ACADIA Pharmaceuticals(ACAD) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and operational results Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $139,833 | $147,435 | | Investment securities, available-for-sale | 296,518 | 373,271 | | Total current assets | 532,519 | 617,823 | | Total assets | $612,766 | $700,122 | | Total current liabilities | 117,681 | 96,068 | | Total liabilities | 177,918 | 159,228 | | Total stockholders' equity | 434,848 | 540,894 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Product sales, net | $134,563 | $115,221 | $250,031 | $221,775 | | Total revenues | 134,563 | 115,221 | 250,031 | 221,775 | | Total operating expenses | 168,214 | 158,930 | 396,698 | 332,256 | | Loss from operations | (33,651) | (43,709) | (146,667) | (110,481) | | Net loss | $(34,011) | $(43,871) | $(147,067) | $(110,319) | | Net loss per common share, basic and diluted | $(0.21) | $(0.27) | $(0.91) | $(0.69) | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(34,011) | $(43,871) | $(147,067) | $(110,319) | | Unrealized (loss) gain on investment securities | (236) | 5 | (658) | (1) | | Foreign currency translation adjustments | 5 | (1) | 7 | 3 | | Comprehensive loss | $(34,242) | $(43,867) | $(147,718) | $(110,317) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(89,454) | $(85,476) | | Net cash provided by investing activities | 75,548 | 13,670 | | Net cash provided by financing activities | 6,298 | 12,731 | | Net decrease in cash, cash equivalents and restricted cash | $(7,602) | $(59,072) | | Cash, cash equivalents and restricted cash, End of period | $145,603 | $272,726 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Item | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total stockholders' equity, beginning balances | $540,894 | $627,009 | | Additional paid-in capital, ending balance | 2,736,318 | 2,660,809 | | Accumulated deficit, ending balance | (2,300,643) | (2,096,025) | | Total stockholders' equity, ending balances | $434,848 | $564,838 | Notes to Condensed Consolidated Financial Statements Note 1. Organization and Business Acadia Pharmaceuticals Inc is a biopharmaceutical company specializing in medicines for central nervous system disorders - Acadia Pharmaceuticals Inc focuses on developing and commercializing medicines for central nervous system disorders[18] - The company's first drug, NUPLAZID® (pimavanserin), was approved by the FDA in April 2016 for the treatment of hallucinations and delusions associated with Parkinson's disease psychosis (PDP)[19] Note 2. Basis of Presentation and Significant Accounting Policies The basis for preparing the unaudited financial statements is outlined, including the impact of COVID-19 - The COVID-19 pandemic has negatively impacted the growth of NUPLAZID sales due to reduced patient office visits, lower occupancy rates at long-term care facilities, and decreased access to healthcare professionals[21] Reconciliation of Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | Beginning of period (2022) | End of period (2022) | Beginning of period (2021) | End of period (2021) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $147,435 | $139,833 | $326,028 | $266,956 | | Restricted cash | 5,770 | 5,770 | 5,770 | 5,770 | | Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $153,205 | $145,603 | $331,798 | $272,726 | Note 3. Net Loss Per Share The calculation of net loss per share excludes anti-dilutive securities due to the company's net loss position - Approximately 21,646,000 shares (June 30, 2022) and 19,489,000 shares (June 30, 2021) from stock options, employee stock purchase plan rights, restricted stock units, and warrants were excluded from diluted net loss per share calculations because their effect would have been anti-dilutive[27] Note 4. Stock-Based Compensation Stock-based compensation expenses are detailed across various operational cost categories for recent reporting periods Stock-Based Compensation Expense (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cost of product sales | $346 | $423 | $669 | $586 | | Research and development | 7,232 | 7,319 | 12,696 | 12,149 | | Selling, general and administrative | 12,934 | 14,263 | 22,110 | 22,454 | | Total | $20,512 | $22,005 | $35,475 | $35,189 | Note 5. Balance Sheet Details Detailed breakdowns of inventory and accrued liabilities are provided for the current and prior year-end periods Inventory Composition (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Finished goods | $2,081 | $1,114 | | Work in process | 4,246 | 6,767 | | Raw material | 6,205 | 6,217 | | Total | $12,532 | $14,098 | | Reported as: | | | | Inventory | $6,327 | $7,881 | | Long-term inventory | 6,205 | 6,217 | Accrued Liabilities Composition (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accrued research and development services | $39,767 | $27,270 | | Accrued compensation and benefits | 23,351 | 25,896 | | Accrued sales allowances | 14,237 | 15,717 | | Accrued consulting