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ACADIA: The Street’s Gaze Turns to FDA Meeting’s Outcome on DRP Treatment

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The tech giants’ Q2 earnings might be behind us, but there is still plenty of intrigue left among those yet to report the second quarter’s financials to keep avid Street watchers satisfied.

One such company sure to draw attention this week will be ACADIA Pharmaceuticals (ACAD), due to announce the quarter’s display on Wednesday (Aug 4, AMC). While investors be keen to gauge the company’s financial health, ears will be pricking up to hear what’s new regrading Nuplazid, Acadia’s potential treatment for patients with dementia-related psychosis (DRP).

Earlier in the year, ACADIA was the recipient of the FDA’s CRL (complete response letter) after the regulatory body notified the company it had found deficiencies in the supplemental New Drug Application (sNDA) for the treatment.

Since then, ACADIA has had a Type A meeting with the FDA in which it submitted a package outlining its case. For those following the developments, such as Canaccord’s Sumant Kulkarni, the FDA’s stance at the time of the rejection appeared somewhat puzzling.

“Recall ACAD had stopped the HARMONY trial early due to positive efficacy in DRP, which is an indication that has no specifically approved product in the US,” said the 5-star analyst. “In what was a surprising move to us, and the market, the FDA seemingly changed the goalposts on ACAD by focusing more on subgroups within DRP in its sNDA review vs. treating DRP as a whole.”

Although Nuplazid is already approved to treat Parkinson's disease psychosis (PDP), and is generating more than $500 million in annual sales, Kulkarni believes the “intense investor focus” is down the fact the unmet need and market opportunity for the DRP indication is a much bigger one. Should the company manage to get the FDA to change its mind and instigate a more favourable outcome, the analyst thinks ACAD shares will look “significantly undervalued.”

However, while Kulkarni remains “constructive on valuation,” he says it is “difficult to convince investors to buy the stock mainly on this basis.”

It’s a Hold rating, then, backed by a $27 price target. Nevertheless, the target still implies ~25% upside potetntial from current levels. (To watch Kukarni’s track record, click here)

Most analysts agree with Kulkarni’s thesis. Although the analyst consensus rates the stock a Moderate Buy, the rating is based on 7 Holds vs. 4 Buys. That said, there is a bullish tilt to the price target; at $26.70, the figure represents potential upside of ~23% on the one-year horizon. (See ACAD stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.