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EX-32.1 - EX-32.1 - ACADIA PHARMACEUTICALS INCacad-ex321_10.htm
EX-31.1 - EX-31.1 - ACADIA PHARMACEUTICALS INCacad-ex311_6.htm
EX-10.1 - EX-10.1 - ACADIA PHARMACEUTICALS INCacad-ex101_302.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50768

 

ACADIA PHARMACEUTICALS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

06-1376651

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

3611 Valley Centre Drive, Suite 300

San Diego, California

92130

(Address of Principal Executive Offices)

(Zip Code)

(858) 558-2871

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Total shares of common stock outstanding as of the close of business on October 31, 2018:

 

Class 

 

Number of Shares Outstanding 

Common Stock, $0.0001 par value

 

125,074,557

 

 

 

 


 

ACADIA PHARMACEUTICALS INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

PAGE NO.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

21

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

22

 

 

 

 

 

Item 1A.

 

Risk Factors

 

22

 

 

 

 

 

Item 6.

 

Exhibits

 

51

 

 

 

SIGNATURES

 

52

 

 

 

i


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,897

 

 

$

69,418

 

Investment securities, available-for-sale

 

 

150,239

 

 

 

271,924

 

Accounts receivable, net

 

 

19,958

 

 

 

17,343

 

Interest and other receivables

 

 

724

 

 

 

1,087

 

Inventory

 

 

4,347

 

 

 

5,248

 

Prepaid expenses

 

 

14,951

 

 

 

8,457

 

Total current assets

 

 

254,116

 

 

 

373,477

 

Property and equipment, net

 

 

3,372

 

 

 

2,662

 

Intangible assets, net

 

 

4,431

 

 

 

5,538

 

Restricted cash

 

 

3,111

 

 

 

2,475

 

Other assets

 

 

1,426

 

 

 

354

 

Total assets

 

$

266,456

 

 

$

384,506

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,955

 

 

$

8,786

 

Accrued liabilities

 

 

38,852

 

 

 

40,244

 

Total current liabilities

 

 

41,807

 

 

 

49,030

 

Long-term liabilities

 

 

1,209

 

 

 

191

 

Total liabilities

 

 

43,016

 

 

 

49,221

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized at September 30, 2018

   and December 31, 2017; no shares issued and outstanding at September 30, 2018 and

   December 31, 2017

 

 

 

 

 

 

Common stock, $0.0001 par value; 225,000,000 shares authorized at September 30, 2018

   and December 31, 2017; 125,023,015 shares and 124,410,552 shares issued and

   outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

12

 

 

 

12

 

Additional paid-in capital

 

 

1,627,113

 

 

 

1,559,343

 

Accumulated deficit

 

 

(1,403,371

)

 

 

(1,223,671

)

Accumulated other comprehensive loss

 

 

(314

)

 

 

(399

)

Total stockholders’ equity

 

 

223,440

 

 

 

335,285

 

Total liabilities and stockholders’ equity

 

$

266,456

 

 

$

384,506

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

1


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales, net

 

$

58,305

 

 

$

35,578

 

 

$

164,236

 

 

$

81,339

 

Total revenues

 

 

58,305

 

 

 

35,578

 

 

 

164,236

 

 

 

81,339

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

3,839

 

 

 

2,135

 

 

 

9,554

 

 

 

6,622

 

License fees and royalties

 

 

1,536

 

 

 

1,078

 

 

 

4,384

 

 

 

2,735

 

Research and development

 

 

53,112

 

 

 

36,421

 

 

 

138,980

 

 

 

106,010

 

Selling, general and administrative

 

 

61,089

 

 

 

61,588

 

 

 

191,487

 

 

 

188,373

 

Total operating expenses

 

 

119,576

 

 

 

101,222

 

 

 

344,405

 

 

 

303,740

 

Loss from operations

 

 

(61,271

)

 

 

(65,644

)

 

 

(180,169

)

 

 

(222,401

)

Interest income, net

 

 

1,229

 

 

 

1,063

 

 

 

3,678

 

 

 

3,019

 

Other expense

 

 

(1,720

)

 

 

 

 

 

(1,967

)

 

 

 

Loss before income taxes

 

 

(61,762

)

 

 

(64,581

)

 

 

(178,458

)

 

 

(219,382

)

Income tax expense

 

 

376

 

 

 

667

 

 

 

1,242

 

 

 

1,150

 

Net loss

 

$

(62,138

)

 

$

(65,248

)

 

$

(179,700

)

 

$

(220,532

)

Net loss per common share, basic and diluted

 

$

(0.50

)

 

$

(0.53

)

 

$

(1.44

)

 

$

(1.81

)

Weighted average common shares outstanding, basic and diluted

 

 

125,009

 

 

 

122,484

 

 

 

124,883

 

