Should you buy ACADIA Pharmaceuticals shares at $ 22?
[Updated: 6/1/2021] Update of ACAD actions
We believe that the share price of ACADIA Pharmaceuticals (NASDAQ: ACAD), a biopharmaceutical company specializing in neuroscientific drugs, appears to be undervalued at current levels of around $ 22. ACAD stock is actually down 37% from the levels around $ 35 it was at on March 23, 2020, when the broader markets hit a low. This compares to the S&P which rose 88% over the same period.
The underperformance can be attributed to the company’s flagship drug, Nuplazid, which is currently used to treat hallucinations associated with Parkinson’s psychosis, and which has suffered a regulatory setback on a proposed extension of the drug. ‘label as a treatment for dementia-related psychosis in March 2021. Later in April 2021, the US FDA rejected the additional new drug application for Nuplazid, stating that it lacked statistical significance in some of the sub -groups of dementia. Note that ACAD stock had reached levels of around $ 50 in early March 2020, but has been declining since then, following developments around Nuplazid.
Now that the stock has seen a steep decline (down 56% in the past year) despite 30% year-on-year revenue growth in the past four quarters, we believe ACAD stock is oversold. and that it will likely experience a rebound in the short term. Our dashboard ”Buy or fear ACADIA Pharmaceuticals Stock‘provides the key figures that underpin our thinking.
Over a longer period of time, ACAD stock is up 38% from the $ 16 levels seen towards the end of 2018. The rise in the stock price over the past two years or so can be attributed to favorable changes in the company’s earnings per share (RPS). The company’s revenue nearly doubled to $ 442 million in 2020, from $ 224 million in 2018, due to market share gains from Nuplazid. The company’s outstanding shares increased 24% over the same period due to share issuances. This means that on a per share basis, the company’s revenue rose 59% to $ 2.81 in 2020, from $ 1.77 in 2018.
With growth in RPS, the company’s P / S multiple fell from levels above 9x in 2018 to 19x in 2020. However, considering the sharp drop in ACAD stock in recent months following the announcement of A setback for the Nuplazid expansion, the P / S multiple has now plunged to 8x, and we believe the P / S multiple will likely increase in the future.
ACADIA Pharmaceuticals has seen strong growth in Nuplazid sales over the past few years, a trend that is expected to continue in the near term. Looking at the company’s performance in the first quarter of 2021, total revenue increased 18% year-on-year to $ 107 million, down 5% from consensus estimates of $ 113 million. However, the company’s loss per share of $ 0.42 was lower than the consensus estimate of $ 0.53 loss per share. Additionally, the company kept its full-year revenue forecast between $ 510 million and $ 550 million, reflecting nearly 20% year-over-year growth in the middle of that range.
While we know why ACAD stock has corrected over the past couple of months, the sell-off appears to be exaggerated, in our opinion. The company said it would work with the U.S. FDA to work on the way forward for approval of the label extension. However, it is possible that the regulator will request another test, which will cause a delay in the process. Note that the expansion of the label under discussion would mean additional sales of up to $ 2.5 billion for Nuplazid. As for valuation, at current levels of $ 22, ACAD stock is trading at less than 7 times its expected RPS of $ 3.31 in 2021, compared to roughly 20 times levels seen in 2019 and 2020. , which implies that there is significant room for growth for the ACAD action.
[Updated: 3/15/2021] 50% advantages for ACADIE
We believe ACADIA Pharmaceuticals (NASDAQ: ACAD) stock, a biopharmaceutical company specializing in neuroscientific drugs, is a good buying opportunity right now. ACAD stock is currently trading at nearly $ 27 and is, in fact, down 43% from its pre-Covid high of around $ 47 in February 2020 – before the coronavirus pandemic hit the world. ACAD stock has seen a volatile trend over the past few months. It went from levels below $ 35 in March 2020, when the larger markets bottomed out, to levels north of $ 50 at the end of February 2021. However, in recent weeks, the stock has fallen to lows. currently $ 27 levels. The recent drop can be attributed to the fact that the US FDA has discovered gaps in its application for its psychosis drug – Nuplazid. This is an important update given that sales of Nuplazid with the new approval have been shown to add up to $ 2 billion in additional sales. At the current price of $ 27, ACAD stock is actually trading below levels seen in March 2020, while the broader S & P500 index has risen 77% over the same time frame.
However, the sale now appears to be overkill. After the recent development, many analysts have lowered their price targets for ACAD stock, but the average price estimate still stands at $ 44, implying a potential premium of 60% over the current price of the $ 27 share. Additionally, the company said it will work with the U.S. FDA to resolve discrepancies in its request. It should be noted that Nuplazid is already approved for hallucinations and delusions related to Parkinson’s disease, while the current trial was for patients with hallucinations and delusions due to dementia-related psychosis. Any hope of approval in this space will be good for the company. In this note, we focus on a comparative analysis of ACADIA Pharmaceuticals share performance during the current financial crisis with that of the 2008 recession in our interactive dashboard.
Timeline of the 2020 coronavirus crisis:
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares global health emergency.
- 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, 2020, as cases of Covid-19 accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
- Since 03/24/2020: S&P 500 recovers 77% from lows seen on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.
On the other hand, here is how the ACAD share and the market at large behaved during the crisis of 2007-08
Timeline of the 2007-08 crisis
- 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low point of the S&P 500 index
- 12/31/2009: Initial recovery to pre-accelerated decline levels (around 9/1/2008)
ACAD and S&P 500 Performance During the 2007-08 Financial Crisis
ACAD stock went from levels of around $ 16 in October 2007 (pre-crisis peak for all markets) to levels of $ 3 in September 2008 before plunging to less than $ 1 in March 2009 (as markets bottomed out), implying that ACAD stock lost 95%. It recorded a small recovery immediately after the 2008 crisis, reaching levels above $ 1 in January 2010. By comparison, the S&P 500 index fell 51% from its peak in September 2007 until its peak. trough in March 2009, followed by a strong recovery of 48% by January 2010.
The fundamentals of ACADIA over the past few years have been robust
ACADIA’s revenue increased from $ 125 million in 2017 to $ 442 million in 2020, thanks to increased sales of Nuplazid. The company is currently recording losses, in part due to increased investment in R&D. The company reported a loss of $ 1.79 per share in 2020, compared to a loss of $ 2.36 per share in 2017. Although the company is not profitable, it has seen the operating loss decline over time. in recent years.
Does ACAD have sufficient liquidity to meet its obligations?
ACADIA has no significant debt on its books, as its total cash flow increased from $ 341 million in 2017 to $ 632 million in 2020. It also used $ 136 million in cash for its operations in 2020. The company has sufficient liquidity cushion to meet its needs. short-term requirements.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
- End of March 2020: social distancing measures + confinements
- April 2020: Fed stimulus suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with a gradual lifting of confinements – no more panic despite a steady increase in the number of cases
- July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and advances in vaccine development have contributed to the growth of stock indexes.
- Early 2021: Several countries approved vaccines against Covid-19, further boosting market sentiment, although new variants of the coronavirus have led to an increase in active cases in several countries.
As the global economy opens up and restrictions are gradually lifted, the overall volume of new patients will start to increase. This could translate into an increase in total income in 2021, which bodes well for the ACAD title in the short term. We believe ACAD stock could climb back to levels above $ 40, implying a rise of more than 50% from current levels.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.