ACADIA PHARMACEUTICALS INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The following discussion and analysis of our consolidated financial condition
and results of operations should be read in conjunction with our unaudited
condensed consolidated financial statements and related notes included in this
quarterly report on Form 10-Q, or this Quarterly Report, and the audited
financial statements and notes thereto as of and for the year ended December 31,
2021 included with our Annual Report on Form 10-K, or our Annual Report, filed
with the Securities and Exchange Commission, or SEC. Past operating results are
not necessarily indicative of results that may occur in future periods.

This Quarterly Report contains forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Such forward-looking
statements include statements about the benefits to be derived from NUPLAZID®
(pimavanserin), trofinetide and other drug candidates, the potential market
opportunities for pimavanserin and other drug candidates, our strategy for the
commercialization of NUPLAZID, our plans for exploring and developing
pimavanserin for indications other than in Parkinson's disease psychosis, our
plans and timing with respect to seeking regulatory approvals, the potential
commercialization of any of our drug candidates that receive regulatory
approval, the progress, timing, results or implications of clinical trials and
other development activities involving NUPLAZID and other drug candidates, our
strategy for discovering, developing and, if approved, commercializing drug
candidates, our existing and potential future collaborations, our estimates of
future payments, revenues and profitability, our estimates regarding our capital
requirements, future expenses and need for additional financing, the potential
or expected impact of the global COVID-19 pandemic on our business, possible
changes in legislation, and other statements that are not historical facts,
including statements which may be preceded by the words "believes," "expects,"
"hopes," "may," "will," "plans," "intends," "estimates," "could," "should,"
"would," "continues," "seeks," "aims," "projects," "predicts," "pro forma,"
"anticipates," "potential" or similar words. For forward-looking statements, we
claim the protection of the Private Securities Litigation Reform Act of 1995.
Readers of this Quarterly Report are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. We undertake no obligation to update or revise publicly any
forward-looking statements. Actual events or results may differ materially from
our expectations. Important factors that could cause actual results to differ
materially from those stated or implied by our forward-looking statements
include, but are not limited to, the risk factors set forth under the section
captioned "Risk Factors" in this Quarterly Report.

Insight

Impact of COVID-19 on our business

On March 11, 2020, the World Health Organization declared a pandemic resulting
from the disease known as COVID-19 caused by a novel strain of coronavirus,
SARS-CoV-2. As a result of the pandemic, there have been changes in the practice
of medical care and medical education. For example, many health care providers
initially expanded their utilization of telemedicine to conduct patient visits,
and in many regions within the United States the ability of our commercial and
medical field teams to call upon medical clinics, hospitals, long-term care
facilities and skilled nursing facilities was restricted or converted to virtual
access. We continue to access our customers both in person and virtually.
Currently, health care providers are conducting patient visits in-person and
through telemedicine and our sales force has been able to call upon medical
clinics, hospitals, long-term care facilities and skilled nursing facilities
either in person in accordance with applicable regulatory guidance and local
policies or virtually. Most medical congresses, an important means for medical
education, are being conducted both in person and virtually and enrollment in
clinical trials is being assessed based on local COVID-19 conditions and
regional regulation and public health guidance.

In an effort to protect the health and safety of our employees and our
stakeholders, we adopted recommended policies applicable to office-based
employees such as working from home, limiting the number of employees on site,
and reducing business travel. For our field-based commercial and medical affairs
personnel, we have instituted a protocol to assess the safety of employees to
conduct in-person interactions on a localized basis in accordance with
applicable regulatory guidance and local policies.

Since the beginning of the pandemic, we have been able to provide an
uninterrupted supply of NUPLAZID to patients. We are monitoring our supply chain
closely and do not anticipate disruptions in our ability to continue delivering
NUPLAZID to patients.

