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Is Acadia Pharmaceuticals a Buy?

By Amar Khatri – Jun 2, 2020 at 7:27AM

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A strong Q1 performance set the tone, but commitment to its strategy will be key to drive the stock higher.

Many businesses have seen their shares tumble in the recent market plunge. Fortunately for Acadia Pharmaceuticals (ACAD 4.16%), it is one of the few biotech stocks seeing positive returns. It is up 16% year to date, outperforming both the SPDR S&P Biotech ETF and the iShares Nasdaq Biotechnology ETF.  

The company began the year with a momentous start from its lead drug, Nuplazid (pimavanserin), a treatment for hallucinations associated with Parkinson's disease psychosis (PDP). In its first-quarter earnings report, released May 7, Acadia reported revenue of $90.1 million, a 43% increase year over year, and posted a net loss of $88 million, or $0.57 per share. Despite the challenges of the recent pandemic, investors liked what they heard from the recent earnings call. 

Here are the key takeaways for Acadia Pharmaceuticals.

Dropper putting droplet with money sign into beaker

Image source: Getty Images.

Strong Q1 performance

Acadia Pharmaceuticals's first-quarter sales were driven by strong execution in marketing and commercial strategy. The $90.1 million in revenue came from 32% volume growth year over year. The gross-to-net adjustment -- which accounts for pricing changes such as discounts and rebates -- was 25.4% for Q1 2020. This number is generally highest in Q1 due to an annual reset for Medicare Part D patients.


During Q1, management has pivoted from in-person to virtual education and engagement, revising its net sales guidance down somewhat -- to $420 million to $450 million, from $440 million to $470 million. That still represents 28% sales growth year over year. CEO Steve Davis noted that Acadia sees "continued growth in Nuplazid this year, and we remain confident in driving the long-term market opportunity in PDP."

The company remains on track to deliver a second indication of Nuplazid for treatment of dementia-related psychosis (DRP). This indication presents a massive opportunity for growth, as the 1.2 million patients living with DRP make up a group 10 times larger than those living with PDP. The company plans to submit a supplemental New Drug Application (sNDA) in the summer, and expects a priority review (expedited via the breakthrough therapy designation) and a potential approval near the end of the year. 

Dedicated for the long run

Management took proactive steps to adapt to the dynamic environment created by the COVID-19 pandemic. As mentioned, Acadia quickly adopted a virtual presence, incorporating a portal that provides healthcare providers with promotional and educational material, supporting the shift into telemedicine, and engaging with patients via online tools.

The company is supporting its patients by continuing to deliver Nuplazid directly to patients' homes or through long-term care pharmacies and facilities, providing an uninterrupted supply of medicine even during challenging times created by COVID-19. Its investment in online tools will optimize its approach to sales, marketing, and medical education in this new environment and continue to drive top-line growth throughout the year. 

Management's strategic vision remains the same; in 2020, plans are to drive growth of Nuplazid, deliver on DRP, and develop treatment options for patients. On May 7, Acadia announced that it had entered into a licensing agreement and research collaboration with Vanderbilt University. This will allow it to develop and commercialize drug candidates that target a specific receptor, muscarinic M1, to help treat various central nervous system (CNS) disorders. This collaboration provides Acadia with a portfolio of early-stage clinical candidates that will complement the current pipeline of CNS therapies and help build its long-term growth strategy. 

On May 26, Acadia announced positive feedback from the U.S. Food and Drug Administration (FDA) on its strategy to combine two phase 3 clinical trial studies, called CLARITY-2 and CLARITY-3, for evaluating Nuplazid for treatment of major depressive disorder (MDD). The results of this study are expected to be announced during Q3. If the outcome is positive, Acadia will submit a supplemental New Drug Application (sNDA) for the use of Nuplazid for treatment of MDD. This could drive the stock price higher, and it would create new avenues for top-line growth. 

Along with strategy, Acadia continues to improve its management team. On May 28, it announced that Mark Schneyer had been appointed to serve as chief business officer and senior vice president of business development. This newly created position will allow Acadia to source and create new business opportunities to expand on its innovative pipeline.

Schneyer comes to the job as a former vice president of business development at Pfizer's Upjohn division, and his nine-plus years of experience -- overseeing strategic transactions including licensing agreements, product acquisitions and divestitures, collaborations, and company acquisitions -- will be quite valuable to Acadia over the long term. 

Healthy financials

Acadia's assets exceed its liabilities. It has plenty of cash to operate, with $651.4 million in cash and investments. Its current ratio -- a measure of liquidity -- is 7.2, meaning it has a lot of short-term asset value respective to the value of its short-term liabilities. This value is in line with the broader biotechnology industry's average of 6.8.  

Its valuation gives Acadia a price-to-sales (P/S) ratio of 21, which is overvalued compared to its peers Clovis Oncology (2.7) and Intercept Pharmaceuticals (9.6) -- the lower the P/S ratio, the more attractive the investment. Another important valuation metric is enterprise value to sales (EV/Sales), which compares the company's overall enterprise value to its sales; Acadia's EV/Sales of 20.1 shows it to be overvalued compared with Clovis Oncology (6.6) and Intercept Pharmaceuticals (9.8). 

Acadia Pharmaceuticals is 99.3% institutionally owned, which suggests that investors like what they see in the stock. In the most recent quarter, 126 institutional holders increased positions, 37 opened new positions, and 63 sold off positions. Analysts are bullish, setting an average price target of $59.00, with a range of $41 to $74. Currently trading near $49, the stock has plenty of room to run. 

Looking forward

With a strong performance in the first quarter, Acadia seems positioned to handle any challenges that may arise in the rest of the year. The updated guidance reflects management's confidence in the long-term opportunity in PDP, as well as the massive growth opportunity from the potential approval of Nuplazid for DRP patients. With the recent collaboration, potential catalysts, and expansion of leadership, Acadia's stock looks ready to run higher. Investors should consider buying shares of Acadia Pharmaceuticals during the next dip.


Amar Khatri has no position in any of the stocks mentioned. The Motley Fool recommends Intercept Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Acadia Pharmaceuticals Stock Quote
Acadia Pharmaceuticals
$17.04 (4.16%) $0.68
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
$13.48 (-3.37%) $0.47
Clovis Oncology, Inc. Stock Quote
Clovis Oncology, Inc.
$1.21 (1.68%) $0.02

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