Acadia Pharmaceutical's (ACAD) short and long
term prospects make it an excellent investment idea. ACAD have created an anti-psychotic drug candidate that is highly effective with a best-in-class safety profile. ACAD's new drug will likely provide medical benefits to a wide variety of psychosis patients around the globe.
ACAD is a small biotechnology company developing treatments for nervous system disorders. Their lead drug candidate is called Nuplazid. Nuplazid is a selective inverse agonist targeting 5-HT2A receptors which are believed to play an important role in psychosis. Psychosis is a severe mental disorder which alters peoples thoughts and emotions so much that they lose touch of reality. Psychosis comes out as a symptom of many types of mental illnesses such as Dementia, Autism, and Bipolar Disorder.
Nuplazid's excellent safety profile and effectiveness will likely make it the preferred psychosis patient treatment. ACAD has already proven their drug works for Parkinson's Disease Psychosis (PDP) and are in Phase 2 clinical trials for Alzheimer's Disease and Schizophrenia psychosis. Nuplazid is also likely to be a popular off-label treatment choice. ACAD plans to market its drug beyond the USA so eventually psychosis suffers around the globe stand to benefit from this treatment.
Nuplazid is almost a certainty to win FDA approval for PDP. In its Phase 3 clinical trial, Nuplazid showed highly significant anti-psychotic effectiveness (p=0.001) with safety and was subsequently granted Breakthrough Therapy Designation (BTD). The FDA was also impressed enough with the clinical results that it awarded ACAD an exemption from needing to run a confirmatory Phase3 trial.
The long-term prospects of ACAD are the best reasons to invest in this company. By my calculations ACAD is very under-valued by nearly three fold.
I determined my valuation using the times Revenue multiple method. I only factored potential sales for the lone indication of PDP in the USA. I used a population of 400,000 patients, a treatment penetration of 50% and a treatment cost of $13,500 per year. These assumptions give me peak-sales of over $3.0B for PDP. Then using a conservative 3 times revenue multiple gives ACAD a $9.0B Market Cap (MC). ACAD's current MC is $3.5B well below my $9.0B valuation. My valuation becomes much higher when I factor in likely global sales, the possibility of FDA approval for additional psychosis indications and then the likely high off-label use.
The markets may be factoring a high discount for the risk Nuplazid does not get FDA approval. While there is never certainty in any drug getting FDA approval Nuplazid's risk ought to be very low especially when considering the very favorable FDA treatment its received so far. Nuplazid is likely to be a popular off-label use drug. Current anti-psychotic drugs have harsh side-affects that can even cause death, particularly in the elderly and children. Abilify, Seroquel, Clozaril, Geodon, Zyprexa, and Risperdal are examples of approved anti-psychotics. Abilify is the largest selling anti-psychotic drug in the USA drawing sales of over $7B per year. Nuplazid's excellent safety-profile and effectiveness will enable it to capture a slice of this anti-psychotic drug space through off-label use.
In the near-term, investment in ACAD also offers good value. Its share price nearly reached $46 in early March this year before it quickly fell to a low near $30. The sell-off was triggered by a negative announcement that the company was delaying their New Drug Application (NDA) for Nuplazid. I think the large sell-off was a market over-reaction to a relative minor issue. ACAD stated the delay was due to “additional time required to complete the preparation of systems to support commercial manufacturing”. Basically they felt they were not prepared for an FDA audit of their Quality Controls. The delay does not increase risk for Nuplazid. Nuplazid's chemistry is not in question, the drug has already been successfully produced and passed Phase 3 clinical testing (with flying colors). The market may already be realizing the price drop was an over-reaction. ACAD's share-price has already bounced back to over $37. I think ACAD will quickly return to its $46 high level and will probably trade above $50 once their NDA is submitted which will be in the latter part of this year.
ACAD is a small biotechnology company developing treatments for nervous system disorders. Their lead drug candidate is called Nuplazid. Nuplazid is a selective inverse agonist targeting 5-HT2A receptors which are believed to play an important role in psychosis. Psychosis is a severe mental disorder which alters peoples thoughts and emotions so much that they lose touch of reality. Psychosis comes out as a symptom of many types of mental illnesses such as Dementia, Autism, and Bipolar Disorder.
Nuplazid's excellent safety profile and effectiveness will likely make it the preferred psychosis patient treatment. ACAD has already proven their drug works for Parkinson's Disease Psychosis (PDP) and are in Phase 2 clinical trials for Alzheimer's Disease and Schizophrenia psychosis. Nuplazid is also likely to be a popular off-label treatment choice. ACAD plans to market its drug beyond the USA so eventually psychosis suffers around the globe stand to benefit from this treatment.
