Is Acadia a Buy Following the FDA’s CRL? J.P. Morgan Says ‘Yes’

Just because a negative outcome can be anticipated, it still hits hard when it becomes a reality. Accordingly, Acadia (ACAD) investors got the blues on Monday. Shares cratered by 17% after the company received the dreaded CRL (complete response letter) from the FDA.

The rejection was for Nuplazid, Acadia’s treatment for patients with dementia-related psychosis (DRP) and follows on from last month’s notification letter which cited deficiencies in the supplemental New Drug Application (sNDA).

While J.P. Morgan’s Cory Kasimov says the CRL was ‘expected,” the reasoning appears confusing.

“What does come as a surprise, is the apparent shift in the regulator’s stance on the adequacy of the clinical package given the agreed-upon Ph3 HARMONY design following the end of phase 2 meeting (and statistical significance observed in that study),” the 5-star analyst said. “Notably, today’s CRL cited a lack of statistical significance in some subgroups of the Ph3 HARMONY study and insufficient patient numbers with certain less common subtypes of dementia… factors that the design of the study was never powered to demonstrate.”

Further adding to the mystery is the fact the Phase 3 HARMONY trial met all its primary and secondary endpoints, and thus “makes the situation puzzling to say the least.” No safety issues were cited in the CRL, either

So, what’s next? Management will promptly ask for a Type A meeting with the regulators which will take place within 30 days of the request.

“As such,” Kasimov notes, “We await visibility on whether the CRL will result in a multi-month or multi-year delay to re-assess the mid-to long-term outlook for Nuplazid.”

In the meantime, until further clarity, Kasimov expects the “weakness to persist,” although the analyst believes not all hope is lost yet. Based on the compelling data to date, Kasimov says the indication is ultimately “approvable.” However, “that has to be balanced against the opportunity cost of a potentially extended wait.”

All in all, however, Kasimov sticks to an Overweight (i.e. Buy) rating and $42 price target. ACAD stock is down ~60% year-to-date and the vote of confidence, despite the issues, suggests a 103% upside potential. (To watch Kasimov’s track record, click here)

Kasimov represents the bullish view – Wall Street is somewhat divided on this stock. There are 20 recent reviews, 10 to Buy and 10 to Hold, making the consensus rating a Moderate Buy. While lower than Kasimov’s forecast, the $32.41 average price target still suggests a potential upside of 57%. (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.

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