Acadia Pharmaceuticals: Legal Overhang On Nuplazid Removed (NASDAQ:ACAD)

Why Acadia stock surged today

Shares of Acadia Pharmaceuticals (NASDAQ:ACAD) surged today after the U.S. District Court for the District of Delaware granted a summary judgment in the Nuplazid patent case against MSN Pharmaceuticals. This case was the reason Acadia’s share price was suppressed lately despite the strong launch of Daybue and the overall pipeline progress with Nuplazid’s successor ACP-204 advancing into a phase 2/3 trial in Alzheimer’s disease psychosis and ACP-101 advancing into a phase 3 trial in Prader-Willi syndrome.

The summary judgment in Acadia’s favor removes an important legal overhang on the stock and positions the company for continued commercial gains in 2024. There is also the higher-risk phase 3 readout of Nuplazid as adjunctive treatment of negative symptoms in schizophrenia patients next quarter which, if positive, could improve the medium-term growth outlook.

MSN Pharmaceuticals’ effort fails, Nuplazid likely to retain patent exclusivity into at least 2037

As noted in my September article, MSN Pharmaceuticals was the only generic challenger left, and it sought a resolution of a single issue related to Nuplazid’s composition of matter patent. Acadia previously described that MSN was asking the judge to re-write patent law, that a negative outcome was unlikely, and that the ruling would not impact Nuplazid’s other patents.

The judge ruled in Acadia’s favor today:

Acadia Pharmaceuticals Inc. today announced that the U.S. District Court for the District of Delaware has granted summary judgment to Acadia, confirming validity of the NUPLAZID^® (pimavanserin) ‘740 composition of matter patent. The court ruled in favor of Acadia on all grounds. The ruling came in Acadia’s litigation against MSN Laboratories Pvt. Ltd., MSN Pharmaceuticals, Inc. and other ANDA (Abbreviated New Drug Application) filers and concludes this litigation in the District Court.

The positive ruling adds to the strength of the company’s intellectual property position around Nuplazid, and the 10mg tablet is highly unlikely to go generic before 2037. The settlements call for a generic entry of the 34mg capsule in 2038.

However, Nuplazid’s useful life may not be that long if Acadia is successful in developing the next-generation version called ACP-204. The company claims ACP-204 could represent a significant improvement over Nuplazid and that the phase 1 observations confirm the preclinical findings – there were no signs of QT prolongation in the phase 1 trial, the wide dose range enables up to two times the dosage strength of Nuplazid, and steady-state drug levels are achieved in less than half the time of Nuplazid.

This means Acadia can push the dose higher safely in an attempt to extract higher efficacy than Nuplazid could, and this is particularly important for the Alzheimer’s disease population that has many elderly and frail patients with many co-morbidities.

This kind of profile allowed the company to start what it calls a “seamless” phase 2/3 trial in Alzheimer’s disease psychosis patients and the phase 2 part started in late November. Nuplazid was already successful in this population but it was eventually shot down two times by the FDA and Acadia then switched efforts to ACP-204. Based on the previous positive efficacy signal and the improved profile of ACP-204, I am generally optimistic about the outcome of the phase 2 trial, though, as always, success in the clinic is never guaranteed.

I imagine Acadia would want to do lifecycle management in Parkinson’s disease psychosis as well and that ACP-204 would eventually make Nuplazid obsolete.

Given these dynamics, it was important for Acadia to maintain Nuplazid’s exclusivity in the next couple of years, so it could have enough time to push ACP-204 through the clinic, and in the case of ACP-204’s failure, it would still be there to generate substantial cash flows in the next 10+ years.

Daybue continues to outperform

Daybue once again exceeded expectations when Acadia reported third quarter earnings last month. Management guided for Q3 sales in the $45-55 million range, and sales came in at $66.9 million.

There was and there still is some fear of the initial launch success being driven by a bolus of patients that will dissipate soon, but the results to date do not indicate that, and neither does the guidance for Q4 – the company expects net sales in the $80-87.5 million range.

The launch to date has significantly exceeded market expectations and my own. Before the launch, my annual peak sales estimate range was $350 million at the low end and $700 million at the high end. We are only two full quarters into the launch, and the annualized run rate could come close to or exceed the low end of my range in the fourth quarter. As such, I am comfortable moving the range up to $600-800 million, with a potential tendency for further increases.

I would usually move the estimate higher, but I still have concerns about compliance and the high discontinuation rates in the phase 3 trial. Management claims the real-world use is better because they are taking the time to educate physicians and caregivers on how to manage gastrointestinal side effects, and so far, the numbers confirm the sales team has done a great job.

Other pipeline updates

In addition to ACP-204 advancing into a phase 2/3 trial, ACP-101 advanced into a pivotal trial in Prader-Willi syndrome.

However, the most important clinical update in the near term is the phase 3 results of Nuplazid (pimavanserin) as adjunctive treatment of negative symptoms in schizophrenia patients in the first quarter of 2024.

I have nothing to add to my previous comments on this phase 3 trial. Success would revive Nuplazid’s net sales, starting in 2025, although I am not sure how Acadia will address its very high price for the smaller Parkinson’s disease psychosis population versus the larger schizophrenia opportunity.

The first trial was successful but with borderline efficacy and a p-value of 0.043 for all doses combined, although the 34mg dose the company took forward did demonstrate better efficacy.

I would estimate the probability of success to be in the 60-65% range based on the results from the first trial and the 34mg dose working better than all the doses combined. If such results are repeated, the annual peak sales opportunity is greater than $500 million, assuming a lower net price point than for the existing approved indication.

Conclusion

The legal overhang on Nuplazid is removed, and I continue to see Acadia Pharmaceuticals as well positioned to deliver additional gains in the following years, driven by growing revenues that are primarily driven by Daybue in the near-term, and by a potential revival of Nuplazid in the medium term if it is successful in the phase 3 trial as adjunctive treatment of negative symptoms in schizophrenia patients. Longer term, I see the most upside for the stock if ACP-204 is successful in the pivotal part of the phase 2/3 trial in Alzheimer’s disease psychosis patients.

In the meantime, it seems likely the company will generate positive cash flow in the next few years. I would expect to see additional pipeline expansion through business development activity, similar to what it has successfully done with Daybue.

The key risks in the near and medium term are Daybue losing sales momentum and Nuplazid failing in the phase 3 schizophrenia trial next quarter, and longer term, ACP-204 failing to deliver improved efficacy and safety over Nuplazid.