 

 

122,089

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(62,138

)

 

$

(65,248

)

 

$

(179,700

)

 

$

(220,532

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investment securities

 

 

186

 

 

 

25

 

 

 

83

 

 

 

(174

)

Foreign currency translation adjustments

 

 

 

 

 

(1

)

 

 

2

 

 

 

(5

)

Comprehensive loss

 

$

(61,952

)

 

$

(65,224

)

 

$

(179,615

)

 

$

(220,711

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(179,700

)

 

$

(220,532

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

61,163

 

 

 

53,513

 

Amortization of premiums and accretion of discounts on investment securities, net

 

 

(415

)

 

 

(138

)

Amortization of intangible assets

 

 

1,107

 

 

 

1,108

 

Loss on strategic investments

 

 

1,967

 

 

 

 

Depreciation

 

 

1,116

 

 

 

904

 

Loss on disposal of assets

 

 

27

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,615

)

 

 

(8,318

)

Interest and other receivables

 

 

363

 

 

 

204

 

Inventory

 

 

1,464

 

 

 

(1,645

)

Prepaid expenses

 

 

(6,494

)

 

 

(7,011

)

Other assets

 

 

111

 

 

 

416

 

Accounts payable

 

 

(5,856

)

 

 

(950

)

Accrued liabilities

 

 

(1,647

)

 

 

(2,857

)

Deferred revenue

 

 

 

 

 

(2,644

)

Long-term liabilities

 

 

1,018

 

 

 

88

 

Net cash used in operating activities

 

 

(128,391

)

 

 

(187,862

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investment securities

 

 

(95,379

)

 

 

(353,840

)

Maturities of investment securities

 

 

217,562

 

 

 

465,211

 

Proceeds from sale of property and equipment

 

 

5

 

 

 

 

Purchases of strategic investments

 

 

(3,150

)

 

 

 

Purchases of property and equipment

 

 

(1,578

)

 

 

(805

)

Net cash provided by investing activities

 

 

117,460

 

 

 

110,566

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

6,044

 

 

 

26,397

 

Net cash provided by financing activities

 

 

6,044

 

 

 

26,397

 

Effect of exchange rate changes on cash

 

 

2

 

 

 

(5

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(4,885

)

 

 

(50,904

)

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

71,893

 

 

 

165,995

 

End of period

 

$

67,008

 

 

$

115,091

 

Supplemental disclosure of noncash information:

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued liabilities

 

$

280

 

 

$

9

 

Stock-based compensation capitalized in inventory

 

$

(563

)

 

$

284

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

ACADIA PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Business

ACADIA Pharmaceuticals Inc. (the “Company”), based in San Diego, California, is a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system disorders. The Company was originally incorporated in Vermont in 1993 as Receptor Technologies, Inc. and reincorporated in Delaware in 1997.

In April 2016, the U.S. Food and Drug Administration (“FDA”) approved the Company’s first drug, NUPLAZID® (pimavanserin), for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (“PD Psychosis”). NUPLAZID became available for prescription in the United States in May 2016.

 

 

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (the “SEC”). The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Reclassifications

The Company has reclassified certain prior period amounts to conform to current period presentation. Specifically, it has reclassified income tax expense previously included within selling, general and administrative expense and presented it separately in the Condensed Consolidated Statements of Operations. This reclassification reduced the Company’s previously stated selling, general and administrative expense and total operating expense for the three and nine months ended September 30, 2017 by $0.7 million and $1.2 million, respectively. The reclassification had no impact on the Company’s net loss or stockholders’ equity as previously reported.

In addition, pursuant to the adoption of ASU 2016-18, Statement of Cash Flows: Restricted Cash, on January 1, 2018, the Company is presenting restricted cash with cash and cash equivalents in the beginning-of-period and end-of-period total amounts on its Condensed Consolidated Statements of Cash Flows. This reclassification reduced the Company’s previously stated net cash used in operations and net decrease in cash and cash equivalents for the nine months ended September 30, 2017 by $0.1 million. The reclassification had no impact on the Company’s balance sheets as previously reported. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in thousands):

 

 

 

Nine Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2017

 

 

 

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

 

$

69,418

 

 

$

63,897

 

 

$

163,620

 

 

$

112,616

 

Restricted cash

 

 

2,475

 

 

 

3,111

 

 

 

2,375

 

 

 

2,475

 

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

 

$

71,893

 

 

$

67,008

 

 

$

165,995

 

 

$

115,091

 

Accounts Receivable

Accounts receivable are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and doubtful accounts. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its

5


 

customers and individual customer circumstances. At September 30, 2018, the Company determined that an allowance for doubtful accounts was not required. No accounts were written off during the periods presented.

License Fees and Royalties

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale.

