ACADIA Pharmaceuticals Inc. (NASDAQ: ACAD)
ACADIA Pharmaceutics surged about 6% higher as investors revived the takeover chatter, citing the usual “unconfirmed sources” and tossing the $60.00 dollar a share acquisition price as a likely number that can seal a deal. The interested suitor is presumed to be Biogen (BIIB) with an outside chance Pfizer might try to break up the marriage with its own offer.
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What Does Allergan Have That BIIB May Want?
ACADIA is valuable to BIIB, and even Pfizer (PFE) for that matter, with the prize being NUPLAZID, a drug that treats psychosis that is associated with Parkinson’s disease. NUPLAZID was voted on favorably by an FDA advisory committee in March of this year receiving a vote of 12-2 for approval based on its trial results and believe that the drug can provide substantial benefit to patients that outweigh the risks associated to the treatment. NUPLAZID was quickly approved for patients in early May, becoming the first ever drug in the USA to be approved to treat Parkinson’s Disease related psychosis.
Now approved, NUPLAZID is targeting the four to six million people globally that are stricken by the disease, with about 40% of these patients suffering from the disease psychosis, often characterized by delusions and hallucinations. Since the approval, ACADIA has become the belle of the ball, holding onto an asset in NUPLAZID that is estimated to reach peak sales of over $3 billion dollars annually.
However, even with a blockbuster on its hands, investors quickly turned skeptical that the company would have success in getting physicians to prescribe the drug, causing an unexpected haircut of over 25% of ACAD’s market cap on the heels of the approval news. Subsequently, with such a prized asset in hand, activist investors and analysts are beginning to beat the drum for ACAD to monetize NUPLAZID, citing the company’s lack of experience in undertaking a massive commercial launch, and although NUPLAZID is the only approved drug to treat Parkinson’s related psychosis, doctors are prescribing other medications “off label” to treat many of the same symptoms. And if ACAD is able to monetize NUPLAZID, they can also sweeten the dowry by offering the Pimavanserin clinical program, which is also expected to address a multibillion dollar market to treat Alzheimer related psychosis.
With NUPLAZID Approved And Pimavanserin Likely To Follow, ACAD Is Interesting
The biotech space is a strange arena. In fact, many aspects of the market don’t make much sense any more. Nowadays, good news is bad, while bad news is good. It’s a conundrum that can make an investor unsettled enough to simply ask a company like ACAD to take the money and run. In the case of ACADIA, though, investors might have a valid point in pushing for a sale.
First, ACAD is hot right now and although the market is awaiting prescription figures on the initial marketing push for NUPLAZID, due in November, the risk/reward scenario is mixed. If the sales are weaker than expected, shareholders can expect an additional haircut on the share price. Or, if the numbers are strong and the company provides guidance that they will endure a long and ardent battle to market the drug against competitive products, the stock may also receive a haircut based on the learning curve that ACAD will undertake in pushing forward as a stand alone entity. It’s as though winning the FDA approval for NUPLAZID, and most likely for Pimavanserin, the ultimate play may be to seize on an opportunity to sell the assets to a larger player, reward shareholders adequately for their support and to allow the drugs to be marketed aggressively by the largest in breed pharmaceutical companies.
NUPLAZID also has the strictest of FDA labeling requirements, the Black Box warning, which alerts health care providers of the substantial risks associated with the drug, especially in older patients. Investors will find out in November whether the black-box warning had a substantial impact on sales. While some analysts regard the off-label prescriptions by doctors to treat similar symptoms of the psychosis as minimal, NUPLAZID does face some competitive headwind, and while NUPLAZID may eventually win over prescription writers as being a best in class option, if doctors can treat off-label to minimize some of the black-box risk in NUPLAZID, chances are that they may continue to do so.
Is Biogen The Right Suitor?
Biogen certainly has a strong focus in the neurological disease space, with trials running concurrently on products that may have a tough time making it through the approval process. Even if Biogen is successful in developing its pipeline that address psychosis complications for both Alzheimer’s and Parkinson’s Disease, it could take near a decade to actually get an approved product to market, and that is if the FDA regulatory hurdles were navigated though without tripping on some of the clinical data.
With Biogen already in the space with massive amounts of dollars already invested, and millions more expected to be invested in the psychosis related clinical trials, taking out ACADIA makes sense. It allows them to address a multi billion dollar market almost immediately, with the likelihood of the Alzheimer’s psychosis treatment with the Pimavanserin program not far behind, which can ultimately offer the security of actually selling product into a market in which they are already heavily invested and hedging a great portion of the risk associated in their current trials to treat Alzheimer and Parkinson’s related psychosis.
For Biogen, the acquisition of ACADIA is easily affordable and can be accretive to earnings and revenue quickly. Not only that, Biogen needs to do something to regain its footing after some disappointing sales and pipeline data reported in April of this year. Biogens key MS drugs are facing stiff competition and with the recent blow that its next generation MS drug has failed in a key clinical trial, the company needs to stop the bleeding quickly.
With biogen facing its own quagmire of investor uncertainly, they need to let investors know that they are not willing to actively watch sales in the MS market continue to erode without taking a proactive stance to reinforce sales in other indications within the company. Biogen has an ample war chest and an acquisition buys them some time to not only make money on one or two approved products, it can allow them to assess the need to spend valuable resources trying to advance their own psychosis therapies.
Should ACADIA Play Hard To Get?
I don’t think so. ACADIA has done well to get a Parkinson’s psychosis treatments to market, the first ever. And in doing so, they opened a Pandora’s box of uncertainty. Can they actually undertake the massive marketing endeavor on their own? Can they weather a lackluster stream of sales reports related to NUPLAZID as they work feverishly to educate doctors as to why they should treat patients with their drug or should they accept an offer, one that fully values the company and rewards its shareholders at a price level that reflects both the undervalued position they are in now and couple that with the premium that NUPLAZID and Pimavanserin deserve. At $60.00 a share, the price represents fair value plus a respectable premium and would most likely be appreciated by shareholders, when they compare it to their 52 week high of $43.30.
I like to tell the story of the entrepreneurial characters that I have seen actually die with blueprints in their pockets, unable to sell their product to a bidder because he valued his idea at a level that is extraordinarily unreasonable. It happens more times than not actually. Inventors, drug manufacturers included, hold onto pride when they enter into sales negotiations. While the buyer needs to make sure that all of the economies of scale work to advance the product, the seller only wants what he thinks his time and design is worth, regardless of what real time market data may reveal. And, as these entrepreneurial geniuses bounce from show to show, welcomed by many interested parties, the idea and value begin to crumble in his pocket.
ACADIA may have an opportunity to finally tear that paper up. They invented a novel treatment and it is the first and only drug approved to treat a certain indication. The drug has value, but it might take years to realize. Does ACADIA have the time and resources to battle through the competitive forces and become a lone wolf success story? Maybe.
But, in all likelihood, ACADIA has positioned itself to get its just rewards early and for investors who understand the battle that the company may face getting NUPLAZID mainstream, taking a well deserved paycheck now might make more logical sense.
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Kenny Soulstring is the Chief Strategic Analyst here at CNA Finance. For a limited time, his analysis is free to the masses. Get in while you still can by subscribing below!
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