and professional fees | 11,441 | 9,319 | | Current portion of lease liabilities | 9,024 | 8,304 | | Current portion of accrued branded prescription drug fees | 7,021 | 1,959 | | Other | 986 | 727 | | Total | $105,827 | $89,192 | Note 6. Investments The company's available-for-sale investment portfolio composition and impairment evaluation are detailed Investment Securities, Available-for-Sale (June 30, 2022, in thousands) | Security Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | | U.S. Treasury notes | $67,568 | — | $(92) | $67,476 | | Government sponsored enterprise securities | 49,502 | — | (92) | 49,410 | | Municipal bonds | 25,869 | — | (66) | 25,803 | | Commercial paper | 154,430 | 32 | (633) | 153,829 | | Total | $297,369 | $32 | $(883) | $296,518 | Investment Securities, Available-for-Sale (December 31, 2021, in thousands) | Security Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | | U.S. Treasury notes | $140,287 | — | $(100) | $140,187 | | Government sponsored enterprise securities | 49,512 | — | (38) | 49,474 | | Corporate debt securities | 26,006 | — | (22) | 25,984 | | Commercial paper | 157,670 | 9 | (53) | 157,626 | | Total | $373,475 | $9 | $(213) | $373,271 | - As of June 30, 2022, the company had 43 available-for-sale investment securities in an unrealized loss position, with total estimated fair value of $270,873 thousand and unrealized losses of $(883) thousand[37][38] - The company does not intend to sell these investments and does not expect to incur credit losses[39] Note 7. Fair Value Measurements The fair value hierarchy and valuation methods for financial assets and liabilities are described Fair Value Measurements at June 30, 2022 (in thousands) | Item | Total Fair Value | Level 1 (Quoted Prices) | Level 2 (Observable Inputs) | Level 3 (Unobservable Inputs) | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Money market fund | $92,926 | $92,926 | — | — | | U.S. Treasury notes | 67,476 | 67,476 | — | — | | Equity securities | 3,481 | 3,481 | — | — | | Government sponsored enterprise securities | 65,377 | — | 65,377 | — | | Municipal bonds | 25,802 | — | 25,802 | — | | Commercial paper | 162,824 | — | 162,824 | — | | Total Assets | $417,886 | $163,883 | $254,003 | — | | Liabilities | | | | | | Cash awards | $694 | — | — | $694 | | Total Liabilities | $694 | — | — | $694 | Changes in Estimated Fair Value of Contingent Cash Awards (Six Months Ended June 30, 2022, in thousands) | Item | Amount | | :--- | :--- | | Balance as of December 31, 2021 | $603 | | Vesting of awards | 1,153 | | Expense forfeited | (55) | | Change in fair value | (1,007) | | Balance as of June 30, 2022 | $694 | Note 8. Stockholders' Equity A cash bonus plan for employees is detailed, contingent on employment and stock price targets - A cash bonus plan for employees (excluding executive management) was established in November 2021, with a maximum potential payout of $15.1 million at the grant date[48] - The fair value of these awards at June 30, 2022, was approximately $2.1 million, with a maximum potential payout of $13.3 million after adjusting for forfeitures[48] - During the three months ended June 30, 2022, the company recorded a reversal of $0.8 million in compensation cost related to these awards, and a total of $0.1 million compensation cost for the six months ended June 30, 2022[48] Note 9. Commitments and Contingencies The company's collaboration agreements, potential milestone payments, and significant legal proceedings are outlined - The company may be required to make aggregate milestone payments up to $3.1 billion under various collaboration, licensing, and merger agreements as of June 30, 2022[49] - Key agreements include a license with Neuren for trofinetide ($455.0 million in potential milestones), Vanderbilt University for the M1 PAM program ($515.0 million in potential milestones), and Stoke Therapeutics for RNA-based medicines ($907.5 million in potential milestones)[50][52][54] - The company is involved in patent infringement lawsuits against several generic drug manufacturers (Aurobindo, Teva, MSN, Zydus) regarding NUPLAZID, with a joint trial scheduled for May 15, 2023[59][61] - A securities class action complaint (Marechal v Acadia Pharmaceuticals, Inc) was filed in April 2021, alleging violations of the Securities Exchange Act related to pimavanserin's sNDA for Alzheimer's disease psychosis[62] Note 10. Leases Operating lease commitments for facilities and equipment are detailed, including costs and maturity schedules Operating Lease Costs (in thousands) | Period | 2022 (Three Months) | 2021 (Three Months) | 2022 (Six Months) | 2021 (Six Months) | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost | $1,737 | $2,624 | $3,848 | $5,002 | Supplemental Cash Flow Information Related to Leases (in thousands) | Item | 2022 (Three Months) | 2021 (Three Months) | 2022 (Six Months) | 2021 (Six Months) | | :--- | :--- | :--- | :--- | :--- | | Operating cash flows