In connection with the FDA approval of NUPLAZID in April 2016, the Company made a one-time milestone payment of $8.0 million pursuant to its 2006 license agreement with the Ipsen Group in which the Company licensed certain intellectual property rights that complement its patent portfolio for its serotonin platform, including NUPLAZID. The Company capitalized the $8.0 million payment as an intangible asset and is amortizing the asset on a straight-line basis over the estimated useful life of the licensed patents through the second half of 2021. The Company recorded amortization expense related to its intangible asset of $0.4 million and $1.1 million for each of the three and nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, estimated future amortization expense related to the Company’s intangible asset was $0.4 million for the remainder of 2018, $1.5 million for each of 2019 and 2020, and $1.0 million for 2021.

Royalties incurred in connection with the Company’s license agreement with the Ipsen Group, as disclosed in Note 9, are expensed to license fees and royalties as revenue from product sales is recognized.

Revenue Recognition

Product Sales, Net

The Company’s net product sales consist of U.S. sales of NUPLAZID. Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and applied all the related amendments to all of the contracts using the modified-retrospective method. While results for reporting periods beginning after January 1, 2018 are presented under the new guidance, prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The accounting policy for revenue recognition for periods prior to January 1, 2018 is described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report. Under Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Payment terms differ by customer, but typically range from 31 to 35 days from the date of shipment. Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company transfers control of the product and when the Company receives payment will be one year or less. No cumulative effect adjustment to the opening balance of retained earnings was necessary upon adoption, and there is no reconciliation of the Company’s Condensed Consolidated Statements of Operations, as no revenue recognition differences were identified when comparing the revenue recognition criteria under Topic 606 to previous requirements.

Product shipping and handling costs are included in cost of product sales.

The Company recognizes revenue from product sales at the net sales price (the “transaction price”) which includes estimates of variable consideration for which reserves are established and reflects each of these as either a reduction to the related account receivable or as an accrued liability, depending on how the amount payable is settled. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which the Company is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future

6


 

period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from estimates, the Company may need to adjust its estimates, which would affect net revenue in the period of adjustment.

Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”), fees for data, and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.

Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company’s estimates for expected utilization of rebates is based on historical data received from the SPs and SDs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates.

Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. 

Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Returns: Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate for product returns, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

 

 

 

3. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, employee stock purchase plan rights, and warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be anti-dilutive. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at September 30, 2018 and 2017, stock options, employee stock purchase plan rights, and warrants totaling approximately 19,775,000 shares and 20,154,000 shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive.

 

 

4. Stock-Based Compensation

The following table summarizes the total stock-based compensation expense included in the Company’s Condensed Consolidated Statements of Operations for the periods presented (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Cost of product sales

 

$

838

 

 

$

1,210

 

 

$

3,025

 

 

$

2,971

 

Research and development

 

 

8,066

 

 

 

6,877

 

 

 

23,617

 

 

 

18,598

 

Selling, general and administrative

 

 

11,265

 

 

 

11,611

 

 

 

34,521

 

 

 

31,944

 

 

 

$

20,169

 

 

$

19,698

 

 

$

61,163

 

 

$

53,513

 

7


 

 

 

5. Balance Sheet Details

Inventory consisted of the following (in thousands):

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Raw material

 

$

3,005

 

 

$

4,084

 

Finished goods

 

 

897

 

 

 

1,164

 

Work in process

 

 

445

 

 

 

 

 

 

$

4,347

 

 

$

5,248

 

Accrued liabilities consisted of the following (in thousands):  

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Accrued compensation and benefits

 

$

14,467

 

 

$

15,260

 

Accrued consulting and professional fees

 

 

9,003

 

 

 

9,395

 

Accrued research and development services

 

 

8,978

 

 

 

9,487

 

Accrued sales allowances

 

 

3,485

 

 

 

3,591

 

Other

 

 

2,919

 

 

 

2,511

 

 

 

$

38,852

 

 

$

40,244

 

 

 

6. Investments

The carrying value and amortized cost of the Company’s investments, summarized by major security type, consisted of the following (in thousands):

 

 

 

September 30, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Corporate debt securities

 

$

124,521

 

 

$

5

 

 

$

(318

)

 

$

124,208

 

Commercial paper

 

 

26,042

 

 

 

1

 

 

 

(12

)

 

 

26,031

 

Equity securities

 

 

3,149

 

 

 

 

 

 

(1,967

)

 

 

1,182

 

 

 

$

153,712

 

 

$

6

 

 

$

(2,297

)

 

$

151,421

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair

Value

 

U.S. Treasury notes

 

$

32,976

 

 

$

 

 

$

(12

)

 

$

32,964

 

Government sponsored enterprise securities

 

 

10,082

 

 

 

 

 

 

(10

)

 

 

10,072

 

Corporate debt securities

 

 

138,650

 

 

 

1

 

 

 

(321

)

 

 

138,330

 

Commercial paper

 

 

90,623

 

 

 

 

 

 

(65

)

 

 

90,558

 

 

 

$

272,331

 

 

$

1

 

 

$

(408

)

 

$

271,924

 

 

The Company has classified all of its available-for-sale investment securities, including those with maturities beyond one year, as current assets on its Condensed Consolidated Balance Sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of September 30, 2018 and December 31, 2017, the Company held $35.1 million and $48.7 million, respectively, of available-for-sale investment securities with contractual maturity dates of more than one year and less than two years. The Company has classified all equity securities as other assets on its Condensed Consolidated Balance Sheets.

