ACADIA Pharmaceuticals Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless stated otherwise. ACADIA is a biopharmaceutical company whose only marketed product was NUPLAZID (pimavanserin), approved in the U.S. for hallucinations and delusions associated with Parkinson’s disease psychosis.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Net product sales | $63.0 million | $48.9 million; up 28.8% |
| Cost of product sales | $3.0 million; 5% of sales | $2.2 million; 4% of sales |
| Research and development | $52.9 million | $39.3 million |
| Selling, general and administrative | $93.1 million | $60.9 million |
| Operating loss | $87.6 million | $54.8 million |
| Net loss | $85.3 million; $0.59 per share | $54.3 million; $0.44 per share |
| Net cash used in operating activities | $64.2 million | $45.2 million |
- Sales growth primarily reflected approximately 19% higher NUPLAZID unit sales and a higher average gross selling price.
- Gross margin was approximately 95% of net sales, versus 96% in Q1 2018. ACADIA recorded a $0.6 million charge to reduce certain finished goods inventory to net realizable value.
- R&D expense increased mainly with clinical work on pimavanserin in additional indications and trofinetide. SG&A growth primarily reflected higher external marketing costs, including direct-to-consumer advertising, and increased charitable contributions.
- At March 31, cash and cash equivalents were $97.6 million and available-for-sale investments were $316.8 million, or $414.3 million combined. Cash, cash equivalents and restricted cash totaled $102.3 million. Combined cash and investments declined $59.2 million from year-end, primarily due to operating cash use.
- Total assets were $501.1 million; stockholders’ equity was $418.4 million. The balance sheet reports no borrowing debt; operating lease liabilities were $11.2 million. Accumulated deficit was $1.6 billion.
- Management believes cash, cash equivalents and investments are sufficient to fund planned operations for at least the next 12 months, but says significant additional financing may be needed in the future. No specific revenue or earnings guidance is provided.
Material developments, outlook and risks
- ACADIA discontinued commercial sales of NUPLAZID 17 mg tablets during Q1 2019 after the FDA approved 34 mg capsules and 10 mg tablets in 2018.
- Following positive Phase 2 CLARITY results, ACADIA initiated the Phase 3 program for pimavanserin as an adjunctive treatment for major depressive disorder in April 2019. It expected ENHANCE schizophrenia Phase 3 top-line results in mid-2019 and ADVANCE Phase 2 results around year-end 2019. The company planned to start a Phase 3 trofinetide study for Rett syndrome in Q4 2019. The Phase 3 HARMONY dementia-related psychosis study was ongoing.
- ACADIA expects continued operating losses and substantial development and commercialization spending for the next few years. R&D costs and trial completion timing are uncertain; management expects R&D and SG&A spending to increase. Trofinetide’s license could require up to $455 million in development and sales milestones, plus tiered, escalating double-digit royalties.
- Key commercial risks include dependence on NUPLAZID, the product’s boxed warning, safety perceptions, payer coverage and reimbursement, and Medicare Part D coverage-gap discounts. The company noted that the 2019 increase in the manufacturer discount associated with closing the coverage gap could materially affect its business.
- The DOJ had issued a civil investigative demand for information about NUPLAZID sales and marketing; ACADIA said it was cooperating and could not predict the investigation’s timing or outcome. A consolidated securities class action complaint, filed April 15, 2019, seeks unspecified damages. ACADIA could not estimate potential losses and had not accrued an amount beyond ongoing legal fees.
- ACADIA adopted the new lease accounting standard on January 1, 2019, recording lease right-of-use assets and liabilities. A planned San Diego office lease, with $53.7 million in minimum payments over an initial 10-year, 9-month term, had not yet commenced and was expected to begin around the first half of 2020.
- Management reported disclosure controls were effective at a reasonable assurance level as of March 31, 2019.
Investor verification priorities
- Track NUPLAZID prescription and unit growth, realized pricing, sales allowances and rebates, and Medicare Part D coverage-gap effects.
- Assess whether rising operating expenses and cash burn remain consistent with the stated liquidity runway; monitor any need for additional financing and potential dilution.
- Verify clinical trial progress and results for HARMONY, ENHANCE, ADVANCE, the Phase 3 depression program, and trofinetide, as well as the remaining NUPLAZID post-marketing commitments.
- Monitor developments in the DOJ investigation and securities litigation, including any change in estimated exposure or accruals.
- Review the timing and financial impact of the planned office lease and the potential milestone and royalty obligations under the Neuren license.