Since the beginning of the pandemic the growth of sales of NUPLAZID have been
negatively impacted by ongoing conditions related to the pandemic, including a
reduction in patient office visits, continuing reduced occupancy rates at
long-term care facilities, and reduced access to healthcare professionals. While
we observed incremental improvements in some of these factors during 2021, their
levels are still meaningfully below where they were pre-pandemic. It remains
difficult to predict the duration of the pandemic's impact and the pace of
recovery, and no assurances can be given that the pandemic will not continue to
have additional negative impacts on our business, results of operations,
financial condition and prospects.

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Background

We are a biopharmaceutical company focused on the development and
commercialization of innovative medicines to address unmet medical needs in
central nervous system disorders. We have a portfolio of product opportunities
led by our novel drug, NUPLAZID (pimavanserin), which was approved by the FDA,
in April 2016 for the treatment of hallucinations and delusions associated with
PDP. We hold worldwide commercialization rights to pimavanserin. NUPLAZID is
available in 34 mg capsules and 10 mg tablets dosage forms.

Since the start of 2022, we have advanced our pipeline and clinical studies through the following events:

•

In January 2022, we entered into a license and collaboration agreement with
Stoke to discover, develop and commercialize novel RNA-based medicines for the
potential treatment of severe and rare genetic neurodevelopmental diseases of
the CNS.

•

In February 2022, we resubmitted to the FDA an sNDA for NUPLAZID for the
treatment of hallucinations and delusions associated with Alzheimer's disease
psychosis (ADP). In March 2022, the FDA informed us that they will review the
submission with a target action date of August 4, 2022. The FDA Advisory
Committee meeting to review the resubmission of sNDA is scheduled for June 17,
2022.

•

Based on the positive results from the Phase 3 Lavender study announced in
December of 2021, we plan to submit to the FDA an NDA for trofinetide for the
treatment of Rett syndrome. We have completed our pre-NDA meetings with the FDA
and are on-track for a submission around mid-year 2022.

•

In April 2022, we announced top-line results from the ACP-044 study for the
treatment of acute postoperative pain which did not meet its primary endpoint, a
comparison of cumulative pain intensity scores over 24 hours. The Company is
currently analyzing the data to determine next steps.

We have incurred substantial operating losses since our inception due in large
part to expenditures for our research and development activities and more
recently for our sales and marketing activities related to the commercialization
of NUPLAZID. As of March 31, 2022, we had an accumulated deficit of $2.3
billion. We expect to continue to incur operating losses for the next few years
as we advance our programs and incur significant development and
commercialization costs.

We maintain a website at www.acadia-pharm.com to which we regularly post copies
of our press releases as well as additional information about us. Our filings
with the SEC are available free of charge through our website as soon as
reasonably practicable after being electronically filed with or furnished to the
SEC. Interested persons can subscribe on our website to email alerts that are
sent automatically when we issue press releases, file our reports with the SEC
or post certain other information to our website. Information contained in our
website does not constitute a part of this Quarterly Report or our other filings
with the SEC.

Overview of financial operations

Product revenue

Net product sales consist of sales of NUPLAZID, our first and only commercial
product to date. The FDA approved NUPLAZID in April 2016 and we launched the
product in the United States in May 2016.

Product cost of sales

Cost of product sales consists of third-party manufacturing costs, freight, and
indirect overhead costs associated with sales of NUPLAZID. Cost of product sales
may also include period costs related to certain inventory manufacturing
services, excess or obsolete inventory adjustment charges, unabsorbed
manufacturing and overhead costs, and manufacturing variances.

License fees and royalties

License fees and royalties consist of milestone payments expensed or capitalized
and subsequently amortized under our 2006 license agreement with the Ipsen
Group. License fees and royalties also include royalties of two percent due to
the Ipsen Group based upon net sales of NUPLAZID. This obligation terminated in
October 2021.

