ACADIA Pharmaceuticals Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial amounts are in U.S. dollars; figures below are in millions unless stated otherwise.
Business context
ACADIA is a biopharmaceutical company focused on central nervous system disorders. Its first and only approved product, NUPLAZID (pimavanserin), was launched in the United States in May 2016 for hallucinations and delusions associated with Parkinson’s disease psychosis. The quarter therefore reflects commercial sales and launch spending not present in Q1 2016.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Product sales, net | $15.286 | $0 |
| Total revenue | $15.286 | $0.004 |
| Cost of product sales | $2.263 | $0 |
| Research and development | $35.409 | $22.775 |
| Selling, general and administrative | $65.745 | $27.491 |
| Operating loss | $(88.806) | $(50.262) |
| Net loss | $(87.843) | $(49.762) |
| Net loss per share | $(0.72) | $(0.45) |
| Cash used in operating activities | $(70.661) | $(41.212) |
Product sales less cost of product sales imply an approximately 85% product gross margin before separately reported license fees and royalties. Cash, cash equivalents and investment securities totaled $469.5 million at March 31, 2017, down from $529.0 million at December 31, 2016. Cash and cash equivalents were $157.383 million; available-for-sale investments were $312.098 million. Current assets were $489.753 million and current liabilities $45.265 million. The filing reports no debt; liabilities were principally operating liabilities. Management said available resources were expected to fund planned operations for at least the next 12 months.
Material changes and notable items
- Revenue reflects NUPLAZID’s first commercial period; Q1 2016 had no product sales. ACADIA used sell-through recognition because it could not yet reasonably estimate certain sales allowances at the time product reached distributors and pharmacies. Deferred product revenue was $4.132 million at quarter-end.
- Operating expenses more than doubled year over year. R&D rose mainly with clinical development of pimavanserin beyond Parkinson’s disease psychosis. SG&A growth reflected commercial launch activities, medical education, and the sales force hired in 2016.
- Cash used in operations increased by $29.449 million year over year, largely reflecting the higher net loss. Investing activities provided $52.935 million, mainly from investment maturities net of purchases; financing provided $11.490 million, versus $282.991 million in Q1 2016, when the company completed a major stock offering.
- ACADIA adopted updated stock-compensation guidance in Q1 2017. It recorded a $36.8 million increase in deferred tax assets with an equal valuation allowance; the adoption did not create a corresponding net tax benefit.
- The company’s sales allowance balance was $4.051 million at March 31, 2017. It pays Ipsen royalties of 2% of NUPLAZID net sales.
Outlook, risks and contingencies
- Management expected R&D and SG&A spending to increase as it conducts required post-marketing studies, supports NUPLAZID commercialization, and advances pimavanserin studies. ACADIA expected losses to continue for at least the next few years and said additional financing may be needed.
- Development plans included a Phase III Alzheimer’s disease psychosis study planned for the second half of 2017, and studies in Alzheimer’s agitation, schizophrenia, and major depressive disorder. Timelines, costs, and clinical outcomes remain uncertain.
- NUPLAZID carries a boxed warning concerning increased mortality risk in elderly patients with dementia-related psychosis and is not approved for dementia-related psychosis unrelated to Parkinson’s disease psychosis. FDA-required post-marketing studies and ongoing safety monitoring could affect the label or approval.
- In April 2017, after the reporting period, ACADIA increased NUPLAZID’s price and changed its free-supply period from 30 days to 14 days. The filing said the effects on prescribing, payor coverage, and patient access were uncertain.
- A securities class action concerning statements about the timing of the NUPLAZID regulatory submission was subject to a proposed settlement signed in March 2017. Court approval remained pending; a preliminary approval hearing was scheduled for May 26, 2017. The filing does not provide a clear settlement amount.
- Key business risks include dependence on one commercial product, uncertain market uptake and reimbursement, clinical and regulatory risk, reliance on single suppliers for NUPLAZID active ingredient and finished product, and potential need for additional financing. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Subsequent NUPLAZID sales, prescription trends, net pricing, reimbursement, and gross-to-net allowances, including the effect of the April 2017 price and free-supply changes.
- Progress and results of the required post-marketing studies and the planned or ongoing pimavanserin trials, including the anticipated Phase III Alzheimer’s psychosis study.
- Quarterly operating cash burn relative to the $469.5 million cash-and-investment balance and management’s stated minimum 12-month funding horizon.
- Final court approval and financial terms, if disclosed, of the proposed securities-litigation settlement.
- The effect of adopting the new revenue-recognition standard, which ACADIA expected to materially affect its statements and disclosures by moving sales-allowance estimates to the time of sale.