Please ensure Javascript is enabled for purposes of website accessibility

Why Adamas Pharmaceuticals, Inc. Stock Continued to Slide in November

By George Budwell - Updated Dec 11, 2018 at 3:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Adamas Pharmaceuticals' valuation took yet another hit last month. Here's why.

What happened

Adamas Pharmaceuticals (ADMS), a chronic disease specialist, can't seem to catch a break. Despite beating Wall Street's expectations for its third-quarter revenue, the drugmaker's shares continued their year-long slide last month by losing 39% of their value, according to data from S&P Global Market Intelligence.

Adamas' shares are now down by a staggering 71% since the full commercial launch of its Parkinson's disease drug, Gocovri, last January. The market seems to be dismayed by the drug's fairly slow adoption rate -- even though its current run-rate of about $33 million in sales for the whole of 2018 is almost perfectly in line with Wall Street's and the company's pre-launch projections. 

Brain examination using a modern machine.

Image source: Getty Images.

So what

If Gocovri is performing up to par, why is the market thrashing Adamas' stock this year? While a lot has been made about the potential competitive threat posed by Osmotica Pharmaceutical and Vertical Pharmaceuticals' Osmolex extended-release tablets, there is an alternative -- and arguably more satisfying -- explanation for the stock's weakness in 2018.

As things stand now, Adamas' shares are trading at about 3.5 times the company's forward-looking sales for 2019. That's a fairly typical valuation for an early commercial-stage biotech -- implying that Adamas' shares were simply overvalued prior to this sell-off. 

Now what

On the flip side, investors are probably wondering why the market isn't willing to assign Adamas a much richer premium if Gocovri truly is a blockbuster drug in the making. The fact of the matter is that market conditions have changed abruptly this year. Most biotechs are no longer garnering sizable premiums based on their longer-term financial outlook. Instead, the market has been focusing almost exclusively on near-term revenue projections when doling out valuations this year -- especially in the past few months. Adamas, for its part, appears to be simply falling victim to this marketwide trend.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Adamas Pharmaceuticals, Inc. Stock Quote
Adamas Pharmaceuticals, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.