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Research and development costs

Our research and development expenses have consisted primarily of fees paid to
external service providers, salaries and related personnel expenses, facilities
and equipment expenses, and other costs incurred related to pre-commercial
product candidates. We charge all research and development expenses to
operations as incurred. Our research and development activities have primarily
focused on NUPLAZID (pimavanserin) which was approved by the FDA for the
treatment of hallucinations and delusions associated with PDP in April 2016. We
currently are responsible for all costs incurred in the ongoing development of
pimavanserin and we expect to continue to make substantial investments in
clinical studies of pimavanserin for indications other than PDP, including
schizophrenia. In connection with the FDA approval of NUPLAZID, we committed to
conduct post-marketing studies, including a randomized, placebo-controlled
withdrawal study in patients treated with NUPLAZID and a randomized,
placebo-controlled eight-week study or studies in predominantly frail and
elderly patients that would add to the NUPLAZID safety database by exposing an
aggregate of at least 500 patients to NUPLAZID. We will be responsible for all
costs incurred for these post-marketing studies. While we intend to submit a NDA
to the FDA for trofinetide for the treatment of Rett syndrome in mid-year 2022,
at this time, due to the risks in the regulatory and approval processes, it is
difficult to estimate with the costs we would incur for any additionally
required development activities to support the submission and review of the NDA.
We expect to incur increased research and development expenses as a result of
our exclusive worldwide license agreement for the M1 PAM program, including
ACP-319, and the research collaboration with Vanderbilt University, our
acquisition of CerSci and its ACP-044 product candidate and preclinical
programs, as well as our collaboration with Stoke for multiple RNA-based
treatments. We currently are responsible for all costs incurred in the
development of trofinetide, ACP-044, ACP-319, the M1 PAM program, Stoke
collaboration programs and other early stage programs, as well as milestone
payments subject to achievement of development milestones.

We use external service providers to manufacture our product candidates and for
the majority of the services performed in connection with the preclinical and
clinical development of pimavanserin, trofinetide, ACP-044 and ACP-319.
Historically, we have used our internal research and development resources,
including our employees and discovery infrastructure, across several projects
and many of our costs have not been attributable to a specific project.
Accordingly, we have not reported our internal research and development costs on
a project basis. To the extent that external expenses are not attributable to a
specific project, they are included in other early stage programs. The following
table summarizes our research and development expenses for the three months
ended March 31, 2022 and 2021 (in thousands):

                                          Three Months Ended March 31,
                                            2022                 2021
Costs of external service providers:
NUPLAZID (pimavanserin)                $        21,806       $      17,762
Trofinetide                                     11,080               7,958
Early stage programs                            14,824               4,668
Upfront and milestone payments*                 60,000               5,000
Subtotal                                       107,710              35,388
Internal costs                                  15,681              16,755
Stock-based compensation                         5,464               4,830

Total research and development $128,855 $56,973

_____________________

*Includes initial and stage consideration as well as transaction costs associated with acquired in-process research and development.

Although NUPLAZID was approved by the FDA for the treatment of hallucinations
and delusions associated with PDP, at this time, due to the risks inherent in
regulatory requirements and clinical development, we are unable to estimate with
certainty the costs we will incur for the ongoing or additional development of
pimavanserin in additional indications, including schizophrenia, and the
development of trofinetide, ACP-044, ACP-319, the M1 PAM program, Stoke
collaboration programs and other early stage programs. Due to these same
factors, we are unable to determine with any certainty the anticipated
completion dates for our current research and development programs. Clinical
development and regulatory approval timelines, probability of success, and
development costs vary widely. While our current development efforts are
primarily focused on advancing the development of pimavanserin in additional
indications other than PDP, we anticipate that we will make determinations as to
which programs to pursue and how much funding to direct to each program on an
ongoing basis in response to the scientific and clinical success of each product
candidate, as well as an ongoing assessment of the commercial potential of each
opportunity and our financial position. We cannot forecast with any degree of
certainty which product opportunities will be subject to future collaborative or
licensing arrangements, when such arrangements will be secured, if at all, and
to what degree any such arrangements would affect our development plans and
capital requirements. Similarly, we are unable to estimate with certainty the
costs we will incur for post-marketing studies that we committed to conduct in
connection with FDA approval of NUPLAZID.

