ACADIA PHARMACEUTICALS INC quarterly report, Q2 FY2019

ACADIA Pharmaceuticals Inc. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2019. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted. ACADIA is a CNS-focused biopharmaceutical company whose only marketed product was NUPLAZID (pimavanserin), approved in the U.S. for Parkinson’s disease psychosis (PD Psychosis).

Financial performance and liquidity

Metric	Q2 2019	Q2 2018	Six months 2019	Six months 2018
Net product sales	$83.2	$57.1	$146.2	$105.9
Operating loss	$(57.1)	$(64.1)	$(144.7)	$(118.9)
Net loss	$(54.9)	$(63.3)	$(140.2)	$(117.6)
Basic and diluted loss per share	$(0.38)	$(0.51)	$(0.97)	$(0.94)
Net cash used in operations	Not separately stated	Not separately stated	$(102.6)	$(86.1)

• Q2 product sales rose $26.1 million year over year, primarily on approximately 34% unit growth and a higher average gross selling price. Six-month sales rose $40.3 million, primarily on approximately 27% unit growth and higher average gross selling price.
• Cost of product sales was about 4% of net sales in both Q2 and the first half of 2019, versus about 6% and 5%, respectively, in the comparable 2018 periods. The filing attributes the improvement in part to 2018 inventory write-downs related to the capsule launch and, for the six-month comparison, higher average selling prices.
• Research and development expense was $67.3 million in Q2 and $120.2 million for the first half, up from $46.6 million and $85.9 million. Increases reflected trofinetide development and expanded pimavanserin clinical activity.
• Selling, general and administrative expense was $68.0 million in Q2, down from $69.5 million, but was $161.1 million for the first half, up from $130.4 million. The six-month increase primarily reflected marketing and charitable contributions, as well as personnel costs.
• At June 30, cash and cash equivalents were $74.4 million and available-for-sale investments were $307.5 million, totaling $381.9 million in cash, cash equivalents and investments. That total was down $91.6 million from December 31, 2018. Cash, cash equivalents and restricted cash at period-end were $79.2 million.
• Current assets were $436.9 million and current liabilities were $63.8 million. The balance sheet reported no borrowings or other debt; total liabilities were $72.0 million, including operating lease liabilities.
• Cash used in operations increased to $102.6 million in the first half, primarily due to higher marketing and clinical-study activity and charitable contributions, partly offset by increased revenue. Investing activities provided $33.4 million, principally reflecting investment-security maturities exceeding purchases; financing activities provided $8.8 million, mainly from employee equity issuances.

Changes, outlook and material developments

• ACADIA said cash, cash equivalents and investments were expected to fund planned operations through at least the next 12 months. It expected operating losses for the next few years and anticipated increased operating cash use as it funds NUPLAZID commercialization, post-marketing studies, pimavanserin development and trofinetide development. It may need additional financing; availability and terms are uncertain.
• Management planned to initiate a Phase 3 trofinetide study in Rett syndrome in Q4 2019. The Phase 3 CLARITY program for adjunctive treatment of major depressive disorder began in April 2019. The Phase 3 HARMONY study in dementia-related psychosis was ongoing; the filing does not provide a completion timetable.
• In July 2019, after the quarter-end, ACADIA reported that the Phase 3 ENHANCE schizophrenia study did not meet its primary or key secondary endpoint. It reported positive results on two measures of negative symptoms; top-line results from the Phase 2 ADVANCE study were expected around year-end 2019.
• ACADIA licensed North American trofinetide rights from Neuren in 2018. The agreement includes up to $455 million in potential development and sales milestones and tiered, escalating double-digit royalties; these are contingent payments, not current debt reported on the balance sheet.
• Adoption of the lease accounting standard in January 2019 resulted in recognition of operating lease assets and liabilities. At June 30, total operating lease liabilities were $11.2 million. A separate San Diego office lease with $53.7 million of minimum payments over an initial 10 years and 9 months had not commenced; commencement was expected around the first half of fiscal 2020.

Risks, contingencies and unusual items

• NUPLAZID was ACADIA’s sole commercial product, leaving revenue dependent on one product and its U.S. PD Psychosis market. The label carries a boxed warning concerning increased risk of death in elderly patients with dementia-related psychosis; the product is not approved for dementia-related psychosis unrelated to PD Psychosis.
• Post-marketing commitments remained relevant, including studies in PD Psychosis and predominantly frail and elderly patients. ACADIA warned that unfavorable safety or study findings could affect labeling, approval or commercialization.
• The company was responding to a Department of Justice civil investigative demand received in September 2018 concerning NUPLAZID sales and marketing. It said the response required considerable resources and the timing and outcome were uncertain.
• A consolidated securities class action alleging misleading statements related to NUPLAZID safety and business practices was pending. ACADIA had moved to dismiss, could not estimate a possible loss or loss range, and had accrued no amount other than ongoing legal fees.
• Medicare Part D coverage-gap changes increased the manufacturer discount from 50% to 70% for 2019. ACADIA noted potential effects on sales allowances and results; gross-to-net adjustments can fluctuate between periods.
• ACADIA registered for resale up to 40.2 million shares associated with the Baker Entities, approximately 28% of shares outstanding, and disclosed that substantial sales could pressure the share price. Common shares outstanding were 144.5 million at June 30; no preferred shares were outstanding.
• Other principal risks include clinical and regulatory failure, reimbursement and drug-pricing pressure, dependence on third-party manufacturers and distributors, potential dilution or difficulty raising capital, and the possibility that the company may never achieve profitability.

Important facts for investors to verify

• Whether NUPLAZID sales growth and unit demand continue, and how pricing, rebates, discounts and Medicare Part D exposure affect net revenue.
• Progress and outcomes of HARMONY, the CLARITY Phase 3 program, ADVANCE, trofinetide development and remaining NUPLAZID post-marketing commitments, including implications of the ENHANCE result.
• Cash burn, investment balances and financing needs relative to management’s stated funding horizon of at least 12 months.
• Developments in the DOJ investigation, securities litigation and any product-safety or regulatory updates concerning NUPLAZID.
• Timing and costs of the new office lease, potential contingent payments and royalties under the Neuren agreement, and any share sales under the Baker Entities registration.