ACADIA Pharmaceuticals Inc. (ACAD): What’s Next For This Biotech?

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) 1,100% gain makes it one of the best performing stocks in the market. This rally began after its Parkinson’s disease drug Pimavanserin produced a positive outcome in its Phase III trial.

In particular, Pimavanserin had no negative impact on motor function and significantly reduced psychotic episodes compared to placebo. The drug’s likelihood for approval is now all but a guarantee, and investors are buying like crazy.

ACADIA Pharmaceuticals Inc. (ACAD)

Moreover, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) does not have to complete another late-stage study, as previously expected. This fact has created much of the gains following its initial 150% pop in November 2012. Therefore, it is expected that Pimavanserin will be approved by early next year and then available in the market in late 2014 or early 2015.

In terms of upside, Pimavanserin’s expected sales for the Parkinson’s disease Psychosis indication is between $300 and $400 million annually. The real upside for Pimavanserin lies in off-label uses and its expanded use. Most believe that it will be used in schizophrenia, bipolar disorder, and other diseases where antipsychotics are necessary. Thus, ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is poised to benefit from a large $18 billion market, and many have projected that Pimavanserin’s label and off-label uses combined could generate sales north of $1 billion annually.

What To Do Next

As a long-term investment, I think ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is one of the best places to put money to work in the market. As a short-term investment, its stream of catalysts are running low.

Acadia has seen its large run-up because of how cheap it was prior to Pimavanserin’s data. Now, with a $1.25 billion market cap, the only catalyst remaining is its meeting with the FDA and the eventual launch.

While these two events are important, 16 months of inactivity and a lack of headlines can hurt a biotechnology stock. Also, during the launch and approval process, sometimes warnings and negative information is found that was previously undiscovered.

Thus, stocks that run higher before these events, often trade lower as all good news is already priced into the stock. Therefore, if you own ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) with gains of 300% plus, it might be wise to take some profits off the table – especially if you’re not planning to hold the stock for multiple years.

The Only Likely Catalyst

While the catalysts will be few and far between over the next 16 months, there is one possible catalyst remaining, and that is an acquisition.

Like I said, the antipsychotic market is massive, and one where most large pharma companies have drugs available. However, many of these antipsychotic drugs are being replaced with newer and better drugs, along with losing patent protection.

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has full rights to Pimavanserin, and with it being an innovating drug with large potential sales, it seems logical that large pharma would show a considerable amount of interest. If in fact the company is for sale and the large pharma company has an antipsychotic segment.

One company in particular that has been discussed often is AstraZeneca plc (ADR) (NYSE:AZN), a very large $65 billion company. The reason it has been mentioned is because it owns Seroquel – but is facing generic threats. The acquisition of Acadia could reignite AstraZeneca plc (ADR) (NYSE:AZN)’s antipsychotic line of products, and seems to be a good match.

Then, there is Acadia’s partnership with Allergan, Inc. (NYSE:AGN). However, this partnership is for the development of Acadia’s early stage products, as Allergan, Inc. (NYSE:AGN) is a company focused on the development of therapeutics for glaucoma and chronic pain. Thus, Allergan, Inc. (NYSE:AGN) may not have the resources to effectively launch and market Pimavanserin.

If Acadia is acquired, there’s little doubt in my mind that it will be under $2 billion. Pimavanserin has too much upside and when combined with large pharma’s sales force and manufacturing process, the profit margin for Pimavanserin could be north of 30%. As a result, a $2 billion acquisition would return a profit fairly quickly.

Conclusion

With all things considered, Acadia has been a great stock – but does not have upcoming catalysts. In fact, the only notable catalyst might be an acquisition, and it’s never a good idea to buy a stock on the speculation of an acquisition alone.

Thankfully, as we look long-term ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has great upside potential. In my opinion, the best way to play Acadia over the next year is to hold a small position, and to take gains off the table if you already own.

Currently, I say there is a 50/50 chance of the company being acquired, although it’s hard to know when it might occur. Therefore, by keeping a small position you are still exposed if an acquisition is announced, and if not, you can buy back on any potential dip during the next 16 months.

The article What’s Next For This Biotech? originally appeared on Fool.com and is written by Sherrie Stone.

Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Sherrie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!