pimavanserin in PDP
is expected in early 2009. The most important stock driver
this year will be its partnership.
* Conclusion(s) - For now, we maintain our Hold rating. We
note that the revenue potential from Pimavanserin (for both
Schizophrenia and Parkinson's Disease) is greater than that
of ACP-104 (peak 2014 sales potential of $789 vs. $614M,
respectively) and the stock could appreciate significantly
on news of partnership.
We rate ACAD Hold, Speculative risk (2S) with a 12 month target price
of $4. Acadia is a research-driven biopharmaceutical company focused
on the discovery, development, and commercialization of drugs for the
treatment of central nervous system disorders. The company's most
advanced product is Pimavanserin, a 5HT2A receptor inverse agonist for
schizophrenia co-therapy, Parkinson's Disease psychosis, and insomnia.
We believe successful Pimavanserin Phase II schizophrenia data with
Risperdal was promising and is reproducible, but we have concerns
about the clinical utility of the tested dose. In addition, the data with
Risperdal may not translate to other atypicals, which would command a
higher valuation for Pimavanserin.
Pimavanserin targets the underserved Parkinson's Disease Psychosis
(PDP) market where there is no FDA approved drug. Theoretically,
Pimavanserin should demonstrate a benefit in PDP, but other atypical
antipsychotics have had difficulty obtaining clinical success in trials.
V a l u a t i o n
Our 12-month price target is reduced to $4 from $10, and is derived
using a 26x P/E multiple on Acadia's 2013's fully taxed EPS estimate of
$0.54 (from $1.43 previously) and discounting back at 30% per year for
4.5 years. We believe ACAD should be given a similar multiple as the
peer group since we project it will attain profitability and join the ranks
of our comparison group. We acknowledge that significant divergences
amongst constituents of the peers exist. We believe 30%, which is in-line
with our base discount rate valuation chart, is a proper discount rate for
ACAD given that the company is enrolling one phase III trial in PDP.
There is significant downside risk if trials were to fail.
R i s k s
We believe a Speculative (S) risk rating for ACAD is appropriate given
the price volatility and risks associated with conducting Phase III trials.
We believe the most important near- to medium-term upside risks to our
target price consist of:
* Partnership/Acquisition - Acadia is seeking a partner for Pimavanserin.
The signing of a partnership with a large-scale company could result in
significant appreciation of the stock.
* Clinical success - The stock could experience appreciation if any of its
trials for Pimavanserin are positive.
We believe the most important near-to-medium downside risks to our
target price consist of:
* Clinical Risk - Although Pimavanserin did not demonstrate worsening
of motoric tolerability during the Phase II PD trial, this may not hold
up during a larger and longer Phase III trial.
* Partnership Risk - If a partnership is not announced in the next
quarter, it may indicate the company is unable to attract a strong
partner for Pimavanserin. This would generate downward pressure on
the stock.
* Secondary Offering - We believe ACAD will need to raise additional
cash in 2009 and 2010. If the company is unable to access the
capital markets they may not be able to finance their clinical
development programs or a commercial infrastructure. |
