Pharma stocks’ fortunes are reliant on the reviews of their drug candidates. A positive response from the regulators will almost always send the share price soaring. Conversely, a rejection will result in investors hurrying to the exit gates.
Unfortunately, for ACADIA Pharmaceuticals (ACAD), the latter case currently holds true. After the close on Monday, the company announced that the FDA has said it found deficiencies in ACADIA’s supplemental New Drug Application (sNDA) for Pimavanserin – which goes under the brand name of Nuplazidin – for the treatment of hallucinations and delusions associated with dementia-related psychosis (DRP). Shares sunk in the following session by 45%.
The FDA was meant to discuss labeling and post-marketing requirements with the company but has said it cannot do so until the company addresses the issues. The problem is that ACADIA has not yet been provided with the reason behind the setback.
“While the actual deficiencies have apparently not been communicated to the company,” Mizuho analyst Vamil Divan commented. “We assume they will likely receive a Complete Response Letter for the application on the April 3 Action Date. With limited information, we push out the DRP launch by one year in our base case.”
The notification is even more surprising due to the fact it is so late in the process. What’s more, Divan says, the application has been granted FDA Breakthrough Therapy Designation (BTD) as it focuses on a significant unmet medical need.
Further adding to the puzzlement, Pimavanserin has already been given the FDA’s nod of approval for the treatment of hallucinations and delusions related to Parkinson’s disease psychosis, which was another reason for the “lowered risk of surprises” ahead of the FDA’s decision.
With uncertainty hanging in the air, Divan has now lowered the treatment’s probability of success from 80% to 70% and reduced the price target from $70 to $55. However, following the share price collapse, investors are still looking at upside of 120% from current levels. (To watch Divan’s track record, click here)
All in all, most on the Street remain in ACADIA’s corner. The analyst consensus rates the stock a Strong Buy, based on 13 Buys and 4 Holds. At $46.25, the average price target suggests shares will be selling for a 85% premium a year from now. (See ACAD stock analysis on TipRanks)
To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
