Acorda's Wild Ride

It's been a wild ride this year for investors in pharmaceutical company AcordaTherapeutics (Nasdaq: ACOR). The stock has increased more than sevenfold from its low of $2.20 a share for the year, thanks to a positive phase 3 trial for its Fampridine-SR drug, which treats symptoms associated with multiple sclerosis.

Yesterday, Acorda announced its earnings numbers for its busy third quarter. Gross sales of its one marketed drug, Zanaflex, were $6.5 million, with gross margins considerably greater than 70%. The company's net loss for the quarter was $7.2 million, just slightly better than last year. Acorda's cash burn came to about $6 million this quarter, though the company did strengthen its cash position to a total of $50 million after a recent financing. Acorda is flush with cash, at least for the short term.

Unfortunately, Acorda has decided to use a good chunk of this cash to double its sales force for Zanaflex to 65 people. Expanding the sales force by this magnitude -- on a drug that has brought in $18 million in sales in the past nine months, yet has cost the company $18 million to produce and market -- is a waste of cash.

The biggest differentiation between Acorda's marketed Zanaflex and generic versions of the drug, which is used to treat uncontrolled muscle spasms, is that the generics are in tablet form, while Acorda's product is a capsule. This is not exactly a major differentiation, nor one that will command premium pricing (as can be seen in the lower-than-usual pharmaceutical product gross margins) or bring in meaningful revenues to Acorda in the long run. I'd prefer to see the company conserve its cash for developing the drugs in its pipeline, rather than burn it building up an expensive sales force.

Speaking of drugs in the pipeline, Acorda plans to meet with the Food and Drug Administration by the end of the year to discuss its second phase 3 trial for Fampridine-SR. Assuming it takes Acorda as long as other drug developers to finalize a trial design, the second phase 3 trial for Fampridine should start sometime in mid-2007 at the earliest.

Investors in Acorda since the company's IPO have been richly rewarded for their patience this year. Whether Acorda can continue this sort of share price appreciation really depends on how well and fast it executes on progressing Fampridine-SR and its other drugs through its pipeline. We should find out soon enough.

Keep up with the latest developments in the fast-paced pharmaceutical world, and other high-tech companies with amazing growth potential, with a subscription to Motley Fool Rule Breakers . You can try it free for 30 days .

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .