Acadia Pharmaceuticals Daniel Berrios, Xianming Li, Ryan Matsumoto, - - PowerPoint PPT Presentation

Acadia Pharmaceuticals

Daniel Berrios, Xianming Li, Ryan Matsumoto, Sunny Huang, Kojo Osei, Ariana Bhatia

Introduction: ACAD

Acadia Pharmaceuticals ACAD

Small cap, relatively young, bio pharmaceutical company

Price (2/15/15): $37.78 Founded: 1993 Headquarters: San Diego, CA Market Cap: $3.41bil Employees: 95

ACAD stock performance from 2013 to present, image from Yahoo Finance

Our Investment Thesis: Despite risks associated with small cap, high volatility stocks, we believe ACAD has a high chance of success, far beyond their peers, given their impending FDA approval for Pimavanserin and their niche position in the Parkinson’s and Alzheimers market.

Healthcare Industry Overview

• Mergers and acquisitions of

hospitals/health care systems/physician groups

• Incentives

○ Economies of scale ○ Hospitals can increase prices ○ ACA care coordination

• Implications

○ Rising healthcare costs ○ 3% higher payments to hospitals

Consolidation Tax Inversion

• Companies shift

incorporation abroad to avoid US tax rates

• Taking advantage of lower

foreign tax rates

• 9 out of 13 deals relating to

tax inversion are in health care

• US: 35% Ireland 12.5%
• September 2014: U.S.

Treasury curtailed tax breaks from international deals

• Orphan Drug Act of 1983

provides financial incentive for investigating rare disease treatments

• Blockbuster drugs more

difficult to develop

• Potential for small market

monopolies

• Larger companies have

been acquiring startups to move into niche markets

• Trending towards

“nichebuster” rather than “blockbuster” drugs

Niche Drugs

Government Policies / Population Trends

• Uninsured rate dropped from 18% to

12.9%

• 11 million+ more people have

insurance ○ 67% from Medicaid expansion ○ 33% from insurance exchanges ○ Figure expected to grow in future

• Implication -> Increased demand for

prescription drugs for newly insured

• Implication -> New enrollees, gov’t

taxes could decrease profit margins for insurance companies

• Lower Medicare reimbursements to

hospitals -> Pressure for M&A

Affordable Care Act

• People ages 65+

○ 12.4% of the U.S. population in 2000 ○ 19.0% of the U.S. population in 2030 (projected)

• Medicare enrollment

○ 47.7 million seniors in 2010 ○ 81.5 million seniors in 2030 (projected)

• Parkinson’s Disease

○ Average age of onset is 60 ○ 1 million Americans ○ Parkinson’s Induced Psychosis affects 1 in 5 Parkinson’s patients

Population Trends

Management Team

• CEO (2000): Uli Hacksell

○ 1991 to 1999: Executive positions at Astra (pharmaceutical company) ○ PhD in Medicinal Chemistry from Uppsala University

• Executive Vice President (2014): Stephen R. Davis

○ Chief Financial Officer and Chief Business Officer ○ Previously an executive at Heron Therapeutics, Ardea Biosciences, Neurogen Corporation (CEO)

• Executive Vice President (2006): Roger G. Mills

○ Executive VP of Development, Chief Medical Officer ○ Previously VP of Development at Pfizer Global R&D ○ Key role in development of Sutent at Pfizer, Tamiflu at Gilead Sciences

• Executive Vice President, Chief Commercial Officer (2013): Terrence O. Moore

○ 25 years of experience as senior member of sales and marketing at several pharmaceutical companies ○ Helped build multibillion dollar brands including Prozac, Zyprexa, and Effexor XR

• Executive Vice President, General Counsel and Secretary (2004): Glenn F. Baity

○ Previously a senior associate at Cooley LLP, experience with M&A, financings, corporate governance

Strengths

• Nuplazid (Pimavanserin):

○ Currently working towards Stage IV FDA approval for Parkinson’s disease ○ “Breakthrough Therapy” Designation by FDA ○ Market size for effective Parkinson’s treatment: 1 mil U.S., 4-6 mil globally ○ Potential applications in both Alzheimer's as well as Schizophrenia, both of which stage II approved, working towards stage III

• Stock Sales

○ Early 2014 as well as in 2013 multiple stock sales have resulted in good balance sheet figures ○ $355 million in cash ○ Projected enough for Pimavanserin development and general costs through 2017

• Robust Pipeline....