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We expect our research and development expenses to increase and continue to be
substantial as we conduct studies pursuant to our post-marketing commitments and
pursue the development of pimavanserin in additional indications other than PDP,
including our studies within schizophrenia, the development of ACP-044 for pain
management, the development of ACP-319, the development of Stoke collaboration
programs and other early stage programs. The lengthy process of completing
clinical trials and supporting development activities and seeking regulatory
approval for our product opportunities requires the expenditure of substantial
resources. Any failure by us or delay in completing clinical trials, or in
obtaining regulatory approvals, could cause our research and development
expenses to increase and, in turn, have a material adverse effect on our results
of operations.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist of salaries and other
related costs, including stock-based compensation expense, for our commercial
personnel, including our specialty sales force, our medical education
professionals, and our personnel serving in executive, finance, business
development, and business operations functions. Also included in selling,
general and administrative expenses are fees paid to external service providers
to support our commercial activities associated with NUPLAZID, professional fees
associated with legal and accounting services, costs associated with patents and
patent applications for our intellectual property and charitable donations to
independent charitable foundations that support Parkinson's disease patients
generally. Changes in selling, general and administrative expenses in future
periods are subject to regulatory and approval processes of trofinetide and our
further development of pimavanserin in additional indications other than PDP.

Significant Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations
is based on our condensed consolidated financial statements. We have identified
the accounting policies that we believe require application of management's most
subjective judgments, often requiring the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods. Our actual results may differ substantially from these estimates under
different assumptions or conditions. There have been no significant changes to
our critical accounting policies and estimates since December 31, 2021. For a
description of our critical accounting policies that affect our significant
judgments and estimates used in the preparation of our consolidated financial
statements, refer to our Annual Report.

Operating results

Fluctuations in operating results

Our results of operations have fluctuated significantly from period to period in
the past and are likely to continue to do so in the future. We anticipate that
our quarterly and annual results of operations will be impacted for the
foreseeable future by several factors, including the progress and timing of
expenditures related to our commercial activities associated with NUPLAZID and
the extent to which we generate revenue from product sales, our development of
pimavanserin in additional indications other than PDP, our development of
trofinetide, ACP-044, ACP-319, the M1 PAM program, and Stoke collaboration
programs and the progress and timing of expenditures related to studies of
NUPLAZID in PDP pursuant to our post-marketing commitments. Further, we expect
our sales allowances to vary from quarter to quarter due to fluctuations in our
Medicare Part D Coverage Gap liability and the volume of purchases eligible for
government mandated discounts and rebates, as well as changes in discount
percentages that may be impacted by potential future price increases and other
factors. We cannot predict with certainty what the full impact of the COVID-19
pandemic may have on our business, results of operations, financial condition
and prospects. Due to these fluctuations, we believe that the period-to-period
comparisons of our operating results are not a good indication of our future
performance.

Comparison of the three months ended March 31, 2022 and 2021

Product sales, net

Net product sales, comprised of NUPLAZID, were $115.5 million and $106.6 million
for the three months ended March 31, 2022 and 2021, respectively. The increase
in net product sales of $8.9 million was primarily due to a higher average net
selling price of NUPLAZID in 2022 compared to 2021.

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The following table provides a summary of activity with respect to our sales
allowances and accruals for the three months ended March 31, 2022 (in
thousands):


                                 Distribution Fees,                          Rebates,
                                    Discounts &             Co-Pay          Data Fees &
                                    Chargebacks           Assistance          Returns           Total
Balance as of December 31,
2021                            $              8,467     $        (202 )   $      15,717     $    23,982
Provision related to current
period sales                                  17,873               819            28,785          47,477
Credits/payments for current
period sales                                  (9,407 )          (1,482 )               -         (10,889 )
Credits/payments for prior
period sales                                  (8,467 )             202           (13,070 )       (21,335 )
Balance as of March 31, 2022    $              8,466     $        (663 )   

$31,432 $39,235

Product cost of sales

Cost of product sales was $3.0 million and $2.2 million for the three months
ended March 31, 2022 and 2021, respectively, or approximately 3% and 2% of net
product sales, respectively.