from operating leases | $2,285 | $696 | $4,428 | $1,710 | | Right-of-use assets obtained in exchange for operating lease obligations | 881 | 17,377 | 2,321 | 17,377 | Maturities of Lease Liabilities (in thousands) | Period | Operating Leases | | :--- | :--- | | Remainder of 2022 | 4,608 | | Years ending December 31, 2023 | 9,377 | | Years ending December 31, 2024 | 8,655 | | Years ending December 31, 2025 | 8,735 | | Years ending December 31, 2026 | 8,099 | | Thereafter | 36,642 | | Total lease payments | 76,116 | | Less: Imputed interest | (12,399) | | Total operating lease liabilities | 63,717 | - As of June 30, 2022, the weighted average remaining lease term was 8.4 years, and the weighted average discount rate used was 4.4%[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, pipeline updates, and future outlook Overview - The COVID-19 pandemic has negatively impacted NUPLAZID sales growth due to reduced patient office visits, lower long-term care facility occupancy, and reduced access to healthcare professionals[76] - The company submitted an NDA for trofinetide for Rett syndrome in July 2022, following positive Phase 3 Lavender study results[79] - The FDA issued a complete response letter (CRL) for the resubmission of pimavanserin for Alzheimer's disease psychosis (ADP) in August 2022, and the company is not planning additional studies for pimavanserin in ADP at this time[80] - The ACP-044 pain program and ACP-319 M1 PAM program have been discontinued[80] - The company had an accumulated deficit of $2.3 billion as of June 30, 2022, and expects to incur operating losses for the next few years[81] Financial Operations Overview - Net product sales are derived solely from NUPLAZID, approved in April 2016 and launched in May 2016[83] - Cost of product sales includes third-party manufacturing, freight, indirect overhead, and potential period costs for inventory[84] - License fees and royalties previously included payments to the Ipsen Group, which terminated in October 2021[85] - Research and development expenses are primarily for external service providers, personnel, facilities, and pre-commercial product candidates, charged to operations as incurred[86] - Selling, general and administrative expenses cover commercial personnel, medical education, executive functions, external commercial support, professional fees, and intellectual property costs[93] Results of Operations Comparison of the Three Months Ended June 30, 2022 and 2021 Net product sales increased due to a higher average selling price, while operating expenses saw mixed changes - Net product sales (NUPLAZID) increased by $19.4 million to $134.6 million for the three months ended June 30, 2022, from $115.2 million in the prior year, driven by a higher average net selling price[96] - Research and development expenses increased to $75.6 million (including $7.2 million stock-based compensation) for the three months ended June 30, 2022, from $56.9 million (including $7.3 million stock-based compensation) in 2021, mainly due to increased costs for early-stage development programs[99] - Selling, general and administrative expenses decreased to $89.9 million (including $12.9 million stock-based compensation) for the three months ended June 30, 2022, from $96.8 million (including $14.3 million stock-based compensation) in 2021, primarily due to reduced advertising and promotional costs[100] - License fees and royalties decreased to $0 for the three months ended June 30, 2022, from $2.7 million in 2021, due to the termination of the royalty obligation in October 2021[97] Comparison of the Six Months Ended June 30, 2022 and 2021 Net product sales grew, while a significant upfront payment drove a substantial increase in R&D expenses - Net product sales (NUPLAZID) increased by $28.2 million to $250.0 million for the six months ended June 30, 2022, from $221.8 million in the prior year, primarily due to a higher average net selling price[101] - Research and development expenses increased to $204.5 million (including $12.7 million stock-based compensation) for the six months ended June 30, 2022, from $113.9 million (including $12.1 million stock-based compensation) in 2021, mainly due to a $60 million upfront payment to Stoke for a license and collaboration agreement[105] - Selling, general and administrative expenses decreased to $186.6 million (including $22.1 million stock-based compensation) for the six months ended June 30, 2022, from $208.5 million (including $22.5 million stock-based compensation) in 2021, primarily due to decreased advertising, promotional, and personnel costs[107] - License fees and royalties decreased to $0 for the six months ended June 30, 2022, from $5.2 million in 2021, due to the termination of the royalty obligation in October 2021[104] Liquidity and Capital Resources - As of June 30, 2022, cash, cash equivalents, and investment securities totaled $436.4 million, a decrease of $84.3 million from December 31, 