Acadia Pharmaceuticals Inc. (ACAD) has been the model of inconsistency and unpredictability over the last year.
ACAD is currently trading right in the middle of its 52-week range, between $16.64 and $51.99. It has risen 14% over the last three months, yet is still down 18% over the last year.
In looking ahead to the next 12 months, it is possible, even likely, that volatility will be far worse than what we have witnessed in ACAD over the last year. However, those who stomach the ups and downs will be rewarded big time.
Why ACAD stock will be more volatile
Acadia Pharmaceuticals’ drug Nuplazid was FDA approved earlier this year, and is now in the midst of a commercial launch.
Acadia has never launched a drug before, but is targeting a very large Parkinson’s disease psychosis, or PDP, market where efficient manufacturing of Nuplazid, sales and marketing, and maintaining a controlled balance of supply and demand will all be very crucial to a successful launch.
Furthermore, ACAD must now communicate openly and rely on pharmacy benefit managers, retail and specialty pharmacists, hospitals, and physicians to ensure a smooth launch and distribution of Nuplazid.
There are a lot of moving parts — so many that a massive drug launch is often difficult for experienced pharmaceutical companies, much less one that has never done it before. As a result, there are plenty of mishap opportunities for a company that could barely get its new drug application filed after Nuplazid proved successful in its clinical study.
The fact that ACAD has a fairly large market capitalization of $3.9 billion illustrates that expectations are sky high for Nuplazid. Moreover, ACAD may have other products in its pipeline, but all are deep in the pipeline. Therefore, Nuplazid might very well be responsible for 99% of ACAD’s market capitalization, especially with off-label usage and label expansion all very big parts of the ACAD stock story going forward.
If Acadia struggles out the gate with Nuplazid, or encounters typical setbacks that one should expect from a first-time commercial drug company, then the market will likely be harsh on ACAD stock. I’d view this as more likely than not.
Nuplazid Will Still Be Hugely Successful
ACAD stock may be in for a bumpy year, but ultimately, patient investors should be rewarded.
Fact is that Nuplazid is just as efficient at treating psychotic effects as any competing drug on the market. In fact, it is the only drug to ever be statistically significant in treating PDP. The only difference is that it lacks the inconvenient, and sometimes life-threatening side effects of those other drugs.
As a result, Nuplazid is a game changer, and just so happens to be FDA approved in an antipsychotic market that has more widespread off label usage than any other disease type. This suggests that ACAD will not only succeed in capturing a huge chunk of the one million people worldwide who suffer from the disease, but also the millions who are looking for a suitable solution to treat the conditions associated with schizophrenia, Alzheimer’s disease, bipolar, depression, anxiety, etc.
These diseases are often treated with drugs like Abilify, Seroquel, Prozac, Paxil, Lexapro, etc., many of which are only FDA approved to treat one or two specific indications. That said, Nuplazid’s efficacy and safety profile give it a great shot to capture much of this off-label market, in addition to capturing most of the PDP market.
When it is all said and done, there is no reason that Nuplazid cannot create $5 billion, even $7 billion in peak sales. That’s what many of the other top antipsychotic drugs have earned at their peak, prior to patent expirations.
Perhaps the best news of all when talking about these very likely blockbuster sales figures is that ACAD gets to keep 100% of the profits. It does not have a commercial partner at this moment.
This Means Two Things
First, Acadia Pharmaceuticals instantly becomes one of the most attractive M&A targets in the biotechnology industry. Second, ACAD’s valuation of $3.9 billion does not look all that bad.
Despite significant value depreciation in the biotechnology industry, it still trades at an average of 6x trailing-12-month sales. Theoretically, if ACAD stock can grow sales to $5 billion or more, it could easily become a $30 billion company or more.
Clearly, that’s a lot of long-term upside.
The bottom line is that Acadia Pharmaceuticals looks expensive ahead of a very important drug launch, one that is likely to be challenging and full of unexpected issues in its infancy. However, ACAD will eventually find solutions for unexpected problems, and if not, they will find a commercial partner.
Regardless, Nuplazid is going to be a commercial success because PDP patients have no other options and because the drug actually works, with no significant side effects.
Therefore, ACAD stock may look expensive now ahead of the short-term unknowns, but long term, ACAD at $34.25 is a value investor’s dream come true.
As of this writing, Brian Nichols owns shares of ACAD.
