ACADIA Pharmaceuticals Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017. ACADIA is a biopharmaceutical company whose only approved and marketed product was NUPLAZID (pimavanserin), approved in the U.S. for hallucinations and delusions associated with Parkinson’s disease psychosis (PD Psychosis).
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change / context |
|---|---|---|---|
| Net product sales | $48.9 million | $15.3 million | Up $33.6 million; unit sales increased approximately 120% year over year. |
| Cost of product sales | $2.2 million | $2.3 million | Approximately 4% of sales versus 15%. |
| Gross margin | Approximately 96% | Approximately 85% | Improved with higher manufacturing levels, inventory cost absorption and sales volume. |
| Research and development | $39.3 million | $35.4 million | Increased, principally from clinical and personnel costs. |
| Selling, general and administrative | $60.9 million | $65.7 million | Decreased, mainly due to lower external service costs, including charitable contributions and speaker programs. |
| Operating loss | $54.8 million | $88.7 million | Narrowed year over year. |
| Net loss | $54.3 million | $87.8 million | Loss per share was $0.44 versus $0.72. |
| Operating cash used | $45.2 million | $70.6 million | Cash use declined, primarily reflecting the lower net loss. |
At March 31, 2018, cash and cash equivalents were $116.3 million and available-for-sale investments were $181.7 million, or $298.1 million combined. Total cash, cash equivalents and restricted cash were $119.2 million. Total assets were $351.0 million, total liabilities $46.9 million, and stockholders’ equity $304.2 million. The balance sheet reports no debt. Accumulated deficit was $1.278 billion. Cash, cash equivalents and investments declined $43.2 million from year-end, primarily due to operating cash use. The quarter’s investing cash inflow of $89.6 million largely reflected investment maturities; financing cash inflow was $2.9 million.
Material changes and business developments
- Higher NUPLAZID sales reflected approximately 120% unit growth, a higher average gross selling price and a lower sales-allowance accrual rate, partly associated with customer-mix changes.
- Revenue was recognized at sale to specialty pharmacies and distributors under the sell-in model. ACADIA adopted ASC 606 on January 1, 2018; it reported no material adoption adjustment or identified difference from prior revenue recognition requirements.
- Gross-to-net sales allowances and accruals were $10.0 million at March 31, 2018, compared with $3.6 million at year-end. The company notes that estimates depend on rebates, chargebacks, discounts, co-pay assistance and returns.
- Q1 2018 stock-based compensation was $20.4 million, compared with $15.6 million a year earlier.
Outlook, commentary and risks
- Management expected available cash, cash equivalents and investments to fund planned operations for at least the next 12 months, while stating that significant additional financing may be needed in the future. It expected operating cash use and substantial R&D investment to continue.
- Management expected R&D spending to remain substantial as it pursued pimavanserin studies in dementia-related psychosis, schizophrenia and depression, as well as required NUPLAZID post-marketing studies. It also expected SG&A to increase in future periods to support commercialization and development.
- Management expected top-line results from the Phase 2 CLARITY study in major depressive disorder in the second half of 2018. The Phase 3 HARMONY study in dementia-related psychosis began in October 2017; the FDA had granted Breakthrough Therapy Designation for that indication. No quantified revenue or earnings guidance was provided.
- Key risks include dependence on U.S. NUPLAZID commercialization; the product’s boxed warning and continuing safety evaluation; physician and patient acceptance, coverage, reimbursement and pricing; clinical-trial and regulatory uncertainty; post-marketing obligations; reliance on third-party manufacturers and distributors; and potential need for financing, which could dilute shareholders.
- The FDA had stated it had not identified a specific NUPLAZID safety issue beyond information already described in the label and was not advising providers to stop prescribing or patients to stop taking it. ACADIA said it could not predict the outcome of the FDA’s evaluation.
- A securities class action concerning statements about the timing of the NUPLAZID application was finally approved for settlement by the court in January 2018. The filing does not provide a clear settlement amount.
- Disclosure controls were assessed as effective at the reasonable-assurance level as of March 31, 2018. Management reported no other material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether NUPLAZID sales growth, unit demand and net pricing continue, and how reimbursement and sales allowances affect net revenue.
- Progress, results and timing of HARMONY, schizophrenia and CLARITY studies, and required post-marketing studies.
- Updates to the FDA’s safety evaluation, product labeling and the boxed warning.
- Cash burn, operating-cost trends and the assumptions behind management’s at-least-12-month liquidity assessment.
- Potential effects of Medicare Part D coverage-gap changes and manufacturer discounts beginning in 2019, as discussed in the filing.