ACADIA Pharmaceuticals: No Upturn in Sight

ACADIA Pharmaceuticals (ACAD) is a biotechnology developer of breakthrough therapies in neuroscience.

Specifically, ACADIA markets Nuplazid for hallucinations and delusions associated with Parkinson’s disease. Nuplazid is an antipsychotic, the first and only drug (the company says) approved to treat psychosis in schizophrenia and other psychotic disorders.

As more schizophrenic patients are enrolled in a Phase 3 trial evaluating Nuplazid for the negative symptoms of this serious mental illness, the company is working to develop Nuplazid for Alzheimer’s psychosis.

ACADIA is also developing a treatment for patients with Rett syndrome. Rett syndrome is a rare genetic neurological disorder that causes a progressive loss of motor skills and speech and primarily affects females.

The company’s headquarters are in San Diego, California. I am bearish on ACADIA Pharmaceuticals for the next few months.

Current Market Downtrend

The overall market is just a whisper away from the technical bear market.

Healthcare stocks have also suffered from the high level of risk aversion currently prevailing in financial markets, having fallen more than 11% year-to-date. ACADIA shares have fallen about 27%, underperforming the benchmark index for the U.S. market significantly. 

The market is currently facing severe headwinds from Russian aggression in Ukraine, rising inflation, and concerns about the steady supply of Russian oil and gas.

Fueled by the introduction of tighter monetary policies by central banks to curb rising inflation, the risk of a recession is compounding this turmoil.

Timid Rebound Opportunity Nipped

Regarding ACADIA’s Supplemental New Drug Application for Nuplazid to treat hallucinations and delusions in Alzheimer’s patients, the U.S. Food and Drug Administration will take action around August 4.

FDA approval could potentially bode well for the stock price as it would restore some excitement that traders have been losing.

However, with analysts believing ACADIA’s earnings will deteriorate this year, forecasting a 33% rise in net losses, the company is likely to delay its upbeat earnings report beyond 2022, undoing any optimistic findings from the regulator.

Q1-2022 Results

Market headwinds impacted ACADIA’s stock price, but not its first-quarter 2022 revenue. Revenue rose about 8% year-over-year to nearly $116 million, thanks to higher Nuplazid net sales.

Despite the increase in net sales, ACADIA’s earnings for the first quarter of 2022 were still negative as the company posted a new net loss of $0.70, missing average estimates by $0.13. Net loss was lower for the corresponding period in 2021, as it was $0.42 per common share.

The net loss appears to have deteriorated due to the impact of costs from certain collaboration agreements, combined with higher non-cash share-based fees.

Research and development expenses increased 126.3% year-over-year to $129 million, while selling, general and administrative expenses decreased 13.4% to nearly $97 million in the first quarter of 2022.

Looking ahead, ACADIA is forecasting revenue from the sale of Nuplazid to be between $510 million and $560 million, versus analysts’ median forecast of $533.09 million.

Balance Sheet

As of March 31, 2022, ACADIA’s financial position appears to be rock solid, with cash and short-term investments totaling $446 million and total debt (consisting primarily of operating lease liabilities) of approximately $60 million.

However, investors should be aware that since the bottom line is still a net loss, ACADIA earns negative returns on each investment. Therefore, it does not recover the cost of raising the necessary capital for that investment.

The situation is evident in this comparison: ACADIA’s weighted average cost of capital is 7%, while its return on invested capital is -22%.

ACADIA is destroying rather than creating value, and its current balance sheet could lose much of its financial flexibility if the above relationship doesn’t reverse.

The likelihood of that happening this year is very slim, which is certainly not good for the stock price.

Wall Street’s Take

In the past three months, 16 Wall Street analysts have issued a 12-month price target for ACAD. The company has a Moderate Buy consensus rating based on seven Buys, nine Holds, and zero Sell ratings.

The average ACADIA Pharmaceuticals price target is $29.07, implying 70.5% upside potential.

Valuation

ACADIA has a market cap of $2.75 billion and a 52-week range of $15.16 to $28.06.

The stock has a price/earnings ratio of -12.8, a price/book ratio of 6.2, a price/sales ratio of 5.6, and a price-to-free-cash-flow ratio of -19.4. 

Conclusion

Persistent headwinds and expectations for a larger net loss this year leave ACADIA with little chance of breaking out of its current bearish trend. The share price has traded very weakly since early 2022.

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