Acadia Stock Report: Business Overview And Revenue Projection

Investment Summary

Acadia Pharmaceuticals (ACAD) is a mid-cap biopharmaceutical company focusing on the development of drugs for neurological and central nervous system disorders. Its stock is currently trading at $23.5 (as of 9/18/13), placing its market cap at $2B.

Acadia's leading drug candidate, pimavanserin, is in Phase III development as a potential first-in-class drug for Pakinson's disease psychosis (PDP). Pimavanserin is a small molecular inhibitor of the serotonin receptor 5-HT2A and has potential applications for psychosis in patients with other neurological diseases, including Alzheimer's and schizophrenia. Acadia plans to file for a new drug application (NDA) for FDA approval toward the end of 2014 for Pimavanserin for Parkinson's disease. If approved, the drug could be in the market by 2015.

The company has had a long-term partnership with Allergan (AGN) to co-develop treatments for chronic pain and glaucoma. The drug candidates are based on alpha-adrenergic receptor agonists and muscarinic agonists discovered at Acadia. The alpha-adrenergic receptor agonist program is in Phase II. Allergan is looking for a partner to conduct Phase III trials. Acadia's R&D pipeline also includes a preclinical program developing inhibitors for ER-Beta and Nurr-1.

In this report, we will address the following questions. First, what is the probability of pimavanaserin approval by the FDA based on its clinical trial results? How big is the market for psychosis and the neurological space? Who are the competitors for Acadia's product?

Second, Acadia has a partnership with Allergan to develop pain-related products. Does the partnership sufficiently pay for the development costs? Or will Acadia need to raise more money through public or private capital markets? More equity offerings will certainly dilute existing shareholders' holdings.

Finally, we will review ACAD's financial status, forecast its revenues and earnings for the next 5 years and derive an intrinsic value for the stock.

This report contains three parts. Part 1 is an overview of ACAD's business model, its key products, and risk factors associated with the company. In Part 2, we will review its partnership agreements with Allergan and point out relevant royalty payments and liabilities that ACAD will incur. A 5-year revenue projection for ACAD will be presented. In Part 3, we will analyze its financials and derive an intrinsic value for ACAD. Our analysis suggests that the intrinsic value for ACAD is ~$31.

Part1: Business Overview

Acadia Pharmaceuticals is a mid-cap biopharmaceutical company that develops serotonin receptor inhibitors with applications for psychosis in patients with neurological diseases, including Parkinson's disease, Alzheimer's disease and schizophrenia. The company currently has a market cap of ~$2.1B with a stock price of $23.5 per share and about 83 million weighted average shares outstanding.

Its leading drug candidate is pimavanserin, which is in Phase III development as a potential first-in-class treatment for Parkinson's disease psychosis (ACAD 10K 2012). Acadia plans to file an NDA toward the end of 2014 for Pimavanserin for Parkinson's disease. Pimavanserin also has potential application for the treatment of psychosis associated with Alzheimer's and schizophrenia.

The company has clinical-stage programs for chronic pain and glaucoma in collaboration with Allergan, Inc. These programs are based on alpha-adrenergic receptor and muscarinic agonists discovered at Acadia.

Key issues

When evaluating a company like ACAD, we need to consider several key issues (or potential risk factors) uniquely associated with the company.

First and foremost, what are the future growth rates for its product revenues and product royalty revenues paid by its corporate partners? When will the company turn profitable? What is the competitive landscape for its drugs? Obviously, the company's profitability is closely tied to its drug sales. ACAD has collaborated with Allergan to develop drugs for chronic pain and glaucoma. How much in milestone payments and royalty from sales will Acadia expect to receive over the next 5 years?

A second issue is related to the expansion of its clinical trials on various fronts. While the company intends to expand its drug franchises to as many indications as possible, there are significant costs associated with each clinical trial. Does the company make wise investments on this front? What is a likelihood of success for these trials? We will review its late-stage clinical programs.

A third issue is related to the company's financial strength or weakness. Due to mostly non-profitable quarters in the past, ACAD's accumulated deficit is $382M as of June 30, 2013 (ACAD 10Q2013). With over $564M additional paid-in capital, Shareholder equity is $181M as of June 2013. In the financial projection section, we will discuss when the company will turn profitable.

As of June 2013, ACAD had $205M cash and cash-equivalent securities. It has no long-term debt nor convertible notes. However, the company has continuously funded its development through stock offerings in both private and public capital markets. These activities have led to significant expansion of stock shares and dilution of shareholders' equity for years. Going forward, the company will need to raise additional funds for Phase III trials in schizophrenia and Phase II trials in Alzheimer's associated psychosis (ADP). It is inevitable that further stock offerings are anticipated. We will discuss the impact of its equity offerings during stock valuation.