At September 30, 2018 the Company had 37 securities in an unrealized loss position and at December 31, 2017 the Company had 54 securities in an unrealized loss position. The following table presents gross unrealized losses and fair value for those available-for-sale investments that were in an unrealized loss position as of September 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands):

8


 

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

Unrealized Losses

 

September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

81,064

 

 

$

(189

)

 

$

28,249

 

 

$

(128

)

 

$

109,313

 

 

$

(317

)

Commercial paper

 

 

15,546

 

 

 

(12

)

 

 

2,998

 

 

 

(1

)

 

 

18,544

 

 

 

(13

)

Total

 

$

96,610

 

 

$

(201

)

 

$

31,247

 

 

$

(129

)

 

$

127,857

 

 

$

(330

)

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

32,964

 

 

$

(12

)

 

$

 

 

$

 

 

$

32,964

 

 

$

(12

)

Government sponsored enterprise securities

 

 

10,072

 

 

 

(10

)

 

 

 

 

 

 

 

 

10,072

 

 

 

(10

)

Corporate debt securities

 

 

129,820

 

 

 

(321

)

 

 

 

 

 

 

 

 

129,820

 

 

 

(321

)

Commercial paper

 

 

90,558

 

 

 

(65

)

 

 

 

 

 

 

 

 

90,558

 

 

 

(65

)

Total

 

$

263,414

 

 

$

(408

)

 

$

 

 

$

 

 

$

263,414

 

 

$

(408

)

 

At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and the Company’s intent and ability to hold the investment until recovery of its amortized cost basis. The Company intends, and has the ability, to hold its investments in unrealized loss positions until their amortized cost basis has been recovered. Based on its evaluation, the Company determined that its unrealized losses were not other-than-temporary at September 30, 2018 and December 31, 2017.

 

  

 

 

7. Fair Value Measurements

The Company’s investments include cash equivalents, available-for-sale investment securities consisting of money market funds, U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises in accordance with the Company’s investment policy and equity investments. The Company’s investment policy defines allowable investment debt securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. All investment debt securities have a credit rating of at least A3/A- or better, or P-1/A-1 or better, as determined by Moody’s Investors Service or Standard & Poor’s.

The Company’s cash equivalents, available-for-sale investment securities and equity securities are classified within the fair value hierarchy as defined by authoritative guidance. The Company’s investment debt securities and equity securities classified as Level 1 are valued using quoted market prices. The Company obtains the fair value of its Level 2 financial instruments from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices, and obtaining market values from other pricing sources. After completing the validation procedures, the Company did not adjust or override any fair value measurements provided by these pricing services as of September 30, 2018 and December 31, 2017.

The Company does not hold any securities classified as Level 3, which are securities valued using unobservable inputs. The Company has not transferred any investment securities between the classification levels.

9


 

The recurring fair value of the Company’s cash equivalents, available-for-sale investment securities and equity securities at September 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

September 30,

2018

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market fund

 

$

55,160

 

 

$

55,160

 

 

$

 

 

$

 

Equity securities

 

 

1,182

 

 

 

1,182

 

 

 

 

 

 

 

Corporate debt securities

 

 

124,208

 

 

 

 

 

 

124,208

 

 

 

 

Commercial paper

 

 

26,031

 

 

 

 

 

 

26,031

 

 

 

 

 

 

$

206,581

 

 

$

56,342

 

 

$

150,239

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

December 31,

2017

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market fund

 

$

38,057

 

 

$

38,057

 

 

$

 

 

$

 

U.S. Treasury notes

 

 

32,964

 

 

 

32,964

 

 

 

 

 

 

 

Government sponsored enterprise securities

 

 

10,072

 

 

 

 

 

 

10,072

 

 

 

 

Corporate debt securities

 

 

154,396

 

 

 

 

 

 

154,396

 

 

 

 

Commercial paper

 

 

98,052

 

 

 

 

 

 

98,052

 

 

 

 

 

 

$

333,541

 

 

$

71,021

 

 

$

262,520

 

 

$

 

 

 

8. Stockholders’ Equity

Public Offerings

In August 2016, the Company raised net proceeds of approximately $215.9 million from the sale of 6,969,696 shares of its common stock in a follow-on public offering, including 909,090 shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares.

