U.S. Markets closed

Here's Why Acadia Pharmaceuticals Inc. Spiked Over 26% Today

Brian Orelli, The Motley Fool

What happened

Shares of Acadia Pharmaceuticals (NASDAQ: ACAD) spiked 26.6% on Thursday after the U.S. Food and Drug Administration said it hadn't identified "any new or unexpected safety findings with Nuplazid, or findings that are inconsistent with the established safety profile currently described in the drug label."

So what

The FDA review comes after a CNN report in April -- though not mentioned by name in the review -- highlighted more than 700 deaths, including at least 500 where there was belief by the reporter that the drug might be involved with the death.

But the thing with postmarketing reports of deaths and serious adverse events is that they're biased toward new drugs like Nuplazid -- doctors are less likely to report known side effects of older drugs -- and drugs like Nuplazid that are distributed through patient support programs and specialty pharmacy networks are also more likely to be called out since there's more of a working relationship between the doctor/patient and the company. The reports also don't give an idea of the rates of death or side effects since people don't report when drugs work without any issues.

Man holding a bull and bear statue in each hand with bull outstreatched

Image source: Getty Images.

When the FDA looked further into the reports, the agency determined that the postmarketing data was consistent with what was seen in the clinical trials Acadia Pharmaceuticals used to get the drug approved. That isn't to say Nuplazid is benign -- it still has a boxed warning that it can increase the risk of death in elderly patients with dementia-related psychosis -- but the rate doesn't appear to be higher than expected.

Now what

Today's news is certainly good for Acadia Pharmaceuticals, but whether it results in a return to business as usual remains to be seen. Despite the FDA concluding that the drug's benefits justify the risks, doctors may decide to use it only on their most psychotic patients, reducing Nuplazid's potential market. It'll take a few quarters for the news and its effect on prescriptions to work their way into Acadia's financial statements.

More From The Motley Fool

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.