Part 2: Product Sales and Revenues from Partnership Agreements

Pimavanserin

Pimavanserin is an inhibitor of the serotonin receptor (5-HT2A), and is currently in Phase III clinical development for Parkinson's disease psychosis. At present, there is no drug approved for PDP. Therefore, pimavanserin could be the first drug approved for this indication. It is estimated that 60% of patients with Parkinson's disease have psychosis that require medical assistance. The potential market for PDP is estimated to be $1B.

Acadia announced pimavanserin Phase III data in March 2013 (Pimavaserine phase III data March2013). The data indicated that the drug is safe and well-tolerated. In addition, it reached statistical significance when meeting primary and secondary endpoints, which include improved motor control and sleep, and reduced delusions and hallucinations. Based on the data, Acadia received a green light from the FDA to file for a new drug application (NDA) for the treatment of PDP scheduled at the end of 2014 (Pimavaserin expediated NDA filing April2013). The expedited progress means that Acadia does not need to conduct an expanded phase III trial, thus speeding up commercialization of the drug to market by 2015.

Psychosis is also frequently associated with other neurological disorders, including schizophrenia and Alzheimer's disease patients. The combined market for antipsychotic medicines was estimated at $28B in 2011, so there is a large unmet need in this space (ACAD 10K 2012).

Therefore, Acadia's strategy is to further expand the potential use of pimavaserin to these indications. The company is currently conducting pimavaserin Phase II clinical trials for schizophrenia (Pimavanserin with risperidone schizophrenia Phase II data 2012). The published Phase II indicated that pimavaserin co-treatment with current anti-psychotic medicine (risperidone) enhanced efficacy and reduced side effects associated with existing medicine. Acadia is considering further studies (Phase III) to pursue this indication, but has not specified whether the company will go alone or seek a corporate partner.

About 20%-50% of patients with Alzheimer's disease suffer from psychosis. Acadia plans to initiate Phase II trials for ADP by 2H 2013. There are around 5 million people with Alzheimer's disease in the United States alone. So, the potential market for ADP is ~$3B.

The competition in the anti-psychotic (PDP and ADP) markets includes Seroquel marketed by AstraZeneca (AZN) and the generic drug clozapine. These drugs are used off-label as they are not officially approved in the US for PDP and ADP.

For schizophrenia, competition includes Zyprexa made by Eli Lilly (LLY), Risperdal by Johnson & Johnson (JNJ) and Ability by Bristol-Myers-Squibb (BMY). The first two drugs are already generic.

We estimate that pimavaserin sales will be about $100M (2015), $200M (2016), and $360M (2017). With an 80% probability of approval, the revenues for Acadia are estimated to be $80M (2015), $160M (2016) and $288M (2017). The slow ramp-up of sales reflects that Acadia is a small company without an existing sales force. In addition, the sales numbers account for the PDP indication only, because an expansion of pimavaserin to ADP and schizophrenia will require completion of Phase III trials and approval of the drug for these indications, which is unlikely to happen before 2017.

Alpha Adrenergic Agonist

Acadia is collaborating with Allergan to develop drugs (alpha adrenergic agonist) for the treatment of chronic pain. Allergan reported preliminary proof-of-concept data in Phase II for visceral pain, fibromyalgia and irritable bowel syndrome. Further studies in Phase III will be needed before regulatory approval and commercialization. Acadia did not disclose the royalty rate that Allergan will pay to Acadia under the partnership agreement. We estimate that it is around 10%-25% of net sales, based on comparable transactions in the industry.

Chronic pain treatment has a big market but also many players. For chronic pain treatment, competition includes Lyrica and Neurontin marketed by Pfizer (PFE) and Cymbalta by LLY. Lyrica and Cymbalta have sales of $4.2B and $5B in 2012, respectively.

Assuming Allergan completes Phase III in 2014, receives the FDA approval in 2015, and launches the drug in 2016, we estimate that revenues will be about $80M (2016) and $144M (2017). With a 70% probability of approval, it will be $56M and $100M, respectively. However, Acadia will only receive a fraction of the royalty from the net sales. If we assume the royalty rate is 15%, the royalty revenues for Acadia will be $8M (2016) and $15M (2017). So, the bottom line is that the royalty revenues from its corporate partnership have a very modest contribution to Acadia's earnings.

