April 15, 2007 (Vol. 27, No. 8)

Analyst Is Bullish on Drug Candidates for Schizophrenia, Parkinson’s, and Insomnia

About a month ago, Acadia Pharmaceuticals’ (www.acadiapharm.com) value more than doubled in a matter of days. On March 19, the day it reported positive results for its Phase II schizophrenia co-therapy trial, shares soared 86% to $12.49. Since then, Acadia has maintained a price between $12 and $17. For this reason, Zacks senior pharmaceuticals analyst Jason Napodano has a buy rating on the company.

Acadia is a biopharmaceutical firm with a focus on disorders of the central nervous system. There are five programs in clinical evaluation. The most advanced of these is the Phase III development of ACP-103 for Parkinson’s disease psychosis.

Acadia believes that its schizophrenia candidates are poised to address the positive and negative symptoms of the disease more completely and with fewer side effects. ACP-103, currently in a Phase II trial, is being developed as a co-therapy for schizophrenia. It is a potent and selective 5-HT2A inverse agonist. Acadia believes that it can achieve the optimal combination of the compound’s mechanism of action and the dopamine receptor blockade produced by currently-available antipsychotic drugs.

The trial is evaluating ACP-103 as an adjunctive therapy with risperidone, an atypical antipsychotic drug, and haloperidol, a typical antipsychotic therapy.

Typical antipsychotic agents are effective against positive symptoms of schizophrenia but also produce motor disturbances. While atypical antipsychotic treatments produce fewer motor disturbances, neither therapy fully addresses the negative symptoms.

Acadia’s second schizophrenia candidate is ACP-104, or N-desmethylclozapine, the major metabolite of clozapine, an atypical drug. It is being developed as a novel, stand-alone therapy. The drug combines an atypical antipsychotic efficacy profile with the potential benefit of enhanced cognition, thereby addressing one of the major challenges in treating schizophrenia. ACP-104 combines M1 muscarinic agonism, 5-HT2A inverse agonism, and D2 and D3 dopamine partial agonism in a single compound. Thus, it addresses the three most promising target mechanisms for treating schizophrenia, according to Acadia.

A Phase IIb trial will start during the first half of 2007, according to Napodano. “The trial should offer safety data on leucopenia, one of the primary reasons why clozapine never reached blockbuster levels.”

Additionally, ACP-103 will enter Phase III trials for the treatment of Parkinson’s disease (PD) psychosis. The company reported that the Phase II study showed the compound demonstrated motoric tolerability, antipsychotic effects, and safety. ACP-103 is also being evaluated as a therapy for sleep-maintenance insomnia.

“Acadia could move to partner ACP-103 or ACP-104 at any time during 2007. Both partnerships are expected to bring in large upfront cash payments with potential back-end milestones and double-digit royalties on sales.”

Acadia is also working with Allergan (www.allergan.com) in the areas of pain and ophthalmology and Sepracor (www.sepracor.com) on candidates against muscarinic receptors. Allergan is already conducting a Phase II evaluation of the alpha adrenergic drug candidates for treating neuropathic pain.

“We think the possibility also exists that Acadia could seek to co-promote a partners drug in the psychotic disorder market as it attempts to build its own in-house specialty sales force for ACP-103 in PD psychosis,” Napodano adds.

“We have made some minor adjustments to our model, which include lower operating costs and slightly higher revenues, specifically from ACP-103 in schizophrenia. These adjustments have led us to increase our price target from $18 to $20. We continue to recommend the shares.”

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