In January 2016, the Company raised net proceeds of approximately $281.6 million from the sale of 10,344,827 shares of its common stock in a follow-on public offering. In connection with the January 2016 offering, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with 667, L.P., Baker Brothers Life Sciences, L.P. and 14159, L.P. (the “Baker Entities”), all of which are existing stockholders of the Company and are affiliated with two of its directors, Julian C. Baker and Dr. Stephen R. Biggar. Under the Registration Rights Agreement, the Company agreed that, if the Baker Entities demand that the Company register their shares of its common stock, par value $0.0001 per share, for resale under the Securities Act of 1933, as amended (the “Securities Act”), the Company would be obligated to effect such registration. The Company’s registration obligations under the Registration Rights Agreement cover all shares of its common stock then held or later acquired by the Baker Entities (including approximately $75.0 million and $43.0 million of shares that the Baker Entities purchased at the public offering price in the January 2016 and August 2016 offerings, respectively), will continue in effect for up to 10 years, and include the Company’s obligation to facilitate certain underwritten public offerings of its common stock by the Baker Entities in the future. The Company has agreed to bear all expenses incurred by it in effecting any registration pursuant to the Registration Rights Agreement as well as the legal expenses of the Baker Entities of up to $50,000 per underwritten public offering effected pursuant to the Registration Rights Agreement. On April 1, 2016, pursuant to the Registration Rights Agreement, the Company filed a registration statement covering all shares owned by the Baker Entities as of March 31, 2016.

Private Equity Financings

In December 2012, the Company raised net proceeds of $80.5 million through the sale of 19,000,000 shares of its common stock at a price of $4.43 per share and the sale of warrants to purchase 500,000 shares of its common stock at a price of $4.42 per warrant share in a private equity financing. The warrants have an exercise price of $0.01 per share and will expire on December 17,

10


 

2019. In accordance with authoritative accounting guidance, the warrants’ value of $2.2 million was determined on the date of grant using the Black-Scholes model with the following assumptions: risk free interest rate of 1.1 percent, volatility of 105.8 percent, a 7.0 year term and no dividend yield. These warrants were recorded as a component of stockholders’ equity within additional paid-in capital. Per their terms, the warrants to purchase 500,000 shares of common stock, all of which remained outstanding at September 30, 2018, may not be exercised if the holder’s ownership of the Company’s common stock would exceed 19.99 percent following such exercise.

 

9. Commitments and Contingencies

Leases and Other Long-Term Commitments

In May 2018, the Company entered into a lease agreement to lease facilities under a noncancelable operating lease that expires January 2026.

Estimated annual future minimum payments related to the Company’s operating leases were as follows at September 30, 2018 (in thousands):

 

2018

 

$

748

 

2019

 

 

1,880

 

2020

 

 

1,192

 

2021

 

 

886

 

2022

 

 

898

 

Thereafter

 

 

2,848

 

 

 

$

8,452

 

Royalty Payments

Pursuant to the terms of its 2006 license agreement with the Ipsen Group, the Company is required to make royalty payments of two percent of net sales of NUPLAZID.

Corporate Credit Card Program

In connection with the Company’s credit card program, the Company established a letter of credit for $2.0 million, which has automatic annual extensions and is fully secured by restricted cash.

Fleet Program

In connection with the Company’s fleet program, the Company established letters of credit with the leasing entities totaling $0.7 million, which have automatic annual extensions and are fully secured by restricted cash.

Legal Proceedings

Between July 19 and August 3, 2018, following recent negative publicity about NUPLAZID, three purported Company stockholders filed putative securities class action complaints (captioned Staublein v. ACADIA Pharmaceuticals, Inc., Case No. 18-cv-01647-JAH-MDD, Stone v. ACADIA Pharmaceuticals Inc., Case No. 18-cv-01672-LAB-JMA, and Barglow v. ACADIA Pharmaceuticals Inc., Case No. 18-cv-1812-DMS-WVG) in the U.S. District Court for the Southern District of California against the Company and certain of its current executive officers.  The complaints generally allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements regarding the Company’s business, operations, and prospects by failing to disclose that adverse events and safety concerns regarding NUPLAZID threatened initial and continuing FDA approval, and by failing to disclose that the Company engaged in business practices likely to attract regulatory scrutiny.  The complaints seek unspecified monetary damages and other relief. Several putative lead plaintiffs have filed motions to consolidate the cases and to appoint a lead plaintiff. The motions have been fully briefed and are set to be heard on January 3, 2019. The defendants’ response to the complaints is stayed pending resolution of the lead plaintiff motions. The Company has assessed such legal proceedings, and given the unpredictability inherent in litigation, the Company cannot predict the outcome of these matters. At this time, the Company is unable to estimate possible losses or ranges of losses that may result from such legal proceedings, and it has not accrued any amounts in connection with such legal proceedings other than ongoing attorneys’ fees.