2021, primarily due to cash used in operating activities[115] - Net cash used in operating activities increased to $89.5 million for the six months ended June 30, 2022, compared to $85.5 million in 2021, driven by increased R&D costs offset by higher net revenues[115] - Net cash provided by investing activities increased to $75.5 million for the six months ended June 30, 2022, from $13.7 million in 2021, mainly due to increased net maturities of investment securities[116] - Net cash provided by financing activities decreased to $6.3 million for the six months ended June 30, 2022, from $12.7 million in 2021, primarily due to a decrease in proceeds from employee stock option exercises[117] - The company expects existing cash, cash equivalents, and investment securities to fund operations for at least the next 12 months, but significant additional financing may be required in the future[108][111] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risks, primarily interest rate risk, is assessed as not material - The company invests excess cash in investment-grade, interest-bearing securities (money market funds, U.S. Treasury notes, high-quality marketable debt instruments) with maturities generally less than one year[121] - A 10% change in interest rates as of June 30, 2022, would not have a material effect on the fair value of the company's investment portfolio[121] Item 4. Controls and Procedures Management concludes that disclosure controls and procedures were effective with no material changes to internal controls - The company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2022[123] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the latest fiscal quarter[124] PART II. OTHER INFORMATION Item 1. Legal Proceedings Details on legal proceedings are incorporated by reference from the financial statement notes - Information on legal proceedings is incorporated by reference from Note 9 to the condensed consolidated financial statements[126] Item 1A. Risk Factors The company faces significant risks related to commercialization, regulation, finances, and intellectual property Summary Risk Factors - The company's prospects are highly dependent on the successful commercialization of NUPLAZID[128] - Failure to obtain regulatory approval for pimavanserin in other indications or trofinetide for Rett syndrome will limit commercial revenues[128] - NUPLAZID is subject to substantial, ongoing regulatory requirements, and its approval terms may limit commercial potential[128] - The company expects net losses to continue for the next few years and cannot predict future profitability[128] - Public health threats, including COVID-19, have impacted clinical trials and could adversely affect operations and financial results[130] Risks Related to Our Business - Commercialization of NUPLAZID is subject to risks, including market acceptance, physician prescription rates, patient adherence, and potential safety concerns, which could limit its market potential[132][135] - The FDA issued a Complete Response Letter for pimavanserin in Alzheimer's disease psychosis (ADP), and the company is not planning additional studies for this indication[136][179] - Clinical trials are long, expensive, and unpredictable, with a high risk of failure, as demonstrated by previous unsuccessful Phase 3 trials for pimavanserin in MDD and inadequate response schizophrenia[176][178] - Delays, suspensions, or terminations in clinical trials due to various factors (e.g., patient enrollment, adverse events, regulatory holds) could increase costs and delay product revenue generation[184][185][188] - The company's success depends on attracting and retaining highly qualified management, scientific, and commercial personnel, especially in CNS disorders, facing intense competition for talent[189][190] - Failure to develop, acquire, or in-license other product candidates or products would limit business prospects and the ability to leverage the commercial organization established for NUPLAZID[195][196] - The company had an accumulated deficit of approximately $2.3 billion as of June 30, 2022, and expects to incur net losses for at least the next few years[198][199] - Significant additional financing may be required to fund operations, and the inability to obtain such capital could lead to delays, reduced scope, or elimination of R&D programs or commercialization efforts[202][203] Risks Related to Our Relationships with Third Parties - The company relies on third-party collaborations for product development and commercialization, with limited control over their resource allocation and strategic decisions[224][225] - Conflicts with collaborators could impair product candidate progress, harm reputation, and result in revenue loss[231] - Reliance on third parties for clinical trials, data collection, and analysis poses risks of delays, increased costs, and compromised data quality if they fail to perform or meet regulatory obligations[234][235][236] - The