ACADIA Pharmaceuticals Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Financial amounts below are in U.S. dollars; figures are rounded to millions unless noted. ACADIA is a biopharmaceutical company whose first approved medicine, NUPLAZID (pimavanserin), launched in the U.S. in May 2016 for hallucinations and delusions associated with Parkinson’s disease psychosis (PDP).
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $5.3 million | $39,000 | $5.4 million | $44,000 |
| Operating expenses | $77.7 million | $39.0 million | $200.0 million | $119.1 million |
| Operating loss | $(72.4) million | $(39.0) million | $(194.6) million | $(119.0) million |
| Net loss | $(71.6) million | $(38.9) million | $(192.7) million | $(118.7) million |
| Basic and diluted loss per share | $(0.61) | $(0.39) | $(1.69) | $(1.18) |
| Research and development | $25.8 million | $18.7 million | $69.1 million | $53.4 million |
| Selling, general and administrative | $50.5 million | $20.3 million | $128.8 million | $65.7 million |
- NUPLAZID product sales were $5.3 million in Q3 and $5.4 million year to date. ACADIA recognized revenue using a “sell-through” method because it could not yet reliably estimate certain sales allowances when product shipped to distributors and specialty pharmacies. Deferred product revenue was $1.9 million at September 30.
- Cost of product sales was $845,000 in Q3 (about 16% of net sales) and $1.4 million year to date (about 26%). The company cautioned that product sold included raw material costs expensed before FDA approval, so these percentages may not reflect ongoing product economics. License fees and royalties were additional expenses, including the 2% sales royalty to Ipsen.
- Operating cash used was $147.2 million for the first nine months, versus $87.1 million in 2015. Investing cash used was $331.1 million, mainly reflecting purchases of investment securities; financing provided $529.8 million.
- At September 30, cash and cash equivalents were $153.7 million and available-for-sale securities were $435.2 million, totaling $588.9 million in cash, cash equivalents and investments. Total liabilities were $39.3 million; the filing reports no debt balance. Current assets were $603.5 million and current liabilities $39.1 million.
- Stockholders’ equity was $578.1 million and accumulated deficit was $855.3 million. Common shares outstanding were 121.1 million at September 30 (121.1 million as of October 31).
Material changes versus comparable periods
- Revenue shifted from minimal collaboration revenue to initial NUPLAZID sales following FDA approval in April 2016 and U.S. launch in May. Product sales remain at an early-launch level, and no prior-year product sales were reported.
- Q3 R&D expense rose $7.1 million year over year, primarily from higher external clinical-service costs for pimavanserin development outside PDP and increased personnel costs.
- Q3 SG&A expense rose $30.2 million, reflecting the new specialty sales force and external costs supporting the commercial launch and medical education. Nine-month SG&A comparisons also benefited from a $9.6 million one-time former-CEO transition expense in 2015.
- Cash and investments increased by $373.8 million from December 31, 2015, primarily due to approximately $497.5 million of net proceeds from January and August 2016 stock offerings, partly offset by operating cash use. The offerings increased share count and diluted existing shareholders.
Outlook, commentary and risks
- Management expected cash, cash equivalents and investments to fund planned operations for at least the next 12 months, while warning that significant additional financing may be needed in the future. Management expected continuing operating losses for at least the next few years and substantial increases in commercialization and development spending.
- No quantitative revenue, earnings, or product-sales guidance was provided. Management said it could not reliably estimate development costs or completion dates for ongoing programs; results may fluctuate and interim results are not necessarily indicative of full-year performance.
- At the filing date, ACADIA reported completed enrollment in a Phase II Alzheimer’s disease psychosis study, with top-line results expected by year-end 2016. It also reported initiating a Phase II Alzheimer’s disease agitation study in October and a Phase III adjunctive schizophrenia study in November, both after quarter-end. Post-marketing studies for NUPLAZID are required.
- Key business risks include uncertain NUPLAZID uptake, pricing and reimbursement; the boxed warning concerning increased risk of death in elderly patients with dementia-related psychosis; safety findings from broader use and post-marketing studies; and the possibility of regulatory restrictions or withdrawal. NUPLAZID had approval only for PDP in the U.S.; a European marketing application timeline was delayed pending agreement on a pediatric investigation plan.
- ACADIA relied on a single supplier each for NUPLAZID active ingredient and drug product, creating supply and manufacturing-compliance risks. It also identified clinical-development, competition, healthcare regulation, financing and potential dilution risks.
- A securities class action alleging misleading statements about the timing of the NUPLAZID NDA filing remained pending. The court denied the motion to dismiss; ACADIA sought reconsideration and filed an answer. The company could not estimate potential losses and had accrued no litigation amount beyond ongoing legal fees.
- Interest-rate sensitivity analysis stated that a 10% rate change would not have materially affected the investment portfolio’s fair value. Disclosure controls were concluded effective as of September 30, 2016.
Important facts for investors to verify
- Subsequent quarterly NUPLAZID prescriptions, net sales, deferred revenue, gross-to-net deductions, payer coverage and patient persistence.
- Whether the sell-through revenue-recognition approach or estimates of rebates and other allowances change as sales history develops.
- Cash burn relative to management’s 12-month funding assessment, and any additional financing or dilution.
- Results and timing of the Alzheimer’s and schizophrenia trials and required NUPLAZID post-marketing studies.
- Developments in the securities class action, the European pediatric plan and marketing-application timing, and any safety or supply issues.