License Fees and Royalties

License fees and royalties were $0 and $2.5 million for the three months ended
March 31, 2022 and 2021, respectively, and included royalties due to the Ipsen
Group of two percent of net sales of NUPLAZID and amortization related to the
milestone paid to the Ipsen Group upon FDA approval of NUPLAZID in 2016. The
decrease in license fees and royalties during the three months ended March 31,
2022 as compared to the same period in 2021 was entirely due to the termination
of the royalty obligation in October 2021.

Research and development costs

Research and development expenses increased to $128.9 million for the three
months ended March 31, 2022, including $5.5 million in stock-based compensation
expense, from $57.0 million for the three months ended March 31, 2021, including
$4.8 million in stock-based compensation expense. The increase in research and
development expenses was mainly due to the $60 million upfront payment made to
Stoke for the license and collaboration agreement in 2022.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to $96.7 million for the
three months ended March 31, 2022, including $9.2 million in stock-based
compensation expense, from $111.7 million for the three months ended March 31,
2021, including $8.2 million in stock-based compensation expense. The decrease
in selling, general and administrative expenses was primarily due to decreased
advertising and promotional costs and decreased personnel expenses during the
three months ended March 31, 2022 as compared to the same period in 2021.

Cash and capital resources

We have funded our operations primarily through sales of our equity securities,
payments received under our collaboration agreements, debt financings, interest
income, and, since 2016, with revenues from sales of NUPLAZID. We anticipate
that the level of cash used in our operations will increase in future periods in
order to fund our ongoing and planned commercial activities for NUPLAZID, our
ongoing and planned development activities for pimavanserin in additional
indications other than PDP, studies to be conducted pursuant to our
post-marketing commitments and our ongoing and planned development activities
for trofinetide for the treatment of Rett syndrome, ACP-044 for pain management,
and for various M1 PAM compounds, including ACP-319, under the agreement with
Vanderbilt University. We expect that our cash, cash equivalents, and investment
securities will be sufficient to fund our planned operations through at least
the next 12 months.

We may require significant additional funding in the future to fund our operations. Our future capital requirements will depend on many factors, and could increase significantly as a result of them, including:

•

the progress in, and the costs of, our ongoing and planned development
activities for pimavanserin, post-marketing studies for NUPLAZID to be conducted
over the next several years, and ongoing and planned commercial activities for
NUPLAZID;

•

the costs of our development activities for trofinetide;

•

the costs of our development activities for ACP-044;

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•

the costs of our development activities for ACP-319;

•

the costs of our development activities for the M1 PAM program;

•

the costs of our development activities for the Stoke collaboration programs;

•

the costs of commercializing NUPLAZID, including maintaining and developing our sales and marketing capabilities;

•

costs of establishing or outsourcing sales and marketing capabilities for other product candidates;

•

The quantity of WE sales of NUPLAZID products;

•

the costs of preparing applications for regulatory approvals for NUPLAZID in
jurisdictions other than the U.S., and in additional indications other than PDP
and for other product candidates, as well as the costs required to support
review of such applications;

•

the costs of manufacturing and distributing NUPLAZID for commercial purposes in the
WE;

•

our ability to obtain regulatory approval for NUPLAZID and subsequently generate product sales from it in jurisdictions other than the WE or in additional indications other than PDP, or of trofinetide, ACP-044, ACP-319 and other product candidates;

•

costs of acquiring additional product candidates or research and development programs;

•

the scope, prioritization and number of our research and development programs;

•

the ability of our associates and ours to achieve milestones and other events or developments triggering payments under our collaboration or license agreements, or the ability of our associates to make payments under such agreements;

•

our ability to enter into new collaboration and license agreements;

•

the extent to which we are obligated to reimburse associates or associates are obligated to reimburse us for costs under the collaboration agreements;

•

costs related to the filing, prosecution, enforcement and defense of patent claims and other intellectual property rights;

•

the costs of maintaining or securing manufacturing arrangements for clinical or
commercial production of pimavanserin, trofinetide or other product candidates;
and

•

the costs associated with litigation, including the costs incurred in defending
against any product liability claims that may be brought against us related to
NUPLAZID.

