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Is Acadia Pharmaceuticals' Stock Still a Buy?

By George Budwell - Jun 12, 2016 at 6:43AM

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Acadia's newly approved Parkison's disease drug could trigger a buyout. Here's why.

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What: Acadia Pharmaceuticals(ACAD 1.97%) stock rose by nearly 10% last month, according to data from S&P Global Market Intelligence. The biotech's monthly surge was fueled by the company setting the annual wholesale price of its newly approved Parkinson's disease drug, Nuplazid, at a stately $23,400.  

So what: This substantial price tag for Nuplazid means that the drug could generate upwards of $4 billion in peak sales within the U.S. alone -- far exceeding the Street's former high estimate of around $2.4 billion. After all, Nuplazid is the first drug approved by the FDA to specifically treat Parkinson's disease psychosis (PDP), and the current lowball estimates imply that at least 200,000 Americans currently suffer from this condition. More generous estimates place this figure closer to 400,000. Given the sizable unmet medical need and the lack of any real competitive threat, there's also no compelling reason for Acadia to offer payers much in the way of rebates or discounts. 

Now what: With a potential megablockbuster in hand, it's no surprise to hear the acquisition rumors swirling around this tiny drugmaker right now. While several names have been floated as possible suitors, my view is that Allergan (AGN) is the most likely to approach Acadia with a tender offer in the near term.

My belief stems from the fact that the two companies have a long history of collaborating together, Allergan is reportedly on the hunt for so-called "tuck-in" acquisitions like Acadia, and Allergan already sports a strong portfolio of CNS products. Finally, Allergan should be flush with cash once it divests its generic-drug business later this month, meaning that it can probably outbid most of its would-be competitors for Acadia.

While I'd never recommend investing purely on buyout speculation, Allergan does have a rich history of buying small drug companies with novel products like Nuplazid, and the company will almost certainly return to its serial-acquirer ways soon. So, in my view, the real question is whether Allergan -- or any other suitor for that matter -- is going to be willing to pay upwards of perhaps $6 billion to $7 billion for Acadia.

Such a steep price might be the biggest barrier to a deal, and that's why investors shouldn't buy this stock solely with the hope of a quick buyout. Rather, the fundamental reason to buy, or sell, this stock remains Nuplazid's long-term value proposition.

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