11


 

Government Investigation

In September 2018 the Company received a civil investigative demand (“CID”) from the Department of Justice (“DOJ”) requesting certain documents and information related to the Company’s sales and marketing of NUPLAZID. The Company is cooperating with the DOJ’s request. Responding to the CID will require considerable resources and no assurance can be given as to the timing or outcome of the DOJ’s investigation.

 

10. License Agreements

In May 2018, the Company signed an Exclusivity Deed (the “Deed”) with Neuren Pharmaceuticals Limited (“Neuren”) that provided for exclusive negotiations for a period of three months from the date of the Deed. Under the terms of the Deed, the Company invested $3.1 million to subscribe for 1,330,000 shares of the company and paid $0.9 million for the exclusive right to negotiate a deal with Neuren, which was recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2018. At September 30, 2018, the Company continues to hold the equity securities as a strategic investment in which the Company does not have a controlling interest or significant influence. Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through other expense on the statements of operations.   Net loss on strategic investments recognized in other expense in the Condensed Consolidated Statements of Operations in the three and nine months ended September 30, 2018 was $1.7 million and $2.0 million, respectively. As of September 30, 2018, the aggregate carrying amount of the Company’s strategic equity investment was $1.2 million included in other assets on the Condensed Consolidated Balance Sheets.

In August 2018, the Company entered into a license agreement with Neuren and obtained exclusive North American rights to develop and commercialize trofinetide for Rett syndrome and other indications. Under the terms of the agreement, Neuren received an upfront payment of $10.0 million and is eligible to receive milestone payments of up to $455.0 million, based on the achievement of certain development and annual net sales milestones. In addition, Neuren is eligible to receive tiered, escalating, double-digit percentage royalties based on net sales. The license agreement was accounted for as an asset acquisition and the upfront cash payment of $10.0 million has been recorded in research and development expenses in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018, as there is no alternative use for the asset.

 

11. Recent Accounting Pronouncements

In December 2017, the U.S. Securities and Exchange Commission (“SEC”) staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Act”). SAB 118 was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has provisionally determined that there is no deferred tax benefit or expense with respect to the remeasurement of certain deferred tax assets and liabilities due to the full valuation allowance against net deferred tax assets. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Additional analysis of the law and the impact to the Company will be performed and any impact will be recorded in the respective quarter in 2018.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance was effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018, using a retrospective transition method. The adoption of this ASU impacted the presentation of cash flows, with inclusion of restricted cash flows for each of the presented periods.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the timing and impact of the adoption of this guidance on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires a lessee to recognize a lease liability and a right-of-use asset for all leases with lease terms of more than 12 months. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those years, and early adoption is permitted. Companies are required to adopt

12


 

this guidance using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. In January 2018, the FASB issued ASU 2018-01, Leases: Land Easement Practical Expedient for Transition to Topic 842, which facilitates the implementation of ASU 2016-02. ASU 2018-01 would give entities the option to apply ASU 2016-02 as of the effective date, rather than as of the beginning of the earliest period presented. Under this additional option transition method, a cumulative-effect adjustment would be recognized in the opening balance of retained earnings in the period of adoption. The effective date of the transition requirements for the amendment is the same as the effective date and transition requirements in ASU 2016-02. In order to adopt the new standard on January 1, 2019, the Company is currently designing changes to its processes, policies, and controls for lease accounting. The Company expects to elect the standard’s package of practical expedients on adoption, which allows the Company to carry forward its historical assessment of whether existing agreements contain a lease and the classification of the existing lease agreements. While the Company continues to review the existing lease agreements and assess the effects of adoption, it anticipates substantially all of its real-estate operating lease commitments will be recognized as lease liabilities with corresponding right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities recorded on its Condensed Consolidated Balance Sheets.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance under GAAP. On January 1, 2018, the Company adopted ASU 2014-09 and all the related guidance.

 

 

13


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this quarterly report on Form 10-Q, or this Quarterly Report, and the audited financial statements and notes thereto as of and for the year ended December 31, 2017 included with our Annual Report on Form 10-K, or our Annual Report, filed with the Securities and Exchange Commission, or SEC. Past operating results are not necessarily indicative of results that may occur in future periods.

