The stated target company for shorting in the Culper report is Acadia. The report begins with the statement
We are short ACADIA Pharmaceucals Inc…..
The basic argument presented for shorting Acadia is that the Company “remains a cash-burning machine” and will remain so because Daybue is allegedly a “flop” and “Nuplazid’s patent expiry approaches in 2030.”
The report concludes with the statement
We think investors will become far less lenient of Acadia’s cash burn as the Daybue story unravels and Nuplazid’s patent expiry approaches in 2030.
Naturally, as NEU investors, our focus has been on the commentary on Daybue, especially as more than 90% of the report is devoted to discussion of all that is supposedly wrong with the drug. But as the target company of the report is Acadia, and Acadia is more than just Daybue, I think it’s worthwhile examining the reasons, other than Daybue, that are given for shorting Acadia.
Cash Burn
The first is cash burn, or cash “incineration” as it is described in one section of the report.
Yes, Acadia has been cash flow negative since inception, a fact well known by the market. But, this could be about to change. In Acadia’s last quarterly report, released in November, the Company stated
On a year-to-date basis, excluding the upfront payment for worldwide rights to Trofinetide, we were cash flow neutral as a company. With our successful launch of DAYBUE, we were cash flow positive in the third quarter, also when excluding the recent Trofinetide upfront payment. Going forward, we expect to be cash flow positive over the long-term subject to the size and scope of future business development.
With early Daybue revenue of $67m in the third quarter, Acadia was already cash flow positive. This suggests that even if Daybue revenue growth is modest from here, cash burn is a dwindling problem for Acadia.
Patent Expiry
In the very last sentence of the report a second reason for the negative view on Acadia is given
…..Nuplazid’s patent expiry approaches in 2030.
This statement comes across as almost an afterthought, but I think it’s more significant than that.
Yes, one Nuplazid patent is confirmed to expire in 2030 but two other key patents for Nuplazid have recently been challenged in court by would-be generic manufacturers and the court ruled in Acadia’s favour. Those patents will expire in 2037 and 2038. Consequently, the “Nuplazid’s patent expiry approaches in 2030” statement could be seen as misleading.
It matters in which year Nuplazid will be open to generic competition. When the favourable decision was announced in mid-December, Acadia’s share price reacted strongly, moving from ~$21 to $31 by late December, although it had retreated to $25.60 on the day before the Culper short report was released.
The Omission
Often, what is not said is as important as what is.
The author(s) of the report laments Acadia’s cash burn and complains that Acadia hasn’t fully explained how Nuplazid, with 2023 sales of ~$550m, generates $300m in cash flow.
What isn’t mentioned is that Acadia will shortly report top-line Phase 3 results of Nuplazid in a second indication of negative symptoms of schizophrenia. Acadia has already completed one positive Phase 3 pivotal study in this indication and this latest study leverages the optimal dose found in that trial. There are currently no approved treatments in this indication and the estimated US market is > 700,000 people (the estimated US market in Nuplazid’s currently approved indication is ~400,000).
Results are due this quarter. Obviously, positive results would likely drive Acadia’s stock price higher.
My Opinion
On reflection, I think it likely that this Culper short report was indeed intended to drive down the stock price of Acadia. As already proposed by others here, that likely makes Neuren just collateral damage.
The mid-February timing for the release of the report is significant, in my opinion.
Acadia will announce Q4 2023 results before the end of this month. The Company has guided that Daybue quarterly sales will rise from $67m to $80-87.5 m. It has also guided that the Company is expected to be cash-flow positive going forward. And before the end of March, Acadia will also release topline Phase 3 results for Nuplazid in a second, larger indication. If positive, these results are likely to provide a significant boost to the share price.
My guess is that numerous short positions were taken in Acadia late last year, all betting on a negative December patent challenge decision. Most shorters probably sold during the following short squeeze; some didn’t. For shorters still holding, with both Q4 and Phase 3 Nuplazid results approaching, the next few weeks present significant risk of the ACAD stock price climbing higher. That would provide strong motivation to push the stock price down NOW and exit.
But while I conclude that this short report probably wasn't written at the behest of a would-be acquirer of Neuren, it could certainly gift them an opportunity.
NEU Price at posting:
$19.78 Sentiment: Hold Disclosure: Held
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