Muscarinic Agonist

Acadia is also collaborating with Allergan to develop a drug for glaucoma, based on the muscarinic agonist discovered by Acadia. The program is still in Phase I development, and will thus have little impact on revenues over the next 5 years.

Partnership with Allergan

Acadia has collaborated with Allergan to develop drugs for chronic pain, glaucoma and other indications. The drugs are based on alpha-adrenergic receptor agonists and muscarinic agonists discovered at Acadia. There are separate collaborative agreements between these two companies signed in 1997, 1999 and 2003. The upfront payments and partial development milestones have already been paid out. So, here we only look at future potential payments.

The remaining development milestone payments that Acadia is potentially entitled to receive are $10M, $15M and $13.5M for the three agreements, respectively. Thus, the combined potential milestone payments are $38.5M. We assume that it will be paid out over the next 4 years. This translates to an average of $9.6M in milestone payments each year from 2013 to 2016. The numbers are included in our financial forecasts.

Projected revenues for Acadia

Adding together the product revenues from pimavaserin and the royalty revenues from the Allergan collaboration, we estimate that total revenues for ACAD will be $9.6M (2013), $9.6M (2014), $89M (2015), $178M (2016) and $300M (2017). These revenue numbers will be used for stock valuation.

References:

ACAD 10K 2012

ACAD 10Q2013

Pimavaserine phase III data March2013

Pimavaserin met Phase III endpoints Nov2012

Pimavanserin with risperidone schizophrenia Phase II data 2012

Pimavaserin expediated NDA filing April2013

Disclosure: I am long ACAD, JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

View the original article here

Potential Upside From UnitedHealth's Optum Business

While traditional health insurance services like Private Health Insurance and Medicare And Retirement businesses have been UnitedHealth Group’s (UNH) main source of income accounting for nearly 77% of 2012 revenues, it is the Optum division which has shown the most promising signs of growth this year. The division, which consists of OptumHealth, OptumInsight and OptumRx, accounted for 23% of the company’s operating earnings through the first six months of 2013, with the figure surging 80% over the prior year.

OptumHealth reported a 110% increase in EBIT for the first half of 2013, accounting for more than 40% of the Optum division’s earnings while OptumInsight and Optum RX reported a 66% and 58% increase, respectively. The contribution to EBIT from these divisions was roughly 30% each. Growth in the division will be driven by expansion in the insurance market, but margin expansion from the business alignment could provide an upside.

Our $76 price estimate for UnitedHealth’s stock is in line with the current market price.

What Is Optum?

Optum provides health services to individuals, employers, government as well as life sciences companies. The division can be further subdivided into three subdivisions:

OptumHealth, which primarily provides health and wellness services such as behavioral solutions, care solutions, financial services, collaborative care and logistics health. The division covers over 61 million individuals across the U.S.

Behavioral solutions include disability solutions, mental health and substance abuse solutions, which include risk identification, targeted programs and therapy. Care solutions include providing personalized health management services such as benefit and claims support education for employees, cost estimates and analysis for health plans, specialized programs for conditions such as asthma and diabetes, women’s health services, and wellness programs such as fitness reimbursements and health discount programs. The behavioral solutions and care solutions divisions serve around 50 million and 40 million individuals each.

The company also allows employees and employers to deposit part of pre-tax income and get tax advantages and health savings in the future through the financial services subdivision. Collaborative care allows physicians to connect to each other and logistics health provides mobile care delivery. OptumHealth’s products are offered on a risk basis, wherein the company assumes responsibility for health care costs and in turn earns fixed monthly premiums from policyholders. For financial services, the company also earns investment income on managed funds.

OptumInsight, which provides software and information products and services as well as advisory and outsourcing services to clients. The division primarily caters to hospitals and physicians as Medicaid and Medicare administrators. State and Federal government bodies as well as biotechnology, pharmaceutical and medical device companies also avail OptumInsight services.

OptumRx, is responsible for processing and paying prescription drug claims of its clients. It offers pharmacy benefits management (PBM)) services serving more than 14 million people nationwide by processing over 300 million retail, mail and specialty drug prescriptions annually. The division reported 8 million new customers through the first six months of 2013, driving the aforementioned growth in earnings. The company primarily provides pharmacies a good number of customers and negotiates prescription costs and processes these prescriptions for its customers.

