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Why Acceleron Pharma Stock Bolted Higher in January

By George Budwell - Feb 4, 2020 at 1:32PM

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Acceleron's shares skyrocketed last month after its experimental PAH drug hit the mark in a midstage trial.

What happened

Shares of the mid-cap drugmaker Acceleron Pharma (XLRN) gained a staggering 71.2% during the month of January, according to data from S&P Global Market Intelligence. The biotech's stock skyrocketed late last month in response to positive midstage trial results for experimental pulmonary arterial hypertension (PAH) drug sotatercept.

PAH is a rare but serious disorder characterized by abnormally high blood pressure in the lungs. The underlying cause of PAH is a mystery in most cases, but it has been associated with a host of ailments like HIV infection, autoimmune disorders, and even drug-related side effects. 

Doctor inspecting an X-ray of a person's lungs.

Image source: Getty Images.

So what

The global PAH market is forecast to hit $9.3 billion in annual sales by 2026, according to a report by Grand View Research. That's an enormous commercial opportunity for a company that currently sports a market cap of approximately $4.8 billion. That being said, PAH is already a highly competitive market, with more drugs on the way. So it's not altogether clear what kind of peak sales sotatercept could actually muster.

What's more, the drug still needs to hit the mark in a pivotal, late-stage trial -- a clinical milestone that's expected to take several years to achieve. Therefore, the stock's sizable uptick on this positive midstage trial data might be a tad premature. 

Now what

Should investors take profits? Acceleron's shares seem to be holding on to their recent gains mainly due to the hype surrounding a possible takeover. PAH is a highly coveted indication in the world of big pharma, after all, and sotatercept does have the potential to be a best-in-class PAH treatment. Although a buyout doesn't seem likely at this early juncture, there is an outside chance that one or more suitors may be willing to take the risk of paying top dollar for an experimental PAH drug. As such, investors might want to hold on to this midcap pharma stock for the time being.

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