This Quarterly Report contains forward-looking statements. These forward-looking statements involve a number of risks and uncertainties. Such forward-looking statements include statements about the benefits to be derived from NUPLAZID® (pimavanserin) and from our drug candidates, the potential market opportunities for pimavanserin and our drug candidates, our strategy for the commercialization of NUPLAZID, our plans for exploring and developing pimavanserin for indications other than in Parkinson’s disease psychosis, our plans and timing with respect to seeking regulatory approvals, the potential commercialization of any of our drug candidates that receive regulatory approval, the progress, timing, results or implications of clinical trials and other development activities involving NUPLAZID and our drug candidates, our strategy for discovering, developing and, if approved, commercializing drug candidates, our existing and potential future collaborations, our estimates of future payments, revenues and profitability, our estimates regarding our capital requirements, future expenses and need for additional financing, possible changes in legislation, and other statements that are not historical facts, including statements which may be preceded by the words “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continues,” “seeks,” “aims,” “projects,” “predicts,” “pro forma,” “anticipates,” “potential” or similar words. For forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. Readers of this Quarterly Report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise publicly any forward-looking statements. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to; the risk factors set forth under the section captioned “Risk Factors” in this Quarterly Report.

Overview

Background

We are a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system disorders. We have a portfolio of product opportunities led by our novel drug, NUPLAZID (pimavanserin), which was approved by the U.S. Food and Drug Administration, or FDA, in April 2016 for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis, or PD Psychosis, and is the only drug approved in the United States for this condition. NUPLAZID is a selective serotonin inverse agonist, or SSIA, preferentially targeting 5-HT2A receptors. Through this novel mechanism, NUPLAZID demonstrated significant efficacy in reducing the hallucinations and delusions associated with PD Psychosis in our Phase 3 pivotal trial and has the potential to avoid many of the debilitating side effects of existing antipsychotics, none of which are approved by the FDA in the treatment of PD Psychosis. We hold worldwide commercialization rights to pimavanserin. We launched NUPLAZID in the United States in May 2016 with the recommended dosing of 34 mg once a day taken as two 17 mg tablets. In June 2018, the FDA approved a 34 mg NUPLAZID capsule formulation that provides patients with the recommended 34 mg once daily dose in a single, small capsule, reducing patient pill burden versus the previous administration of two 17 mg tablets. In addition, the FDA approved a 10 mg NUPLAZID tablet that provides an optimized lower dosage strength in those patients who are concomitantly receiving strong cytochrome 3A4 inhibitors which can inhibit the metabolism of NUPLAZID.

We believe that pimavanserin has the potential to address important unmet medical needs in neurological and psychiatric disorders in addition to PD Psychosis and we plan to continue to study the use of pimavanserin in multiple disease states. For example, we believe dementia-related psychosis represents one of our most important opportunities for further exploration. In December 2016, we announced positive top-line results from our Phase 2 study exploring the utility of pimavanserin for the treatment of Alzheimer’s disease psychosis, or AD Psychosis, a disorder for which no drug is currently approved by the FDA. Following our End-of-Phase 2 Meeting with the FDA and agreement with the agency on our clinical development plan, we initiated our Phase 3 HARMONY relapse prevention study in the fourth quarter of 2017, which allows us to evaluate pimavanserin for a broader indication than AD Psychosis alone. More specifically, HARMONY will evaluate pimavanserin for the treatment of hallucinations and delusions associated with

14


 

dementia-related psychosis, which includes psychosis in patients with Alzheimer’s disease, dementia with Lewy bodies, Parkinson’s disease dementia, vascular dementia and frontotemporal dementia. Furthermore, in the fourth quarter of 2017, the FDA granted Breakthrough Therapy Designation to pimavanserin for this dementia-related psychosis indication.

We also believe schizophrenia represents a disease with multiple unmet or ill-served needs and we are currently exploring the utility of pimavanserin in this area. Despite a large number of FDA-approved therapies for schizophrenia, current drugs do not adequately address some very important symptoms of schizophrenia, such as the inadequate response to current antipsychotic treatment of psychotic symptoms and negative symptoms. In the fourth quarter of 2016, we initiated two studies evaluating the adjunctive use of pimavanserin in patients with schizophrenia. ENHANCE-1 is a Phase 3 study evaluating pimavanserin for adjunctive treatment of schizophrenia in patients with an inadequate response to their current antipsychotic therapy. We expect to report top-line results of the ENHANCE-1 study mid-2019. ADVANCE is a Phase 2 study evaluating pimavanserin for adjunctive treatment in patients with negative symptoms of schizophrenia.

According to the National Institute of Mental Health, major depressive disorder (MDD) affects approximately 16 million adults in the United States, with approximately 2.5 million adults treated with adjunctive therapy.  The majority of people who suffer from MDD do not respond adequately to initial antidepressant therapy. In October 2018, we announced positive top-line results from CLARITY, a Phase 2 study evaluating pimavanserin for adjunctive treatment in 207 patients with MDD who had a confirmed inadequate response to existing first-line, SSRI or SNRI, antidepressant therapy. In the study, pimavanserin met the pre-specified primary and key secondary endpoints with statistical significance and positive results were also observed in seven additional secondary endpoints including response rate, improvement in sexual function, and a reduction in daytime sleepiness. Pimavanserin was generally well-tolerated in the study with no meaningful weight gain observed or impact on motor function. The Company plans to meet with the FDA and initiate a Phase 3 program in adjunctive MDD in first half of 2019.

