ACADIA Pharmaceuticals Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. ACADIA is a biopharmaceutical company focused on central nervous system disorders. NUPLAZID (pimavanserin), approved in the U.S. for Parkinson’s disease psychosis (PD Psychosis), was its only marketed product.
Key financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue, all NUPLAZID product sales | $58.3m | $35.6m | $164.2m | $81.3m |
| Cost of product sales | $3.8m | $2.1m | $9.6m | $6.6m |
| Gross margin on product sales | About 93% | About 94% | About 94% | About 92% |
| Research and development | $53.1m | $36.4m | $139.0m | $106.0m |
| Selling, general and administrative | $61.1m | $61.6m | $191.5m | $188.4m |
| Operating loss | $(61.3)m | $(65.6)m | $(180.2)m | $(222.4)m |
| Net loss | $(62.1)m | $(65.2)m | $(179.7)m | $(220.5)m |
| Net loss per share, diluted | $(0.50) | $(0.53) | $(1.44) | $(1.81) |
Amounts are U.S. dollars; table amounts are millions except per-share data. Gross margin is calculated from reported net product sales less cost of product sales.
Liquidity, cash flow and balance sheet
- Cash, cash equivalents and available-for-sale investment securities totaled $214.1m at September 30, 2018, down from $341.3m at December 31, 2017. Cash and cash equivalents alone were $63.9m; investment securities were $150.2m.
- Operating cash used was $128.4m for the first nine months, compared with $187.9m in 2017. Investing activities provided $117.5m, largely reflecting net maturities of investment securities; financing provided $6.0m. Cash, cash equivalents and restricted cash declined by $4.9m to $67.0m.
- Total liabilities were $43.0m, including $41.8m current liabilities. The filing reports no debt balance. Stockholders’ equity was $223.4m; accumulated deficit was $1.4bn.
- Management stated existing cash, cash equivalents and investment securities should fund planned operations through at least the next 12 months, while noting significant future financing may be needed.
Material changes and business developments
- Q3 NUPLAZID sales rose 64% year over year; management attributed the increase primarily to higher average gross selling price and approximately 27% unit-sales growth. Nine-month sales approximately doubled, supported by higher price, approximately 50% unit-sales growth and a lower sales-allowance rate.
- R&D expense increased, driven by pimavanserin clinical programs and the $10.0m upfront payment for trofinetide rights. The Neuren license provides exclusive North American development and commercialization rights for trofinetide in Rett syndrome and other indications; Neuren may receive up to $455m in milestones plus tiered, escalating double-digit royalties.
- October 2018 brought positive top-line results from the Phase 2 CLARITY study of pimavanserin as adjunctive treatment for major depressive disorder. ACADIA planned to meet with the FDA and initiate a Phase 3 program in the first half of 2019. It also planned a Phase 3 trofinetide study in the second half of 2019; ENHANCE-1 schizophrenia Phase 3 top-line results were expected mid-2019.
- The FDA approved 34 mg capsule and 10 mg tablet formulations of NUPLAZID in June 2018. The capsule provides the recommended daily dose in one capsule; the 10 mg tablet is for patients taking strong CYP3A4 inhibitors.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. ACADIA expected continued net losses for at least the next few years and substantial R&D spending, including post-marketing studies and development of pimavanserin and trofinetide.
- Key risks include dependence on NUPLAZID commercialization; safety perceptions, boxed-warning concerns, reimbursement and pricing pressure; clinical and regulatory uncertainty; and potential need for additional financing, which may dilute shareholders or require program reductions.
- In September 2018, the company received a Department of Justice civil investigative demand seeking documents and information about NUPLAZID sales and marketing. ACADIA said it was cooperating; timing and outcome were uncertain.
- Three putative securities class actions filed in 2018 following negative publicity about NUPLAZID allege misleading statements about safety and regulatory scrutiny. The company could not estimate potential losses and had not accrued a litigation amount beyond ongoing legal fees.
- The FDA stated in September 2018 that its review of reported deaths and serious adverse events identified no new or unexpected safety findings and that NUPLAZID’s benefits continued to outweigh its risks for its approved PD Psychosis use. Required post-marketing studies remained ongoing.
- Other notable items: ACADIA recorded a $2.0m nine-month loss on its Neuren strategic equity investment; entered a facility lease expiring in January 2026 with $8.5m of estimated minimum payments; and disclosed that its CFO left in October 2018. Management reported effective disclosure controls at quarter-end.
Important facts for investors to verify
- Whether NUPLAZID sales growth, pricing and unit demand continue, and how rebates, Medicare discounts and other sales allowances affect net revenue.
- Progress, costs and results of required safety studies and the dementia-related psychosis, schizophrenia, depression and trofinetide development programs.
- Developments in the DOJ investigation and securities litigation, including any change in potential financial exposure or product-label implications.
- Cash consumption, the stated 12-month funding horizon and whether additional capital is required.
- Potential financial effects of Neuren milestones and royalties, and the company’s ability to meet its announced clinical timelines.