Acadia High Risk-Low Reward

Today, Acadia announced less than favorable results from their Phase III clinical trial for Pimavanserin. You can read about this from Street.com's article Acadia Parkinson's Drug Fails Phase III trial and plans to slash 50% of its workforce according to Marketwatch.com's article. Business Wire has a good look at the news earlier this morning as ACADIA Pharmaceuticals Announces Results from Phase III Trial of Pimavanserin in Parkinsons Disease Psychosis. I don't think anyone really saw this coming with such positive news in the past.

This really is devastating news as it was their primary moneymaking drug. Citi analyst Dr. Lucy Lu downgraded shares of Acadia to "Sell" from "Hold" and reduced her price target to $1.50 from $4.50, citing the study failure. She said slashed 2011 revenue estimates to $8.4 million from $23.3 million and 2012 estimates to $7.6 million from $46.3 million. The stock dropped considerably losing close to 68% of its value in early trading. Yesterday Acadia (ACAD) was trading at 5.84 and at this moment is around 2.00 at closing. But what does Citi know as they are struggling themselves with TARP payments.

Upon reviewing this a little closer it makes sense, and I wish I could have written about the caution of this stock before today. Anyone who has taken Psych classes understands the Placebo effect and how patients suffering from Psychosis sometimes pretend to feel better based on a placebo alone. Just searching google I found a nice Psychosis Placebo effect book and it has a nice excerpt on Understanding the Placebo effect. The mind works in mysterious ways and we can trick ourselves into feeling better or worse. This isn't good for drug companies trying to pass Clinical Trials. Another Placebo effect study done by Columbia University is titled: Researchers Demonstrate How Placebo Effect Works in the Brain. Many psychosis medications are hard to judge their efficacy.

I do think the drug does have some positive effect and did not impair disease-related motor function in patients with PDP. This was their major pipeline drug but they do have options here and look at what went wrong. They will continue with their second Phase III trial on Parkinson's Disease Psychosis or PDP. They still can try clinical trials with Alzheimer's patients and have other drugs in Phase I/II trials. AGN XX/YY is in Phase II, partnered with Allergan, for Chronic Pain, and AC-262271 for Glaucoma in Phase I. Other Programs can be found on there website here.

But the key here is to do your homework. Diversify, Diversify and Diversify. Do not put all your money into 1 biotech stock as these are very high risk, and sometimes low reward. Invest in the Long-Term. 10 years from now this stock might just make it and you just have to wait and see. Look at their financials, see what they have going on if the Clinical Trial Fails. Do they have more than one application for their medication. In this case they do so I see Acadia bouncing back eventually.

This is one of many drugs that fail in Clinical Trials. A nice look at BioPharma investing shows that Failed Trials Can Spell Startup Disasters. Even the big BioPharma companies take huge risks with Clinical Trials. Just look at Pfizer and their struggles to get past the daunting, ever-dreaded Phase III lately. It is a gamble and you shouldn't be in it if you are not prepared to take losses. Other huge setbacks have been felt by Savient, Biogen, Hemispherx, AEterna Zentaris, and Dendreon. Some eventually get past it, some don't.

My advice is this. Diversify to reduce risk. If investing in stocks, only buy around 5-10 percent of your portfolio in each one investment. If you want a higher risk/return ratio invest more but be prepared if the trial fails. Or you can just get out of Clinical trials altogether and just wait for approval. Another way is to invest in Big Pharma. They can take a hit and still move past it.

Don't panic, it happens to everybody in BioPharma investing. Sometimes we fail, get yourself up and "Don't give up, Don't Ever Give Up" Jimmy V. Just look at Steve Jobs. He too once failed, here is a nice speech from his 2005 Stanford commencement address.