A large chunk of the Optum’s revenues come from intersegment transactions, through sales of pharmacy benefit products and services to customers enrolled in private health insurance or Medicare plans. Three-fourths of the Optum division’s revenues through the first six months of the current year were through intersegment transactions. Therefore, we expect a high correlation between the growth in Optum revenues and enrollments in the insurance divisions. As highlighted in our article "A Look At UnitedHealth’s Private Health Insurance Business," we expect employment and individual policyholders to grow from 27 million at the end of 2012 to around 30 million by the end of the decade. This increase will be driven by the Patient Protection and Affordable Care Act (PPACA) as well as the organic population growth in the U.S. and will also allow UnitedHealth to expand its Optum division.

However, the main upside to the Optum division comes from margin expansion. After eliminating intersegment transactions, the pre-tax (EBIT) margin for Optum went up from 16% in the first six months of 2012 to 25% in the same period in 2013. Margins for OptumHealth went from 16% in 2012 to 27% in 2013, while those for OptumInsight and OptumRx went up from 22% and 13%, to 31% and 18% respectively. The company attributed this margin expansion to productivity gain from disciplined focus on 10 product families. Our current forecast accounts for a marginal near term decline in margins due to increased competition arising from the implementation of the PPACA, as well as increasing medical costs. However, our estimate for UnitedHealth’s EBITDA could increase by 10%, should the company maintain the current year margins through the decade. There is a 10% upside to our price estimate in the scenario.

Disclosure: No positions.

View the original article here

Implications Of The Pfizer Business Split

Details of the split

Pfizer (PFE) announced that it will split its business into three parts. While the separation of its genetics business into a separate unit had been widely anticipated, the split of its remaining business into two separate units took many analysts by surprise. Each of the three units will have its own emerging markets operation and the separation of the financials is expected to begin with the 2014 fiscal financial statements of Pfizer. The generics business will now be called the"value products group," and will include brands that have lost patent protection and products that will lose patent exclusivity by 2015. This business unit will also incorporate the company's portfolio of biosimilars. This is believed to be the precursor of a spinoff or a sale though the company refused to comment. The generics business will also handle partnerships for growing the off-patent business, including partnerships with Mylan Pharmaceuticals in Japan, China's Zhejiang Hisun Pharmaceutical and Laboratorio Teuto Brasileiro in Brazil.

The second unit will include drugs with patent protection beyond 2015 and will be called "innovative products." The third unit which was not expected in the course of the reorganization will include vaccines, oncology and consumer healthcare products. The company explained that the rationale for the third unit is that the products are operationally and commercially distinct with their own culture, research facilities and research focus. The company also did not want the vaccine business to be part of a larger primary care business.

Pfizer had already kicked off the reorganization process by spinning off its animal health unit Zoetis and taking it public. The IPO combined with a share swap meant that the company was able to avoid potentially large tax expenditures. The company also sold Capsugel in a deal worth $2.4 billion in 2011 to Kohlberg Kravis Roberts and its infant nutrition business in 2012 to Nestle (NSRGY.PK) for $12 billion and the sale proceeds were used to enhance its share buyback program.

Benefits of the split

Frank D'Amelio, Pfizer's chief financial officer, summarized the new strategy as follows: "This is all about getting these three businesses to hum internally, to operate with excellence inside the company." Analysts believe that this is a clever move that will provide investors with more clarity and transparency and allow an accurate valuation of the different parts of the company. It would also provide investors with value because some of the businesses after the split could well trade at P/E multiples in excess of the approximately 12.5 times at which the stock is currently trading. This strategy of separating a large diversified healthcare company into smaller pure play businesses has worked well for other companies. Abbott Laboratories (ABT), like Pfizer, was much too diversified to be able to control its risk and reward tradeoff. As a result, it spun off its blockbuster treatment, Humira, and its experimental pipeline drugs into a separate company, AbbVie, while retaining the other businesses. This worked very well for many investors. Conservative ones, concerned at the impending end of patent protection for Humira and Androgel, got to sell AbbVie and more adventurous ones were able to buy AbbVie because of the blockbuster potential of its pipeline drugs.

The urgency for the split

Pfizer had to do something drastic in order to resume its growth. It recently reported second quarter earnings of $0.56 per share, beating the Thomson Reuters consensus estimate of $0.55 per share but declining 10% from the same quarter of the previous year. Revenue also declined 7% to $12.97 billion, short of the consensus analysts' estimate of $13.01 billion. Much of the revenue decline can be attributed to the loss of patent exclusivity for the blockbuster Lipitor a treatment for high cholesterol, and volatile emerging markets. This decline was however partly offset by a 28% increase in cancer drugs especially the newer ones such as Inlyta and Xalkori. A large portion of second quarter income came from the public spinoff of animal health business Zoetis.

