We believe that Acadia Pharmaceuticals stock (NASDAQ: ACAD), a biopharmaceutical company focused on neuroscience drugs, is a good buying opportunity at the present time. ACAD stock trades around $17 levels currently and it is, in fact, down 64% from its pre-Covid high of around $47 in February 2020 – before the coronavirus pandemic hit the world.
Acadia hasn’t had a great year thus far with its stock plummeting 68% year-t0-date. Much of this decline came in March after the U.S. FDA rejected the supplementary new drug application for Nuplazid, which is currently used to treat hallucinations associated with Parkinson’s disease psychosis, stating it lacked statistical significance in some of the subgroups of dementia. However, we continue to believe that ACAD stock is oversold now, and it is likely to see higher levels going forward. While the rejection of supplementary new drug application was surely negative, Nuplazid continues to see strong demand from PDP treatment. Moreover, Acadia says it will work with the FDA to resolve discrepancies in its application for dementia-related psychosis treatment. Apart from Nuplazid, the company also has three more programs in its pipeline, including Trofinetide, which is being investigated for the treatment of Rett Syndrome and it has peak sales potential of over $500 million.
While ACAD stock has seen lower levels during the current Covid-19 crisis, how did it fare in the 2008 crisis? In this note we focus on a comparative analysis of Acadia stock during the 2008 recession vs now in our interactive dashboard.
Timeline of 2020 Coronavirus Crisis:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- Since 3/24/2020: S&P 500 rallies 103% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here is how ACAD stock and the broader market fared during the 2007-08 crisis
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
ACAD and S&P 500 Performance Over 2007-08 Financial Crisis
ACAD stock plummeted from from levels of about $16 in October 2007 (pre-crisis peak for the broader markets) to levels of $3 in September 2008 before plunging to under $1 in March 2009 (as the markets bottomed out), implying ACAD stock lost 95% from its peak. It saw a small recovery immediately post the 2008 crisis, to levels of over $1 by January 2010. In comparison, the S&P 500 Index saw a decline of 51% from its peak in September 2007 to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.
Acadia Fundamentals Over Recent Years Have Been Robust
Acadia’s revenues increased from $125 million in 2017 to $463 million for the last twelve-month period, led by increased sales of Nuplazid. The company is currently running into losses, partly due to higher R&D investments. That said, the losses have narrowed to $1.65 per share over the last twelve-month period, compared to a loss of $2.36 per share in 2017.
Does Acadia Have Sufficient Cash Cushion To Meet Its Obligations?
Acadia’s total debt rose from zero to around $66 million currently, while its total cash increased from $341 million in 2017 to $557 million currently. It utilized $136 million in cash for its operations over the last twelve-months period. The company has a comfortable liquidity position to meet its near term requirements.
Phases of Covid-19 Crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment. Multiple countries have undertaken large-scale vaccine programs for Covid-19, though new variants of coronavirus resulted in an uptick in active cases.
Overall, ACAD stock looks oversold and it is likely to see a rebound in the near term, in our view. Even if we look at the average of analysts price estimates of $26, it reflects over 50% upside from the current levels.
While ACAD stock can see a rebound, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for IDEXX vs Vertex.