ACADIA Pharmaceuticals Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 8, 2018. ACADIA is a CNS-focused biopharmaceutical company. NUPLAZID (pimavanserin), approved in the U.S. for Parkinson’s disease psychosis (PD Psychosis), was its only marketed product. Financial statements are unaudited.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net product sales | $57.1 million | $30.5 million | $105.9 million | $45.8 million |
| Cost of product sales | $3.6 million | $2.2 million | $5.7 million | $4.5 million |
| Research and development | $46.6 million | $34.2 million | $85.9 million | $69.6 million |
| Selling, general and administrative | $69.5 million | $61.1 million | $130.4 million | $126.8 million |
| Operating loss | $(64.1) million | $(68.0) million | $(118.9) million | $(156.8) million |
| Net loss | $(63.3) million | $(67.4) million | $(117.6) million | $(155.3) million |
| Net loss per share, basic and diluted | $(0.51) | $(0.55) | $(0.94) | $(1.27) |
- Q2 revenue rose about 87% year over year; first-half revenue rose about 131%. Management attributed the increases primarily to NUPLAZID unit-sales growth of approximately 34% in Q2 and 65% in the first half, along with higher average selling prices and lower sales-allowance rates.
- Product gross margin was approximately 94% in Q2 and 95% for the first half, compared with approximately 93% and 90%, respectively, in 2017. Higher manufacturing levels and selling prices helped; inventory write-downs related to the upcoming capsule launch partly offset improvement.
- R&D growth reflected increased clinical-study and product-development costs, including work on pimavanserin life-cycle programs and new dosage forms. SG&A increased year over year, with direct-to-consumer advertising among the drivers.
- Cash, cash equivalents and investment securities totaled $256.9 million at June 30, 2018, versus $341.3 million at December 31, 2017. Cash and cash equivalents alone were $74.2 million; available-for-sale securities were $182.7 million.
- First-half operating cash use was $86.1 million, down from $129.5 million in 2017. Investing activities provided $85.7 million, mainly reflecting net investment-security maturities; financing provided $5.8 million. Cash, cash equivalents and restricted cash ended the period at $77.3 million.
- Total liabilities were $50.2 million, including $49.2 million current liabilities. The filing reports no debt balance. Restricted cash of $3.1 million secures letters of credit.
Material changes and business developments
- The FDA approved a 34 mg capsule and a 10 mg tablet in June 2018. Management expected commercial availability around mid-August 2018; the capsule offers the recommended daily dose in one unit, while the 10 mg tablet is intended for patients taking strong CYP3A4 inhibitors.
- ACADIA completed enrollment in its Phase 2 CLARITY study of pimavanserin as an adjunctive treatment for major depressive disorder and expected top-line results in Q4 2018.
- In May 2018, ACADIA invested approximately $3.1 million in Neuren Pharmaceuticals shares and paid $0.9 million for a three-month exclusivity right. On August 6, after quarter-end, it entered an agreement for exclusive North American rights to develop and commercialize trofinetide. Terms include a $10 million upfront payment, up to $455 million in development and sales milestones, and tiered escalating double-digit royalties.
- ACADIA adopted the new revenue-recognition standard on January 1, 2018; it reported no material opening-equity adjustment or identified revenue-recognition difference. NUPLAZID sales have been recognized at sale to specialty pharmacies and distributors since Q2 2017, rather than when dispensed to patients.
Outlook, risks and contingencies
- Management stated that existing cash, cash equivalents and investments were expected to fund planned operations for at least the next 12 months. It expects operating cash needs and R&D and SG&A spending to remain substantial or increase, and expects net losses for at least the next few years; profitability timing is uncertain. Additional financing may be needed and could dilute shareholders.
- Key dependencies include continued NUPLAZID commercialization, payer access and reimbursement, clinical-trial outcomes, regulatory decisions, and completion of required post-marketing studies. The FDA boxed warning concerning increased mortality risk in elderly patients with dementia-related psychosis remains relevant; NUPLAZID is not approved for dementia-related psychosis unrelated to PD Psychosis.
- The filing discusses negative publicity and public reports of deaths among NUPLAZID users. ACADIA noted that the FDA had said it had not identified a specific safety issue not already adequately described in the label and was not advising providers against prescribing or patients against taking the drug; the ultimate outcome of the FDA’s evaluation was uncertain.
- Two putative securities class actions were filed in July 2018, alleging materially misleading statements about NUPLAZID safety and regulatory scrutiny. The complaints seek unspecified damages. ACADIA said it could not predict the outcome or estimate possible losses and had not accrued a litigation amount other than ongoing legal fees.
- Other disclosed risks include pricing and reimbursement pressure, increased Medicare Part D coverage-gap discounts beginning in 2019, variable rebate estimates, clinical-development and manufacturing risks, and possible need for future capital. A May 2018 lease runs through January 2026, with disclosed minimum payments totaling $9.1 million.
Important facts for investors to verify
- Whether NUPLAZID unit growth, pricing, payer access and net sales-allowance trends continue, and whether the new capsule and tablet gain adoption.
- Updates on the FDA safety evaluation, post-marketing commitments, and the July 2018 securities litigation.
- Clinical progress and results for dementia-related psychosis, schizophrenia and depression programs, including the anticipated CLARITY results.
- The effect of the 2019 Medicare Part D coverage-gap changes on rebates, net revenue and cash needs.
- Cash-burn trajectory and whether the stated minimum 12-month funding outlook remains supportable, including the costs and milestones under the Neuren agreement.