Acadia Pharmaceuticals (ACAD -2.54%), Amarin (AMRN 5.23%) and Exelixis (EXEL -1.39%) check the boxes for what investors should look for in a promising biotech company: compelling drugs, increasing sales, near-term catalysts, and the possibility of being acquired. Like Goldilocks and the Three Bears, these companies are not too big, not too small, but just right.
All three companies market drugs, albeit in different therapeutic areas. Acadia's Nuplazid is approved to treat hallucinations and delusions associated with Parkinson's disease psychosis. Amarin's Vascepa lowers a type of fat called triglycerides, and Exelixis's cabozantinib franchise treats advanced kidney and liver cancers.
Compelling revenues with room to grow
Each company has generated meaningful revenues over the past 12 months, ending in the second quarter. Exelixis led the pack with $909.9 million in revenues. Acadia's $264.1 million and Amarin's $292 million are nothing to scoff at either.
Exelixis' revenue growth was 12% higher than the previous quarter. Revenues at Acadia and Amarin grew more than 30% from first to second quarters of 2019. Third-quarter results will be released in a few weeks and then investors will be able to determine if the trajectory is sustainable
Is there something special about a $5 billion valuation?
Amarin's market cap is just over $5 billion while Acadia and Exelixis are closer to $5.5 billion. With similar market caps, it is interesting to look at their price-to-sales ratios side by side. Acadia trades at 21 times its trailing 12-month revenues while Amarin's is 17 times. Exelixis's P/S ratio of six appears to be a considerably greater value than the others.
The size of the addressable patient populations could be a cause for differing multiples on revenues. Exelixis' cabozantinib treats patients with advanced kidney and liver cancers. The American Cancer Society states that in 2019 nearly 74,000 patients will be diagnosed with kidney cancer and more than 42,000 with liver cancer.
Nuplazid by Acadia treats a symptom that impacts roughly 50% of Parkinson's disease patients. Nearly one million people in the U.S. live with this disease, according to the Parkinson's Foundation. Lastly, Amarin's Vascepa can be taken by as many of 50 million Americans who have elevated triglycerides. The American Diabetes Association added Vascepa to its recommended treatment guidelines earlier this year.
Why should you consider these biotechs now?
The stock prices for Amarin and Exelixis dropped more than 30% in the last six months against the backdrop of growing revenues fueled by increased patients receiving either Vascepa or cabozantinib. Acadia, on the other hand, rocketed 40% during the same period. A pivotal Phase 3 trial with Nuplazid was stopped early due to overwhelming positive efficacy in patients with dementia-related psychosis. The company plans to seek expanded approval with the U.S. Food and Drug Administration, opening the door to another 2.4 million potential Nuplazid users, according to the company.
Amarin faces an FDA Advisory Committee meeting on Nov. 14 to discuss expanding Vascepa's approval. Data from the company's REDUCE-IT trial demonstrated that Vascepa can lower cardiovascular events in high-risk patients. If the advisory committee votes favorably, the FDA generally follows suit.
In January, Exelixis received approval for cabozantinib in advanced liver cancer. The launch into this indication is still early making it difficult to gauge how well it will do. However, take comfort in the fact that the company boasts cabozantinib is the leading tyrosine kinase inhibitor prescribed for advanced kidney cancer. To gain that position, Exelixis must be doing something right on the commercial front.
These companies have plenty of room to grow and boast healthy balance sheets. Exelixis is profitable and has more than $1 billion in cash on hand. Acadia and Amarin recently completed secondary financings to strengthen their finances. Additionally, because each company has an approved product and established sales force, these are attractive targets for bigger pharmaceutical companies to acquire. For all of these reasons, it makes sense to spend some time evaluating if Acadia, Amarin, and Exelixis are right for your portfolio.