Unless and until we can generate significant cash from our operations, we expect
to satisfy our future cash needs through our existing cash, cash equivalents and
investment securities, public or private sales of our securities, debt
financings, strategic collaborations, or by licensing all or a portion of our
product candidates or technology. In the past, periods of turmoil and volatility
in the financial markets have adversely affected the market capitalizations of
many biotechnology companies, and generally made equity and debt financing more
difficult to obtain. For example, due to the COVID-19 pandemic and actions taken
to slow its spread, the global credit and financial markets have experienced
extreme volatility and disruptions, including diminished liquidity and credit
availability, declines in consumer confidence, declines in economic growth,
increases in unemployment rates and uncertainty about economic stability. These
events, coupled with other factors, may limit our access to additional financing
in the future. We cannot be certain that additional funding will be available to
us on acceptable terms, or at all. If adequate funds are not available when
needed, we will be required to delay, reduce the scope of, or eliminate one or
more of our research or development programs or our commercialization efforts.
We also may be required to relinquish greater or all rights to product
candidates at an earlier stage of development or on less favorable terms than we
would otherwise choose. Additional funding, if obtained, may significantly
dilute existing stockholders and could negatively impact the price of our stock.

We have invested a substantial portion of our available cash in money market
funds, U.S. treasury notes, and high quality, marketable debt instruments of
corporations and government sponsored enterprises in accordance with our
investment policy. Our investment policy defines allowable investments and
establishes guidelines relating to credit quality, diversification, and
maturities of our investments to preserve principal and maintain liquidity. All
investment securities have a credit rating of at least Aa3/AA- or better, or
P-1/A-1 or better, as determined by Moody's Investors Service or Standard &
Poor's. Our investment portfolio has not been adversely impacted by the
disruptions in the credit markets that have occurred in the past. However, if
there are future disruptions in the credit markets, there can be no assurance
that our investment portfolio will not be adversely affected.

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At March 31, 2022, we had $446.0 million in cash, cash equivalents, and
investment securities, compared to $520.7 million at December 31, 2021. This
$74.7 million decrease was primarily due to cash used in operating activities.
Net cash used in operating activities increased to $76.3 million for the three
months ended March 31, 2022 compared to $60.1 million for the three months ended
March 31, 2021. This increase in cash used in operations was primarily due to
increased research and development costs offset by an increase in our net
revenues.

Net cash provided by investing activities totaled $131.3 million for the three
months ended March 31, 2022 compared to $30.9 million for the three months ended
March 31, 2021. The increase in net cash provided by investing activities for
the three months ended March 31, 2022 compared to the three months ended March
31, 2021 was primarily due to the receipt of proceeds from the maturity of
investment securities without making subsequent purchases of investment
securities.

Net cash provided by financing activities decreased to $2.5 million for the
three months ended March 31, 2022 compared to $7.7 million for the three months
ended March 31, 2021. This decrease in net cash provided by financing activities
for the three months ended March 31, 2022 was attributable primarily to a
decrease in proceeds resulting from the exercise of employee stock options.

Off-balance sheet arrangements

To date, we have not had any relationships with unconsolidated entities or
financial partnerships, such as entities referred to as structured finance or
special purpose entities, which are established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. As such, we are not materially exposed to any financing, liquidity,
market, or credit risk that could arise if we had engaged in these
relationships.

Recent accounting pronouncements

See item 1 of Part I, “Notes to the condensed consolidated financial statements – Note 10 – Recent accounting pronouncements”.

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