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This Explains Why Acadia Pharmaceuticals Is Selling Off Today

Brian Feroldi, The Motley Fool

What happened

Shares of Acadia Pharmaceuticals (NASDAQ: ACAD) dropped 19% as of 3:00 p.m. EDT on Wednesday after a news report was published on CNN stating that the Food and Drug Administration (FDA) will re-examine the safety profile of its Parkinson's Disease Psychosis (PDP) drug Nuplazid.

So what

CNN is reporting that FDA Commissioner Scott Gottlieb was asked about Nuplazid last week during a budget hearing with Congress. At the time, he promised Congress that he would "take another look" at the drug.

CNN confirmed today in a news report that the agency had already begun conducting a new evaluation of the drug. In fact, the report states that the review had begun several weeks ago, which coincides perfectly with the timing of another CNN report that highlighted a growing number of patient deaths and adverse events that may be related to the use of Nuplazid.

This news report isn't sitting well with traders, which is why shares are being mauled today.

Man with head against wall in conference room

Image source: Getty Images.

Now what

Hearing that the FDA has opened up an investigation to re-examine Nuplazid certainly isn't good news for investors. The best-case scenario is that the FDA takes another look at the drug and does nothing. The worst case is that they determine that the benefits of using Nuplazid do not outweigh the risks and they decide to pull the drug from the market. If that happens, then the bull case for owning Acadia will be obliterated. 

Which way the agency is going to lean at this point is anyone's guess. Bulls and bears alike should proceed with caution.

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