Upgrading to Buy PT $71: KOL Feedback on DRP Too Good to Overlook;
MDD An Undervalued Option With Data Coming Shortly
We are upgrading ACAD to Buy from Hold. We’ve been skeptical on whether pimavanserin is “that good of a drug”, and after a big stock move following last year’s DRP data, we felt we missed it. But after a more recent round of KOL checks, our thinking has evolved in a few ways: (1) regardless of how one views the totality of the DRP/Alzheimer’s Disease Psychosis efficacy data, the safety
argument for prescribing pimavanserin in this population is very strong, perhaps more so than in
Parkinson’s, (2) specialists agree that ADP could really be ~10x as common as PDP and (3) while
pimavanserin in MDD is definitely risky, we think the drug is active here, and we believe optionality
of possible indication expansion is undervalued. We’ve increased our target price to $71 from $41,
mainly on increased DRP sales (2025: ~$2B from ~$1B), still based on a realistic penetration (10%).
Why we’ve been ACAD skeptics for some time… We’ve never had a doubt that pimavanserin is a
very safe drug. But one of our overarching concerns has been that mechanistically, pimavanserin, with no
blockade of the dopamine pathway, will never be as effective as other atypical antipsychotics. Various clinical
data suggest this: pimavanserin went 1/3 in PDP studies, schizophrenia results are mixed, and the DRP
ph3, while outstanding, follows a more mixed dataset from ph2. So when the stock traded up substantially on
the DRP data, we raised our sales numbers, but, simply put, we had reservations with the idea of modeling
pimavanserin as a big time blockbuster.
But our views have changed: we’re now more optimistic on pimavanserin in Dementia (i.e.
Alzheimer’s) Related Psychosis for a few reasons. For one, from our KOL checks, the prescribing
equation in Alzheimer’s is fundamentally different. In PDP the main concern is controlling psychosis while
avoiding motor-related side effects, but most physicians are comfortable managing this risk with low dose
quetiapine, an old/cheap drug. In ADP the issues are worsening cognition, sedation, weight/metabolic issues
and a risk of death, and while pimavanserin may still have a (modified) black box warning, the prevailing
view we’ve heard from specialists is that the drug’s differentiated safety profile makes it a go-to option in
Alzheimer’s. DRP also may require less market activation in driving initial uptake: in Parkinson’s one of the
challenges was getting movement disorder specialists to really acknowledge that psychosis is a significant
problem, whereas in Alzheimer’s, the feedback from KOLs on the market size and the salience of psychosis
as a medical issue is in agreement with ACAD’s bullish prevalence estimates.
Should we be worried about lingering FDA approval risk for pimavanserin in DRP? As we’ve
discussed, there could be an efficacy question with pimavanserin if one wanted to stringently nitpick the ADP
ph2 data and make the claim that the DRP ph3 was enriched to the point that it was intrinsically unlikely for
the trial to fail. But precedent at the psychiatry division would suggest that this isn’t really how the regulators
think about these types of studies; within we outline informative commentary from the Esketamine AdComm,
while the recent approval of Lumateperone is reflective of FDA leniency surrounding psych drugs that are
safe. ACAD also received breakthrough therapy designation which was announced alongside the ph3 DRP
design, and from our checks physicians are consistently agnostic to the reality that the strongest evidence
for pimavanserin in DRP comes from a relapse-prevention study (which bodes well if there's a panel).
MDD–an undervalued option? This isn’t a table pounder for us, depression is risky, and if MDD fails we’d
defend a weak stock on DRP regardless. But there’s a view out there from some investors that pimavanserin,
commercially speaking, just isn’t set up for MDD because of its very high price. However, a substantial
proportion of Parkinson’s, Alzheimer’s, and other dementia patients suffer from depression. So while pim's
price would likely cap penetration in traditional MDD, having a depression claim could increase value/
penetration in PDP/DRP, which on its own is enough to be excited about the option.