Acadia Primed for Partnering

We remain optimistic on the future of Acadia Pharmaceuticals, Inc. (ACAD - Analyst Report). This is despite our disappointment in the failure of the phase IIb trial for ACP-104, given our belief that pimavanserin, the flagship program, has significant commercial potential in Parkinson’s disease psychosis and schizophrenia.

We think Acadia is now in a strong position to seek a strategic partner for pimavanserin perhaps later in 2008. The shares sold off significantly on the failure of ACP-104. The current market capitalization of only $170 million represents an attractive long-term opportunity in our view. When a partnership does come on pimavanserin, it should act as major catalyst to send the shares higher.

We have adjusted our fair-value target down to $11 from $20, upon the removal of ACP-104 from our financial model. We arrive at this $11 figure by applying a 25x multiple (the current peer-group average) to our 2012 EPS forecast of $1.32, and discounting to present day by 25 percent. We think this rate is fair, perhaps even high, given the three internal shots on goal before 2011, and collaborative programs with Allergan (AGN - Analyst Report) moving forward.

We would expect to lower our discount rate after the signing of a partnership assuming the terms of the deal are favorable. By 2012, Acadia could have pimavanserin on the market for Parkinson’s disease psychosis and be receiving royalties on sales of pimavanserin for schizophrenia.

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