What happened

Shares of Acadia Pharmaceuticals (NASDAQ:ACAD), a commercial-stage mid-cap biotech, are down by 16.1% as of 12:00 p.m. EST on extremely heavy volume. The culprit? Sales of the company's Parkinson's disease psychosis drug Nuplazid came in slightly below consensus estimates for the quarter by 1.62%, or $720,000.

Chalkboard chart illustrating a downward trend.

Image Source: Getty Images.

So what

Normally, a low-single-digit miss on revenue wouldn't be a big deal for a mid-cap biotech with a promising outlook like Acadia. Acadia's shares, however, have been trading at a sky-high premium ever since Nuplazid's initial Food and Drug Administration (FDA) approval back in 2016.

The underlying reason is that most investors were clearly expecting the company's only FDA-approved drug to quickly transform into a blockbuster product -- sales in excess of $1 billion per year. As things stand now, however, Nuplazid is on pace to generate only between $255 million to $270 million for all of 2018. That's a decent haul, but far from blockbuster status. 

Now what

To push Nuplazid into blockbuster territory, Acadia will need to successfully expand the drug's label to include other high-value indications like dementia-related psychosis. The good news is that Acadia has initiated a late-stage trial to do just that. The bad news, however, is that this ongoing trial called "Harmony" won't produce top-line data for another two years, according to clinicaltrials.gov. 

Acadia's shares arguably are on the expensive side, even after this latest pullback, so investors may want to wait for a more attractive entry point. Without a sizable uptick in Nuplazid's sales, this stock probably will continue to revert to the mean.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.