company depends on third-party manufacturers for NUPLAZID, trofinetide, and other product candidates, and any failure in their supply, quality control, or regulatory compliance could jeopardize commercialization and development[241][243][246] - Failure to comply with obligations under intellectual property license agreements (e.g., with Neuren, Vanderbilt, Stoke) could lead to termination of licenses and loss of marketing rights for covered products[252] Risks Related to Our Intellectual Property - The company's commercial success depends on obtaining and maintaining intellectual property rights, including patents and trade secrets, and defending them against third-party challenges[258] - Patent applications may not result in issued patents, or issued patents may be challenged, circumvented, or invalidated, potentially leading to generic competition (e.g., ANDA filings for NUPLAZID)[259][261] - Trade secrets are difficult to protect, and confidentiality agreements may not adequately prevent disclosure, potentially limiting competitive advantage[265][266] - Intellectual property litigation, including post-issuance review proceedings (IPR, post-grant review), is costly, time-consuming, and unpredictable, with a high risk of patent invalidation[269][270][271] - Changes in patent laws or their interpretations (e.g., U.S. Supreme Court decisions, America Invents Act) could negatively impact patentability, exclusivity periods, and enforcement capabilities[278][279] Risks Related to Government Regulation and Our Industry - Healthcare reform measures, such as the ACA and subsequent legislative changes, could negatively impact the company's ability to sell NUPLAZID profitably through more rigorous coverage criteria, increased rebates (e.g., Medicaid Drug Rebate Program changes), and downward pressure on drug prices[283][284][285] - The company is subject to federal, state, and foreign healthcare and data protection laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, GDPR), and non-compliance could lead to substantial penalties, fines, exclusion from healthcare programs, and reputational harm[290][292][293][304] - Promoting NUPLAZID for 'off-label' uses could result in significant liability, including civil and criminal sanctions, and diversion of management's attention[309][310] - Changes or disruptions at the FDA and other government agencies (e.g., government shutdowns, resource reallocation due to COVID-19) could delay or prevent timely development and commercialization of new products[312][313] - Intense competition from pharmaceutical and biotechnology companies, including off-label use of generic drugs, could reduce or eliminate the commercial opportunity for NUPLAZID and other product candidates[320][321][324] - Product liability lawsuits, arising from commercial sales or clinical testing, could result in substantial liabilities, decreased demand, reputational damage, and limitations on commercialization or development[325][326][327] - Compromise of information technology systems or data due to cyberattacks, ransomware, or other security breaches could lead to operational interruptions, clinical trial disruptions, data loss, and claims of non-compliance with data protection obligations[328][331][332][334] Risks Related to Our Common Stock - The company's stock price has historically been, and is likely to remain, highly volatile due to factors such as commercialization success of NUPLAZID, regulatory developments, clinical trial results, market trends, and litigation[339] - Sales of substantial amounts of common stock by officers, directors, and largest stockholders (e.g., Baker Entities) could significantly reduce the market price of the stock[341] - Anti-takeover provisions in charter documents and Delaware law may make an acquisition more complicated and make it difficult to remove and replace directors and management[344][345] - The company does not intend to pay dividends in the foreseeable future, meaning investors must rely on stock appreciation for any return on investment[348][349] General Risk Factors - Management has broad discretion over the use of cash, which may not always align with stockholder interests or increase market value[350][351] - The company incurs significant costs due to laws and regulations related to corporate governance (e.g., Dodd-Frank, Sarbanes-Oxley), which could impact business and financial results[352][353] - Changes in financial accounting standards, such as those related to revenue recognition or leases, may harm results of operations and require updates to internal controls[354][355] - Adverse securities and credit market conditions, including volatility from the COVID-19 pandemic, may significantly affect the company's ability to raise capital on acceptable terms[356][358] Item 6. Exhibits A list of exhibits filed with the Form 10-Q is provided SIGNATURES The report is certified with official signatures, confirming its due authorization