ACADIA Pharmaceuticals (NASDAQ:ACAD) has been one of the top performing stocks of this year as its flagship drug candidate Pimavanserin showed encouraging results under the Phase III trials. Pimavanserin, if finally approved by the FDA, will become a breakthrough drug for neurological diseases and disorders in the central nervous system. It can also be utilized against Parkinson's disease psychosis (PDP).
Today, there are about 1 million Americans suffering from Parkinson's disease. It is estimated that about 60% of the patients have psychiatric problems. Across the world, there are about 7 to 10 million people who suffer from Parkinson's disease. Thus, the market is relatively huge for Pimavanserin, and there is high hope that this drug will ignite the future success of the company.
Thanks to the positive outcome of its Phase III trial, ACADIA shares soared to new heights, breaking all-time records. The share prices were already moving higher since November, when the company made its first press release on the pivotal Phase III trials. According to the trials all primary and secondary end-points were met. This resulted in a significant jump in share prices. Since then, ACADIA continued to rally to this date.
How long will this rally last? Did the market over-react to the inspiring trial results that it will eventually correct? Or is it just the start of ACAD's bullish run? I think the stock has the potential to double, but that comes with a great deal of risk.
Earnings and Financial Standing
The company is expected to incur losses until it is able to put this product in the market and generate enough sales. Nevertheless, it is still important to check the financial standings and the earnings of the company in order to assess the way the management handles financials.
ACADIA Pharmaceuticals is a stable well-financed company with zero debt. The debt/equity ratio is nil. It has a market capitalization of $654.50 million and its current ratio stands at 18.24. Each share comes with a cash or equivalent of $1.37 per share.
Its earnings per share were all negative in the past two years. In the first quarter of 2012, the company was able to generate revenue of $450,000 while the EPS was -$0.12. In the second quarter, revenues were up at $599,000 and the EPS also improved slightly to -$0.10. Revenues in the third quarter jumped to $3.47 million. The EPS also improved to -0.04. The last quarter saw a decline in revenues, and the EPS was down again and back to the 1st quarter level at -$0.12.
All in all, 2012 ended with a negative EPS of -$0.38 per share with total revenues of $4.9 million. This is a good improvement from the previous year performance where the EPS was -$0.44 (15.79% growth) and the revenues stood at only $2.07 million (136.71% growth).
In spite of the negative EPS, the company has shown growth in both EPS and revenues. This is a good sign of proper financial and asset management. If it gets approval from the FDA for Pimavanserin, it is expected that revenues will greatly improve and the EPS will finally shift from losses to profits.
ACAD was just trading around $1 during the early months of the fiscal year 2012. It started at $1.1 per share on the first trading day. On April, it finally reached the $2 level, but it went back to the $1 range in September.
When ACADIA announced the completion of enrollment in Phase III Pimavanserin Trial for Parkinson's disease psychosis, the market responded warmly to the news and the share prices spiked to $2 range. November 27 was a historic day for ACADIA. When it reported that the Phase III trial met all endpoints, the stock price immediately skyrocketed and jumped 136% from $2.3 on November 26 to $5.43 per share. It even reached to $6.54 during intraday trading.
The momentum lasted for six days. The stock eventually settled down at $4 level towards the end of the year. ACAD eventually closed the year at $4.65 per share. Shareholders earned 322.73% in capital gains.
In the first trading day of 2013, the stock closed at $4.73 per share. Renewed confidence on Pimavanserin's Phase III results boosted the stock performance and fueled its upbeat journey towards the $5 to $6 price range.
On March 20, ACAD announced the presentation of the results of Pimavanserin's pivotal Phase III study on Parkinson's disease psychosis during the annual meeting of American Academy of Neurology.
The favorable results further boosted the share prices of ACAD as it surged from $6.65 on March 20 to $8.24 on the next trading day after the announcement. The increase was a stunning 23.90%, the best ever so far for this year.
Analysts Ratings and Stock Recommendations
The future of the company and its stock position heavily relies on Pimavanserin. The final outcome of the Phase III trial will be a make or break point for ACADIA. So far, the data seems to be encouraging. I expect Pimavanserin to be approved by the FDA and get launched in the market. An FDA approval for Pimavanserin might trigger a further surge in share price. Its market launch will initiate another bullish run as well.
While ACAD is now trading at all-time high, the best is arguably yet to come. Because of this, many analyst firms share the same ratings for ACAD, and they all stood at buy and strong buy. One exception is The Street. While Jim Cramer remains bullish on the stock, The Street just downgraded the stock from hold to sell.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.