Nuplazid is almost a certainty to win FDA approval for PDP. In its Phase 3 clinical trial, Nuplazid showed highly significant anti-psychotic effectiveness (p=0.001) with safety and was subsequently granted Breakthrough Therapy Designation (BTD). The FDA was also impressed enough with the clinical results that it awarded ACAD an exemption from needing to run a confirmatory Phase3 trial.
The long-term prospects of ACAD are the best reasons to invest in this company. By my calculations ACAD is very under-valued by nearly three fold.
I determined my valuation using the times Revenue multiple method. I only factored potential sales for the lone indication of PDP in the USA. I used a population of 400,000 patients, a treatment penetration of 50% and a treatment cost of $13,500 per year. These assumptions give me peak-sales of over $3.0B for PDP. Then using a conservative 3 times revenue multiple gives ACAD a $9.0B Market Cap (MC). ACAD's current MC is $3.5B well below my $9.0B valuation. My valuation becomes much higher when I factor in likely global sales, the possibility of FDA approval for additional psychosis indications and then the likely high off-label use.
The markets may be factoring a high discount for the risk Nuplazid does not get FDA approval. While there is never certainty in any drug getting FDA approval Nuplazid's risk ought to be very low especially when considering the very favorable FDA treatment its received so far. Nuplazid is likely to be a popular off-label use drug. Current anti-psychotic drugs have harsh side-affects that can even cause death, particularly in the elderly and children. Abilify, Seroquel, Clozaril, Geodon, Zyprexa, and Risperdal are examples of approved anti-psychotics. Abilify is the largest selling anti-psychotic drug in the USA drawing sales of over $7B per year. Nuplazid's excellent safety-profile and effectiveness will enable it to capture a slice of this anti-psychotic drug space through off-label use.
In the near-term, investment in ACAD also offers good value. Its share price nearly reached $46 in early March this year before it quickly fell to a low near $30. The sell-off was triggered by a negative announcement that the company was delaying their New Drug Application (NDA) for Nuplazid. I think the large sell-off was a market over-reaction to a relative minor issue. ACAD stated the delay was due to “additional time required to complete the preparation of systems to support commercial manufacturing”. Basically they felt they were not prepared for an FDA audit of their Quality Controls. The delay does not increase risk for Nuplazid. Nuplazid's chemistry is not in question, the drug has already been successfully produced and passed Phase 3 clinical testing (with flying colors). The market may already be realizing the price drop was an over-reaction. ACAD's share-price has already bounced back to over $37. I think ACAD will quickly return to its $46 high level and will probably trade above $50 once their NDA is submitted which will be in the latter part of this year.
I have been following ACAD for over 3 years. I first bought the stock back in November 2012, just before their successful Phase3 trial (study-020). I felt confident at the time that ACAD would get positive results from my knowledge of their previous trials. ACAD did in fact halt a previous Phase3 study for this drug, their "012-study".
In
the 012-study, ACAD discovered a high placebo-affect caused its drug to
lose effectiveness. They discovered the high placebo-affect was generated from
study centers used in countries offering a low standards of care for
psychosis patients. Half of that studies' patients that were
treated in the USA did show positive and significance efficiency and safety.
ACAD then redesigned and ran a new Phase3 study (020-study). The new study excluded low standard of care psychosis centers. This study went on to produced highly significant positive results that have catapulted ACAD's share price from then $2.30 to now over $37.
At the time I was considering investing in ACAD, thestreet.com was warning investors to stay away. Their warning was easy to ignore because their biotech pundit did not show any knowledge of ACAD's clinical history.
ACAD then redesigned and ran a new Phase3 study (020-study). The new study excluded low standard of care psychosis centers. This study went on to produced highly significant positive results that have catapulted ACAD's share price from then $2.30 to now over $37.
At the time I was considering investing in ACAD, thestreet.com was warning investors to stay away. Their warning was easy to ignore because their biotech pundit did not show any knowledge of ACAD's clinical history.
ACAD’s scientists and management have done a tremendous job in creating and bringing through the clinic their anti-psychotic drug candidate. Their next challenges will be to win FDA approval and then successfully commercialize. ACAD have already shown they are capable of overcoming difficult issues as demonstrated by overcoming their early clinical failures so I have confidence they can deal with new obstacles as they come up.
ACAD at its current share price is offering investors great long and short-term value. The risk of its drug candidate failing is now very low and its success will be highly rewarding.
Disclosure – ACAD is a large position of my Marketocracyportfolio, I do not short stocks.
