Acadia plummets 49% after FDA decision dims chances of label expansion for key drug, analyst says

• Acadia plummeted as much as 49% on Tuesday after the FDA identified deficiencies in the companies label expansion application for Nuplazid.
• Stifel analyst Paul Matteis isn't defending the stock on Tuesday's weakness, after downgrading it to Hold from Buy and cutting its price target to $27 from $68.
• "PDP and the rest of the pipeline, with all this uncertainty, don't support a Buy thesis for us for now," Matteis said.
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Shares of Acadia Pharmaceuticals plummeted as much as 49% on Tuesday after the FDA communicated to the firm that it identified deficiencies in its supplemental new drug application for Nuplazid.

Acadia was seeking to expand the use of Nuplazid to treat hallucinations and delusions associated with dementia-related psychosis. The drug is already approved for the treatment of hallucinations and delusions associated with Parkinson's disease psychosis.

Analysts had high hopes for the approval expansion, including Stifel's Paul Matteis. Stifel expected the expanded use approval to bring in more than $100 million in revenue for Acadia in 2022.

But following the FDA's findings, Matteis isn't defending Acadia, as he sees little chance of the company remedying the issues with the FDA. Matteis highlighted the "oddity" that given Acadia has breakthrough therapy designation, it still hasn't been able to get in touch with the FDA.

"There's obviously a ton of opacity here and ACAD hasn't been able to follow up with the FDA, but the bottom line is we think DRP approval is unlikely, and beyond some regulatory precedent which is pretty bearish, this is a hard situation to do work on," Matteis wrote in a note on Monday.

Stifel lowered its rating on Acadia to Hold from Buy, and lowered its price target to $27 from $68. If Acadia receives a complete response letter, or CRL, from the FDA for its indication expansion application, Matteis expects it will be due to the strength of the efficacy data.

"PDP and the rest of the pipeline, with all this uncertainty, don't support a Buy thesis for us for now," Matteis said.