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Johnson & Johnson (JNJ), Eli Lilly & Co. (LLY): Why Investors Shouldn’t Jump on ACADIA Pharmaceuticals Inc. (ACAD)’s Bandwagon

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) was on fire yesterday, up 24% after presenting data for its antipsychotic pimavanserin at the American Academy of Neurology annual meeting.

ACADIA Pharmaceuticals Inc. (NASDAQ: ACAD)

The data looked good. Pimavanserin passed its primary endpoint, lowering psychosis symptoms in patients with Parkinson’s disease. It even passed its secondary endpoints with flying colors.

There’s just one problem. We already knew that. The company released top-line data last November.

Were investors really that worried about the full data revealing some issue? I guess so.

I can’t really blame them. Pimavanserin failed two previous clinical trials in Parkinson’s disease psychosis because of high placebo effect. A little skepticism was in order.

Admittedly I didn’t see it coming, though. After the top-line data were released, I made an underperform call in CAPS with the comment, “No catalyst for awhile. And second phase 3 isn’t a sure thing. Placebo effect is hard to beat twice.”

That still seems to hold, especially with the full-data presentation — which I didn’t see as a catalyst — out of the way. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) still has to run another clinical trial to confirm the first result. At this point, the biggest problem with owning ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is time. You’re going to have to sit for awhile.

And after you wait, there’s the possibility that the second trial doesn’t match the first. My guess is the placebo effect increases in the second trial since patients entering the trial will know that the drug works. Fortunately pimavanserin beat placebo by a wide margin — the p-value for the primary endpoint was 0.001 — which gives ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) a little wiggle room since the p-value can go up as high as 0.05 for the second trial and still be considered statistically significant.

If it can get past a second trial, pimavanserin should be approved and sell well. Atypical antipsychotics such as Johnson & Johnson (NYSE:JNJ)‘s Risperdal, Eli Lilly & Co. (NYSE:LLY)‘s Zyprexa, Bristol Myers Squibb Co. (NYSE:BMY)‘s Abilify, and Pfizer Inc. (NYSE:PFE)‘s Geodon are used off-label to treat Parkinson’s patients. But the atypical antipsychotics have side effects that can decrease motor function that’s already impaired in Parkinson’s patients. Pimavanserin doesn’t seem to have a meaningful effect on motor function, which should help ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) compete with the big boys.

But it’s hard to see why investors would buy ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) now at these inflated prices. Wait for a pullback to give you a little margin of safety in case the second trial doesn’t go as well as the first.

The article Why Investors Shouldn’t Jump on ACADIA’s Bandwagon originally appeared on and is written by Brian Orelli.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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