Our second entry in the Biotech Stocks That Could Double in 2016 series, Acadia Pharmaceuticals (ACAD) finds itself with a very similar outlook to Celldex Therapeutics (CLDX), our first entry.
However, besides ACAD having the potential to double next year, and its lead candidate preparing for FDA approval, the two companies don’t have a lot in common.
While much of CLDX’s upside is tied to the diversification of its broad pipeline in treating cancer, ACAD is more of a one-trick pony.
ACAD’s lead drug is called Nuplazid, a product that has been commercial-ready for the better part of two years. Back in 2013, ACAD proved that Nuplazid was successful in reducing psychotic events in patients with Parkinson’s disease psychosis, or PDP. It was the first such drug to do so.
After more than a year of pre-NDA activities, ACAD is finally ready to bring Nuplazid to market. Investors are very excited about Nuplazid. It was proven successful in treating PDP, and the psychotic effects of PDP are common in much larger indications like Alzheimer’s disease psychosis and schizophrenia. Nuplazid is also likely to benefit from a Breakthrough Therapy designation.
But the real draw is its safety profile.
The antipsychotic market has very few effective FDA approved drugs, and almost all have serious side effects. It is a market where drugs are often used off-label to substitute for the lack of options.
Furthermore, there are countless neurological and psychiatric disorders that all carry the risk of psychosis. These include Parkinson’s, Alzheimer’s, dementia, schizophrenia, depression and mania.
Due to this fact, drugs like Abilify and Seroquel have earned billions of dollars in annual revenue at their peak by successfully treating “psychosis” in one or two of these indications, and then being used off-label to treat other indications in this family of diseases.
Where Nuplazid differs is in having the same efficacy minus the side effects. That’s what makes it a Breakthrough drug, and why it has the potential to collect billions in annual sales from off-label usage.
Why ACAD Stock Can Double Over the Next Year
With that said, ACAD has a market capitalization of $3.5 billion. Given that ACAD does not yet have a partner to market Nuplazid, it will need to raise capital prior to its launch.
For the sake of argument, let’s assume that ACAD dilutes its stock by 10%, thereby making its post-diluted market capitalization closer to $3.9 billion. Thus, if ACAD stock were to double over the next year, it would nearly be an $8 billion company.
That may seem very pricey for a company that will be in year one of its commercial activities for Nuplazid. However, I don’t think so.
A couple years ago, I published research entitled “Pimavanserin: The Most Underestimated Blockbuster In Biotechnology” This looked at just about everything imaginable as it related to Nuplazid (previously called Pimavanserin) to predict peak worldwide revenue of $10 billion. This was based on FDA approvals to treat Parkinson’s disease psychosis, Alzheimer’s disease psychosis and schizophrenia, and completely ignored the potential that surrounds Nuplazid off-label.
That said, one can’t deny that management has had some big mishaps over the last couple years. First, it took way too long to submit the new drug application for Nuplazid, which should have been a simple filing due to its Breakthrough designation.
Further, Acadia has yet to partner with a larger pharmaceutical company with marketing experience, something it will need to make Nuplazid a success with such a large patient population.
Nevertheless, it is still hard to figure that Nuplazid will not produce several billion dollars in peak revenue, due to its efficacy and leading safety profile. Therefore, if Nuplazid can earn just $3 billion in peak revenue, that would mean ACAD trades at 2.8 times peak sales with an $8.4 billion market capitalization. That’s well off the 10-times sales ratio for the rest of biotechnology, thereby still allowing long-term upside even if ACAD doubles next year.
Given the premium valuation multiples in biotechnology, ACAD is one of the few companies with a blockbuster drug that still trades at a very attractive price.
More than likely, it won’t fly under the radar next year, after Nuplazid launches.
As of this writing, Brian Nichols owned shares of both Acadia Pharmaceuticals and Celldex Therapeutics.