In August, 2018, we acquired an exclusive North American license to develop and commercialize trofinetide for Rett syndrome and other indications from Neuren Pharmaceuticals. Rett syndrome is a debilitating neurological disorder that occurs in females following apparently normal development for the first six months of life. Typically, between six to eighteen months of age, patients experience a period of rapid decline with loss of purposeful hand use and spoken communication and inability to independently conduct activities of daily living. Symptoms also include seizures, disorganized breathing patterns, scoliosis and sleep disturbances. Trofinetide is a novel synthetic analog of the amino-terminal tripeptide of IGF-1 designed to treat the core symptoms of Rett syndrome by reducing neuroinflammation and supporting synaptic function. Trofinetide has been granted FDA Fast Track Status and Orphan Drug Designation in the U.S. and Europe. Currently, there are no approved medicines for the treatment of Rett syndrome. We plan to initiate a Phase 3 randomized, double-blind placebo-controlled study evaluating trofinetide in girls with Rett syndrome in the second half of 2019.

We maintain a website at www.acadia-pharm.com to which we regularly post copies of our press releases as well as additional information about us. Our filings with the SEC are available free of charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Interested persons can subscribe on our website to email alerts that are sent automatically when we issue press releases, file our reports with the SEC or post certain other information to our website. Information contained in our website does not constitute a part of this Quarterly Report or our other filings with the SEC.

Financial Operations Overview

Product Revenues

Net product sales consist of sales of NUPLAZID, our first and only commercial product to date. The FDA approved NUPLAZID in April 2016 and we launched the product in the United States in May 2016.

Cost of Product Sales

Cost of product sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of NUPLAZID. Cost of product sales may also include period costs related to certain inventory manufacturing services, inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.

License Fees and Royalties

License fees and royalties consist of milestone payments expensed or capitalized and subsequently amortized under our 2006 license agreement with the Ipsen Group. License fees and royalties also include royalties of two percent due to the Ipsen Group based upon net sales of NUPLAZID.

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Research and Development Expenses

Our research and development expenses have consisted primarily of fees paid to external service providers, salaries and related personnel expenses, facilities and equipment expenses, and other costs incurred related to pre-commercial product candidates. We charge all research and development expenses to operations as incurred. Our research and development activities have primarily focused on NUPLAZID (pimavanserin) which was approved by the FDA for the treatment of hallucinations and delusions associated with PD Psychosis in April 2016. We currently are responsible for all costs incurred in the ongoing development of pimavanserin and we expect to continue to make substantial investments in clinical studies of pimavanserin for indications other than PD Psychosis, including dementia-related psychosis, schizophrenia and depression. Additionally, in connection with the FDA approval of NUPLAZID, we committed to conduct post-marketing studies, including a randomized, placebo-controlled withdrawal study in PD Psychosis patients treated with NUPLAZID and randomized, placebo-controlled eight-week studies in predominantly frail and elderly patients that would add to the NUPLAZID safety database by exposing an aggregate of at least 500 patients to NUPLAZID. We will be responsible for all costs incurred for these post-marketing studies. We expect to incur increased research and development expenses as a result of our development of trofinetide under the exclusive North American license granted to us by Neuren Pharmaceuticals, including the costs of the planned Phase 3 randomized, double-blind placebo-controlled study evaluating trofinetide in girls with Rett syndrome. We currently are responsible for all costs incurred in the development of trofinetide, as well as milestone payments subject to achievement of development milestones.

We use external service providers to manufacture our product candidates and for the majority of the services performed in connection with the preclinical and clinical development of pimavanserin. Historically, we have used our internal research and development resources, including our employees and discovery infrastructure, across several projects and many of our costs have not been attributable to a specific project. Accordingly, we have not reported our internal research and development costs on a project basis. To the extent that external expenses are not attributable to a specific project, they are included in other programs. The following table summarizes our research and development expenses for the three and nine months ended September 30, 2018 and 2017 (in thousands):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Costs of external service providers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NUPLAZID (pimavanserin)

 

$

22,037

 

 

$

19,999

 

 

$

68,233

 

 

$

58,140

 

Trofinetide

 

 

10,656

 

 

 

-

 

 

 

10,656

 

 

 

-

 

Other programs

 

 

1,998

 

 

 

158

 

 

 

4,443

 

 

 

222

 

Subtotal

 

 

34,691

 

 

 

20,157

 

 

 

83,332

 

 

 

58,362