Many would call me a risk-seeking investor. But that’s just because I don’t run away from risk. I embrace it, because with higher risk, often comes higher reward. Just look at some of my favorite investment ideas for 2020. I think ride-hailing stocks like Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER) are due for big rebounds, as are pot stocks like Canopy Growth (NYSE:CGC). I also think some volatile IPO stocks, like Luckin Coffee (NYSE:LK) and Pinterest (NYSE:PINS), will have big years, and that beaten-up department store operator Stage Stores (NYSE:SSI) could be a multi-bagger in 2020.
Those aren’t risk-averse picks, but risk-seeking ones. Yet even as a risk-seeking investor, there’s a reason I entirely avoid speculative biotech stocks in the clinical testing phase. That reason can be illustrated perfectly by one glance at the Acasti Pharma (NASDAQ:ACST) stock chart.
Acasti Pharma is a small Canadian biotech company whose stock was bid up aggressively in 2019, from under $1 to over $3, amid positive buzz surrounding the company’s main drug, CaPre. In early January 2020 though, CaPre posted unsuccessful Phase 3 clinical trial results. In layman’s terms, that essentially translates to “CaPre may never be a treatment that Acasti can actually sell.”
ACST stock dropped from over $2 to under 70 cents, and it probably won’t rebound from here.
Going forward, it’s tough to see where Acasti goes next. In some ways, all the company’s eggs were in the CaPre basket. While management will do everything they can to make lemonade out of this situation, the reality is that Acasti is presently stuck with a bunch of lemons. So long as that remains the case, rebound chances for ACST stock look bleak.
Acasti is Stuck With Lemons
Acasti’s CaPre treatment had a lot of potential.
Cardiovascular (CV) health is a big problem in the medical world, with CV disease being the No. 1 killer of men and women globally and accounting for about one of out every three deaths in the U.S. A lot of people around the world, including some 40 million Americans, take statins (medicine aimed at lowering blood cholesterol). But statins alone are insufficient to meaningfully reduce CV risk. Another solution is needed.
That other solution is in the fish/krill oil world. Specifically, many medical companies have been leveraging some combination of eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA) to formulate a fish/krill oil treatment that lowers triglycerides and reduces CV risk, with the hope that a breakthrough would enable that company to tap into the $500 billion U.S. CV treatment industry.
One of those companies is Acasti. Their CaPre treatment leveraged EPA and DHA to treat severe hypertriglyceridemia. Had it passed clinical testing, the writing was on the wall for CaPre to be a big hit (or at least for Acasti to be an attractive acquisition target).
But, CaPre recently reported unsuccessful Phase 3 clinical trial results, largely because the drug didn’t perform significantly better than a cornstarch placebo. That’s not a great result. It’s ultimately indicative that all the hype surrounding CaPre was just that and nothing more. Though it should be noted that the placebo effect was also considered “unusually large” in the study.
Acasti essentially had all their eggs in the CaPre basket, and that basket just broke. So it’s tough to see where the company goes from here. Sure, management will do everything they can to put the pieces back together and push forward with CaPre. But visibility down that pathway is too cloudy to warrant buying ACST stock on this dip.
Lots of Competition Here
Complicating things further for Acasti and ACST stock is the competitive landscape in the fish/krill oil world.
On one end, you have Amarin (NASDAQ:AMRN), who is essentially the success story funhouse mirror to Acasti. They too, put all their eggs in the fish oil basket with their Vascepa treatment. But unlike CaPre, Vascepa has been a smashing success, passing all trials and winning FDA approval.
And Vascepa is only gaining momentum. The more it gains momentum without a competitive offering in the market, the more Vascepa becomes an established incumbent for reducing CV risk. Established incumbents in the prescription world are hard to overthrow, so even if Acasti does somehow get CaPre to market, the treatment will face an uphill battle in gaining market traction.
On the other end, you have a plethora of over-the-counter (OTC) omega-3 supplements available which, as my colleague Chris Markoch points out, may potentially be just as good as prescription omega-3s at reducing CV risk. Obviously, that’s up for debate. But I think the bigger point here is that there is already a huge market for omega-3 supplements, and getting consumers to wean off those in favor of prescription fish oil may be yet another hurdle CaPre will have to jump (if it ever gets there).
In other words, even if management does make lemonade with the CaPre situation, that lemonade may not be that sweet.
Bottom Line on ACST
This story is the pinnacle of why I don’t buy speculative biotech stocks in the testing phases. One minute, CaPre was bound to be the next big thing. The next, it was bound for irrelevancy.
At this moment, there’s no reason to buy the dip in Acastia. Let management try to pick up the pieces. See what other CaPre data comes in over the next few months. Then, if and only if that data looks good and management puts together a compelling rebound plan, buy ACST stock.
Until then, there’s just too much risk here and not enough visible reward potential to warrant buying the dip.
As of this writing, Luke Lango was long CGC, LK, PINS, and SSI.
