After FDA Rejects Acadia Dementia Drug, Analysts Lament Lack Of Near-term Stock Drivers

ACADIA Pharmaceuticals Inc. ACAD shares came under pressure Monday after the Food and Drug Administration (FDA) rejected its regulatory application seeking label expansion for its dementia drug.

The Acadia Analysts: Goldman Sachs analyst Salveen Richter downgraded Acadia shares from Buy to Neutral and cut the price target from $73 to $25.

Mizuho Securities analyst Vamil Divan also downgraded the shares from Buy to Neutral and lowered the price target from $37 to $25.

SVB Leerink analyst Marc Goodman maintained an Outperform rating and reduced the price target from $63 to $31.

The Acadia Theses:

Goldman Sees No Meaningful Near-term Value Drivers For Acadia: Despite Acadia's prior alignment with the FDA on the trial design and proposed study population, the agency cited a lack of benefit demonstrated for Nuplazid across the various dementia subtypes, Goldman analyst Richter said in a note.

The company, the analyst said, is planning to request a Type A meeting to understand the rationale for the decision and to make a case for the strong benefit/risk profile in the broader dementia-related psychosis population.

"However, we expect the base case is now for an additional pivotal trial which could delay the commercial launch by about three years," the analyst wrote in the note.

The evolving competitive landscape could limit Acadia first-mover advantage, Richter said. Given the setback, the analyst now sees a lack of meaningful near-term value drivers

Hurdle For Obtaining Approval Is Significantly Higher, Mizuho Says: Investors were largely bracing for the outcome, given the March 3 communication regarding deficiencies in the application, Mizuho analyst Divan said. However, the disappointing new information is the FDA believes the Nuplazid application lacks substantial evidence to support approval for a general DRP indication, the analyst added.

The FDA took exception to the fact the HARMONY study did not achieve statistical significance in some subgroups of dementia and there were insufficient numbers of patients with certain less common dementia subtypes, Divan noted.

"Given the FDA's comments, we believe the hurdle for obtaining a DRP approval is significantly higher than we had assumed, and will require at least one (if not two) additional clinical trials," the analyst wrote in the note.

Citing the uncertainty, the analyst said he is removing all dementia-related psychosis sales from his model.

There are limited near-term catalysts to drive significant upside to the stock," Mizuho said.

SVB Leerink "Makes Little Sense to Sell at The Bottom": The likelihood of reversal by the FDA is very low, SVB Leerink analyst Goodman said. Acadia, therefore, will need to do another study in dementia-related psychosis, which would delay the launch by several years, the analyst said.

Acadia's current valuation is justified based on the Parkinson's disease psychosis indication and the cash of $3-$4 share, according to the analyst.

With the stock trading at around $21 and the aggressive selling Monday, it makes little sense to "sell at the bottom," Goodman said. However, it's difficult to own the name for any of the other opportunities, including for Trofinetide, right now, he added.

Acadia Price Action: Acadia shares, which shed 17.23% Monday, were seen losing an incremental 2.55% to $20.64 at market close Tuesday.

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