Over the last few years, generic manufacturers such as Actavis (ACT) and Teva Pharmaceutical Industries (TEVA) have turned into major threats to leading pharmaceutical companies because they have used business models based on lower margins but higher volumes. They have benefited from generic versions of Pfizer's treatments such as Viagra in nine important European markets where patent protection expired this year. Plenty of other manufacturers have announced plans to launch a generic version of Viagra which generated over $2 billion in revenue for Pfizer last year, most of it from the United States where it is protected until 2020. Spinning off the generics business will allow it to focus on growth at its own pace.

The investment thesis

The company says it does not intend to spin off or sell the three new business units until 2017 but this does not preclude other large companies offering to buy the generics business. I cannot see the company not selling especially if the price is attractive. The split will take time to accomplish and add value to the stock price. You should not expect much short term capital appreciation but console yourself with a stable stock price and the 3.3% dividend yield. Keep an eye on the performance of the three separate businesses with a view to future investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Business relationship disclosure: The article has been written by an Analyst at ResearchCows, ResearchCows is not receiving compensation for it (other than from Seeking Alpha). ResearchCows has no business relationship with any company whose stock is mentioned in this article. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the company's SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

How would you like your alerts on   delivered?

Added to your bookmarks on the Seeking Alpha homepage

new SA.Pages.Article.bookmark("_bottom");

View the original article here

The Lancet: UK government is treating NHS like a failing bank or business

Main Category: Public Health
Article Date: 16 Aug 2013 - 2:00 PDT Current ratings for:
The Lancet: UK government is treating NHS like a failing bank or business

An Editorial published in The Lancet today [Friday 16 August] examines recent turmoil in the NHS, accusing the UK government of appearing to treat the NHS as a failing bank or business, based on recent headlines about NHS 'bailouts' and cost-cutting. According to the journal Editors, "This stance is one of the most cynical, and at the same time cunning, ways by which the government abdicates all responsibilities for running a health-care system that has patient care and safety at its heart."

The Editors implicate recent NHS reorganisation in creating a system where the state's responsibility to provide health services has become so fragmented that "The exact responsibilities are at best complex, not easily understood, and at worst deliberately obfuscated. Who exactly is leading and to what end is even less clear." While the Editors welcome the conclusions of Don Berwick's recent report, Improving the Safety of Patients in England, they warn that its recommendations will need to be taken seriously by the next Chief Executive of the NHS if they are to "have the slightest chance of turning around the NHS from its current path to a market commodity to its true purpose of a compassionate, free, equitable, and effective health system with patients' health, wellbeing, and dignity as its goal and top priority."

In a Comment published in the same issue, Professor Sir Brian Jarman, of the Dr Foster Intelligence Unit at Imperial College Faculty of Medicine, London, UK highlights the fact that despite extensive regulatory reorganisation in recent years, the NHS still has no official investigator of poor clinical care, and urges policy makers to introduce a number of measures to improve the quality of care in UK hospitals.

Amongst other recommendations, Professor Jarman suggests that Independent Review Panels (which formerly investigated patients' complaints about hospital services, before being abolished in 2004) and Community Health Councils should be reintroduced, along with a regular monitoring system for complaints, similar to the mortality alerts which ultimately led to the uncovering of the Mid Staffordshire hospital scandal. According to Professor Jarman, "There has been a decade of concerns about the quality of care in our hospitals: patients have been ignored, the regulatory systems have failed, and there has been a culture of denial. With political will the proposed reforms could lead to marked improvements."

Article adapted by Medical News Today from original press release. Click 'references' tab above for source.
Visit our public health section for the latest news on this subject. Please use one of the following formats to cite this article in your essay, paper or report:

MLA

Lancet, The. "The Lancet: UK government is treating NHS like a failing bank or business." Medical News Today. MediLexicon, Intl., 16 Aug. 2013. Web.
16 Aug. 2013. APA

Please note: If no author information is provided, the source is cited instead.

'The Lancet: UK government is treating NHS like a failing bank or business'

Please note that we publish your name, but we do not publish your email address. It is only used to let you know when your message is published. We do not use it for any other purpose. Please see our privacy policy for more information.

If you write about specific medications or operations, please do not name health care professionals by name.

All opinions are moderated before being included (to stop spam). We reserve the right to amend opinions where we deem necessary.

Contact Our News Editors

For any corrections of factual information, or to contact the editors please use our feedback form.

Please send any medical news or health news press releases to:

Note: Any medical information published on this website is not intended as a substitute for informed medical advice and you should not take any action before consulting with a health care professional. For more information, please read our terms and conditions.

View the original article here