Citi:ACADIA Pharmaceuticals Inc (ACAD)
2Q:08 Results; Restructuring and Additional Financing Secured
? Conclusion(s) — We maintain our Hold rating. We believe the stock is now in
an uneventful period. The next major catalyst and value-creating event for
Acadia (PDP Phase III data) is about a year away. The restructuring could
indicate that the company is not close to signing a partnership.
? What’s New — Acadia reported non-eventful 2Q08 financial results:
collaborative revenues of $0.17M compared to our estimate of $0.8M and
consensus estimate of $1.3M. ACAD reported 2Q08 EPS of ($0.49) compared
to our estimate of ($0.51) and consensus of ($0.46).
? Company to Restructure and Additional Financing Secured — By reducing
workforce, ACAD will now have the cash into 1H 2010. The company also
secured a committed equity financing facility with Kingsbridge with up to $60M
during the next three years.
? Pimavanserin Update — Data from its first Parkinson’s Disease Psychosis
(PDP) Phase III trial is expected in 3Q'09. We believe this potentially could be
a game changing event for ACAD as there are no approved therapies for PDP.
? Reducing Price Target to $3 — We have taken out royalty revenue due to our
lack of conviction for a partnership for Pimavanserin in schizophrenia cotherapy
and reduced our expense projections from restructuring. The resulting
PT is $3, based on 26x P/E multiple applied to 2013 EPS estimate of $0.35.
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.
Investment strategy
We rate ACAD Hold, Speculative risk (2S). 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.
Valuation
Our 12-month price target is $3 and is derived using a 26x P/E multiple on
Acadia’s 2013’s fully taxed EPS estimate of $0.35 and discounting back at
30% per year for 3.5 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.
Risks
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 |
