About 1 million patients in the U.S. suffer from Parkinson's disease. Unfortunately, nearly 40% of them will experience hallucinations and delusions in their daily life, which is a disease state called Parkinson's disease psychosis (PDP).

Caring for a patient who suffers from Parkinson's disease is hard, but adding PDP to the mix elevates their needs to a whole new level. Given the challenge, many patients who develop PDP are sent off to a nursing home.

For decades, there wasn't much that providers could do to treat PDP. However, Acadia Pharmaceuticals (NASDAQ:ACAD) changed all of that in 2016 when the Food and Drug Administration approved its PDP drug Nuplazid for sale. Given the enormous unmet medical need and lack of competition, Acadia had a wide-open market opportunity ahead of it -- if it could successfully execute against its commercialization plan.

Dollar signs in a drug packet

Image source: Getty Images.

A solid year

So how did the company's actual results shake out in 2017? Here's a quick review of the first three quarters:

  • In the first quarter, Acadia reported total Nuplazid sales of $15.3 million. That figure was comfortably ahead of the $13.8 million that analysts were expecting. 
  • Things got even better in the second quarter. Revenue came in at $30.5 million, blowing past the $19.6 million that Wall Street had expected. The upbeat data gave management enough confidence to share full-year revenue guidance for the first time. The company called for revenue to land between $105 million and $115 million. The midpoint of the range was far ahead of the $94 million in revenue that Wall Street was projecting at the time.
  • The good times continued into the third quarter, too. Revenue was $35.6 million, which also beat Wall Street's estimate of $31.5 million. The strong results allowed management to significantly raise its full-year guidance to $124 million-$127 million. 

The good news wasn't just limited to strong revenue growth, either. In October, Acadia kicked off a phase 3 study designed to test Nuplazid as a treatment for hallucinations and delusions associated with dementia-related psychosis (which can be associated with diseases such as Alzheimer's, Lewy bodies, Parkinson's, and more). The FDA even granted it the drug breakthrough therapy designation, which is a great sign. If all goes well, management believes that winning this label expansion claim could add millions of patients to the company's addressable market.

A roller-coaster ride to nowhere

Given the string of expectation-topping results and upbeat clinical news, you might assume that Acadia's stock would be on fire in 2017. After all, it has been a monster winner over the last couple of years, so shareholders are accustomed to seeing the stock price go up.

But that's not what has happened in 2017 thus far.

ACAD Chart

ACAD data by YCharts.

What gives? The recent weakness can be traced to a data release from the company's phase 2 study in Alzheimer's disease. While Nuplazid was able to meet the study's primary endpoint -- which was measured as a statistically significant reduction in psychosis versus placebo -- it missed the mark on a handful of secondary endpoints. That could be a cause for concern down the road if it prevents physicians from prescribing the drug (assuming it wins approval). 

Another potential negative is that the company's phase 3 dementia-related psychosis study won't be completed until 2020. That catalyst might be viewed as too far away to ignite trader enthusiasm. 

Combine these facts with Acadia's lofty valuation -- shares currently trade at 57 times sales -- and it is understandable why 2017 has been a roller-coaster ride to nowhere.

Is Acadia a buy? 

Despite the sideways share-price movement and lukewarm clinical results, I can't help but remain bullish on Acadia's long-term potential. Acadia has already proven that Nuplazid is safe to use, so I think that the odds of it winning a label expansion claim into dementia-related psychosis down the road remain excellent. In the meantime, Nuplazid's fast start gives it a decent shot at reaching blockbuster status based on its PDP opportunity alone.  If true, then the company's current market cap of $3.6 billion doesn't seem so outrageously rich. Count me as a bull.

 

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.