Image from http://www.acadia-pharm.com/pipeline/

Strengths: Pipeline

Risks

• Future value priced in

○ $2.18 in Oct. 2012, $34.21 as of 2/15/15 ○ Stock’s value entirely dependent on future approval of Pimavanserin and stock price has already risen significantly ○ No earnings currently

• Stock volatility due to trial success & regulatory approval

○ 2009 previous trial failure due to high placebo results and drug deficiencies ○ Stock dove from nearly $16 in 2006 to a low of $0.67 in 2010 ○ Risk capital stock

• Future Competition

○ Models and revenue projections do not acknowledge potential for future competition ○ Widespread assumption that ACAD would dominate Parkinson’s market for at least next 5-7 years

Competitor Environment

• Neurocrine - Two stage three products; none NDA filed; none directly applied to psychotics.

Not likely to detract from Nuplazid market share.

• Stemline Therapeutics Inc. - Products focused on cancer treatment. Also not likely to affect

Nuplazid sales. In terms of drug similarity:

• AstraZeneca
• Eli Lilly
• Janssen

All have similar drugs with black box warnings due to side effects.

Comparables Analysis

Summary of Results Key Comparables

• Comparables pose a difficult

approach for Acadia and its competitors because they are all early-stage

• Earnings somewhat irrelevant

because all these companies are reinvesting for growth, with high R&D, but Acadia is moving in the right direction

• Looking at management

effectiveness comps, such as return on assets/equity, can be more telling, and Acadia leads here

*As of 2/26/15

Acadia Pharmaceuticals (ACAD)

• Price = $37.78
• Market Cap = $3.77B
• Revenue = 0.11M
• EPS = -$0.80 (ttm)
• Return on Assets (Equity) = -17.75% (-29.79%) (ttm)

Neurocrine Biosciences (NBIX)

• Price = $40.05
• Market Cap = $3.09B
• Revenue = N/A
• EPS = -$0.81 (ttm)
• Return on Assets (Equity) = -20.24% (-36.79%) (ttm)

Stemline Therapeutics (STML)

• Price = $16.20
• Market Cap = $209.94M
• Revenue = $0.28M
• EPS = -$2.30 (ttm)
• Return on Assets (Equity) = -24.59% (-40.11%) (ttm)

Dynavax Technologies (DVAX)

• Price = $17.50
• Market Cap = $460.13M
• Revenue = $11.60M
• EPS = -$3.51 (ttm)
• Return on Assets (Equity) = -46.35% (-84.02%) (ttm)

M&A’s, Precedent Transactions

• Expand market share
• Technology
• 96 deals worth more than $5bn completed over

the past 12 months-- 37% of the overall volume of corporate transactions.

• Tax strategies

Drivers of M&A

Recently, larger companies have more to spend on research development

• Fewer hospital and provider options for

patients

• Given premiums of recent transactions,

expect Acadia’s share price to increase if acquired

• Approval of new PDP drug makes Acadia

an attractive acquisition target

• Potential acquirer: AbbVie

Potential Effects Selected Transactions

• Kindred Healthcare acquired Gentiva

($7/share, 64% premium)

• Gilead’s acquisition of YMI BioSciences

($2.95/share, 81% premium)

DCF Analysis

Sensitivity Analysis

Several numbers from Jefferies Analyst Report

Recommendation

Price Target: $62 Sell: Phase 4 FDA approval of Pimavanserin fails or price falls below $20 Time Horizon: 24-36 months

Questions