The S&P 500
The S&P 500 is now just 9 points away from our 2,600 target. The question is where the market goes from here. The real problem is the path in which the index takes. Does it follow the blue or green trend lines higher from current levels? The upper blue line is a long-term resistance level that finds its origin to back to 2010 and last came into play in the fall of 2015, when the market went through a period or sideways trading with extreme levels of volatility.
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Meanwhile the green trend line finds it orgin back to the February 2016 lows after coming after the period of volatility. At this point it could be hard to say which way it goes, but it would not surprise me to see a pull-back of sorts sending the index back to 2550 region or perhaps the 2,500 level. It would certainly be nothing catastrophic and would likely be quiet healthy, in the range of 4 percent.
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It would set up and an eventual move towards 2,700 in the early months of 2018. Given the estimated earnings growth, and expectations for full-year earnings in 2018 of $131.36. I still think the index could rise to 3,100, giving it a PE ratio of roughly 23 times 2018 earnings. At 23 times earnings, the S&P 500 would be trading at its historical PE ratio of since 2015.
S&P 500 Earnings Per Share TTM Forward Estimate data by YCharts
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Acadia
Acadia shares got slammed today, after Leerink questioned the result of Acadia’s Phase 2 Alzheimers Disease Psychosis trial results, which were released on Friday, November 3. Firstly, having read the press release and reviewing the note, it would seem there are questions regarding the separation between the placebo arm and the pimavanserin arm at week 6. First, there could be any number of reason why the placebo arm retraced at week 6. Second, when reviewing data from the trial in Parkinson Disease Psychosis, the same effect happen in week six as well, it is very clear in the diagram on page 5 of the Lancet report.
Second, Acadia’s ADP data from Friday shows a Cohen’s d score of .32, which falls in the small to medium range for effect size, for the overall study, while the group with severe psychosis showed a substantial effect size of 0.72. There have been plenty of other atypical antipsychotics that failed miserable using the same NPH-NH scale, so the results if anything should be encouraging.
Additionally, the advisory committee for pimavanserin’s approval for Parkinson Disease Psychosis also taught us a couple of things as well. As some argue that meaningfulness could be measured as a change from baseline, not just versus placebo, page 273.
As for the comparison with ALKS 5461, a drug for the treatment of depression has about the only thing in common with pimavanserin in that they are both for psychiatric indications. But when reviewing the data for ‘5461 one can find the can shifts in both the placebo arm and the drug arm for various reasons.
Again, ADP is, and Dementia-related psychosis is a population with no currently approved treatment options, and the trial design in phase III is very different from the Phase II results. The Phase III study is will measure time from randomization to relapse for 26 weeks, and the secondary measure will be time until discontinuation. The results are not expected until the year 2020.
So while investors were bearish on the name, the result of Phase III will not have any meaning for the company for many years, while the drug sales in Parkinson Disease Psychosis will be the driving force between now and then.
Meanwhile, the street should be focused on the ability for pimavanserin in depression and schizophrenia which are currently due in the fall and winter of 2018-2019. Afterall, pimavanserin is a Selective Serotonin Inverse Agonist targeting the 5HT-2A receptor. While also having positive results in schizophrenia when tried in combination with Risperdol and Haloperidol way back when.
That is all for today.
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Michael Kramer and the clients of Mott Capital own shares of ACAD and ALKS
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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