The big test for Acadia Pharmaceuticals (ACAD) this quarter certainly wasn’t earnings. As an early stage biotech losses are expected and that’s exactly what the company delivered when it reported third quarter results on November 7. The loss came to 61 cents a share, four cents a share worse than Wall Street expected.
But this was the first quarter of sales for the company’s new drug, Nuplazid, which treats hallucinations associated with Parkinson’s disease. Initial sales for the quarter came to $5.3 million, more than double the $2.6 million that Wall Street analysts had expected. There’s always a huge question when a small biotech takes a new drug to market itself, rather than relying on the marketing muscle of a bigger partner. Success means that the startup gets to keep a much bigger part of the pie, but going it alone also increases the chance of a marketing failure. That’s especially the case when a new drug offers considerable benefits in the market but where those benefits have to be explained and sold to prescribing doctors–and to drug insurance formularies. Unlike current anti-psychotics that are used off-lable to treat hallucinations that can come along with Parkinson’s disease, Nuplazid doesn’t interfere with the drugs used to control the motor symptoms associated with Parkinson’s. And the drug has made its way onto almost all Medicare formularies and continues to show progress in adding additional insurance company formularies.
Wall Street analysts upped their estimates for Nuplazid sales after the report. Bank of America/Merrill Lunch now projects that Nuplazid sales will total $15 million in 2016 and rise to $180 million in 2018.
The next test for Acadia is to turn Nuplazid from a drug successful at treating Parkison’s into a pipeline of drugs that address multiple markets. The company has announced a Phase III study for the treatment of schizophrenia in patients with an inadequate response to current antipsychotic therapies. The company has also announced the start of a Phase II trial in treating psychosis in Alzheimer’s disease and a Phase II study of Nuplazid in Alzheimer’s agitation.
The Phase II Alzheimer’s psychosis trail is critical to the company’s ability to grow from a modestly successful drug company into one with enough potential to attract a Big Pharma buyer. The market for Alzheimer drugs is about five times the size of the market for Parkinson’s disease.
Shares of Acadia hit $40.68 on June 6 and then proceeded to fall until hitting a low of $20.87 on November 3. Since then the results of the election (a Trump victory has been assumed to be better for drug stocks than a Clinton win would have been) and the release of third quarter revenue have led to a rebound to $29.06 at the November 14 close. The stock is still down 18.49% for 2016 to date.
I’m adding these shares of my Jubak Picks portfolio today, November 15, with a target price of $45 a share by May 2017.
Full disclosure: I will be adding shares of Acadia Pharmaceuticals to my personal portfolio three days after this “buy” is posted.