With shares down more than 80%, is there opportunity with Acasti Pharma (NASDAQ:ACST) stock? Don’t bet on it! Shares have been hammered since January due to poor Phase 3 results for its prospective hypertriglyceridema treatment CaPre. Like with many biotech stocks, Acasti Pharma stock is a binary play on a single drug’s success. Failure for CaPre is bad news for Acasti shares.
Considering this factor, there’s good reason shares could fall further. Hemorrhaging cash, the company will likely need a dilutive equity infusion to stay in business. This would put further downward pressure on Acasti Pharma stock.
Yet, I would not say Acasti Pharma stock has no shot at rebounding. If the company can press on with CaPre, shares could soar if subsequent trials prove successful. However, with Amarin’s (NASDAQ:AMRN) competing treatment Vascepa moving ahead, CaPre could easily wind up left in the dust.
With long-shot upside and substantial downside risk, there are better opportunities out there. Let’s dive in, and see why Acasti Pharma stock is far from being a great biotech play.
Grim Future for CaPre Equals Bad News for Acasti Pharma Stock
What went wrong with CaPre? There’s ample opportunity for an omega 3-bsaed hypertriglyceridema treatment. Yet so far only Amarin’s Vascepa has seen success. Vascepa and CaPre are similar drugs. Except CaPre uses krill oil, while Vascepa uses fish oil. AstraZeneca (NYSE:AZN) also had a similar treatment in the works, but bailed out after poor Phase 3 results of its own.
But things may not be so dire for Acasti Pharma stock. CaPre is down, but not out. As InvestorPlace’s Ian Bezek discussed Feb. 26, CaPre’s TRILOGY 1 Phase 3 results were not statistically significant. In other words, the drug’s results were not materially better than that of a placebo. The company is investigating why this occurred, and continues to pursue bringing CaPre to market.
CaPre has a second study (TRILOGY 2), for which topline results have yet to be released. With the company auditing TRILOGY 1’s results, they don’t expect to release the TRILOGY 2 topline results until at least July.
In a high risk, high return space, you have to double down. But, for investors in Acasti Pharma stock, are the odds in thier favor? Considering Acasti’s cash situation, things don’t look so hot. The company has enough cash to survive through the year. However, going forward, Acasti needs an equity infusion.
Such a move may keep the lights on, but with an equity raise comes dilution. If Acasti presses on with CaPre, but it doesn’t pay off, shares could tumble further down.
With Dilution, Shares Could Fall Further
Shares may be below the 50 cent price level, but Acasti Pharma stock could go lower. Why? The dilution factor. Acasti needs more equity capital in order to continue trying to bring CaPre to market. This isn’t out of the ordinary for a biotech stock. If this occurs, but CaPre again fails to pay off, shares could continue to decline.
With shares under the $1 price level, Acasti Pharma will likely pursue a reverse stock split in order to maintain its NASDAQ listing. They’ve done this before, back in 2015, but that doesn’t prevent shares from falling further. Taking a look at split adjusted prices, Acasti shares have fallen significantly in their history as a public company.
If you had invested $10,000 in Acasti Pharma stock back in February 2012, today you would have $388.31 left of your investment. In other words, a 96.12% loss. By comparison, $10,000 invested in the S&P 500 (NYSEARCA:SPY), would have grown into $28,351 (assuming dividends were reinvested) at the end of January 2020. In other words, a cumulative return of 183.52%.
Acasti’s past poor performance may not mean bad results in the future. As InvestorPlace’s Vince Martin wrote on Jan. 29, Acasti Pharma stock has one last chance. If TRILOGY 2 is a success, and the company can justify the results of TRILOGY 1, it’s not “game over” for CaPre. Shares could bounce back significantly as CaPre’s approval odds reverse course.
This isn’t an invitation to buy Acasti Pharma stock. But should be kept in mind for anybody looking to short this name. Shares may have cratered, but with so much bad news priced into the stock, an ounce of positive development could push shares higher.
Look at Other Biotech Opportunities
It doesn’t look good for Acasti Pharma stock. If they plan on doubling-down on CaPre, they need more capital. A dilutive equity raise would push shares down further even if they do a reverse stock split.
Yet shares aren’t guaranteed to hit zero. If their subsequent actions with CaPre pay off, shares could soar as the prospective drug gets back on track.
With this in mind, Acasti Pharma is neither a buy or a sell. If you are looking for speculative biotech names, consider other options.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.