Krill Oil's Omega-3s And CaPre: Brought To You By Acasti

| About: Acasti Pharma, (ACST)

Reports from Acasti Pharmaceuticals (ACST, APO.V) clinical trials have received a tepid response from investors. The results have been positive, but the Company's announcement on March 19th preceded a significant drop in the stock price, from $2.40 to $2.15. The announcement may not have been clear enough for investors, or recent struggles from competitor, Amarin (NASDAQ:AMRN), may have influenced the slip in Acasti's stock price. ACST stock could present a low-cost opportunity for investors interested in what could be both a short-term and long term gain.

Acasti Pharmaceuticals is a spin-off of Neptune Technologies and Bioresources (NEPT, NTB.TO) which focuses on the clinical benefits of krill oil. Omega-3s derived from fish oil have shown numerous clinical benefits and generated significant profit in the pharmaceutical industry. Lovaza®, a prescription drug developed by Reliant Pharmaceuticals and subsequently purchased by GlaxoSmithKline (NYSE:GSK), is derived from concentrated fish oil in order to treat patients with high triglycerides and has earned over a billion dollars each year in sales since 2010.

Acasti is developing a competing drug derived from concentrated krill oil, CaPre®, to treat high triglycerides. CaPre has compared favorably to Lovaza for the treatment of high-triglycerides and cholesterol. Since Acasti began trading on the Nasdaq, the stock price has tripled. As a separate entity from NEPT, Acasti holds the rights for the CaPre formula, and it should draw considerable interest from big pharma as a potential candidate for partnerships or buyouts, as well as from the medical community as a significant improvement in the treatment of patients with high triglycerides and bad cholesterol.

Acasti is currently running two Phase II trials to determine whether its lead product candidate, CaPre®, is an effective treatment for patients with high triglycerides. The first Phase II clinical trial started in September, 2011. Looking at the timeline, one of the trials should be ready to report results in the near term. CaPre has demonstrated better patient data than GlaxoSmithKline's billion dollar drug, Lovaza, providing better efficacy in lowering triglycerides at a lower dose while also lowering bad cholesterol (LDL), and increasing good cholesterol (HDL). GlaxoSmithKline acquired Reliant Pharmaceuticals and its lead drug, Lovaza in 2007 for $1.65 billion, stating "GSK believes there is significant opportunity for future growth of Lovaza in this market segment."

The second clinical trial Phase II clinical trial Acasti has underway is under the direction of Dr. Harlan Waksal, Executive Vice President of Business & Scientific Affairs. Dr. Waksal was a co-founder of ImClone System Inc. and was instrumental in guiding the development and unlikely approval for the blockbuster drug, Erbitux®. ImClone System Inc. was subsequently acquired by Eli Lily(NYSE:LLY) for $6.5 billion. Dr. Waksal's successful track record and experience should help Acasti through the clinical process, as the company draws upon his expertise to guide Acasti's drug development path with the FDA. Not only is Dr. Waksal working for the company, but he also invested $1 million of his own capital (and matched by Neptune Technologies & Bioresources) in the form of a private placement last year, so he seems to be putting his money where his mouth is, so to speak.

In the short term, Acasti appears to present an opportunity as its stock slipped close to 15% following the March 19th press release providing positive information of the trials. This may have been due to unclear wording of the release, and the stock has in the past mirrored ups and downs from another Omega-3 focused biotech, Amarin Corporation, which has struggled as of late perhaps due to low prescription numbers. Amarin's drug, Vascepa®, did well in clinical trials and is a fish oil concentrate like GSK's Lovaza. Vascepa does not provide all the clinical benefits that Acasti's CaPre has shown in the clinic, yet Amarin has a market cap of over $1 billion. Amarin's difficulty in its rollout of Vascepa appears to have negatively affected some investors' perception of the company's valuation, but at a similar stage in its drug development, Amarin traded at significantly more than ACST's current valuation - suggesting that Acasti continues to be undervalued in the market.

Krill oil has received attention in media reports as well, and has been praised by health experts like Dr. Oz, with Neptune Technologies & Bioresources specifically being named as a leader in the field. Neptune's dealings with Bayer (OTCPK:BAYZF), Nestle (OTCPK:NSRGY) and Yoplait show that the company has the dietary industry's interest as well. With the additions to Acasti's team and recent steps the company has taken to prepare for the U.S. market, ACST looks like a hidden gem.

Despite Acasti's 4% gain on Monday, the stock is trading well below its price before the March 19th announcement. As an investor, I believe that Acasti is trading down from $2.40 on no new negative information and that the 52-week high of $3.99, which may have been an anomalous trade, is not out of the question as a target price. Acasti also entered a pre-payment agreement with NEPT regarding future royalty claims for CaPre, which makes the company far more attractive for a buyout or as a partner.

If Acasti's story becomes more widespread and should investors be exposed to all the positives that excite me about this company, the stock has a lot of room to move. I feel that an entry point at $2.50 or lower would be great for anyone who is looking for a lower risk speculative clinical stage biotech, in the short term, and the stock has jumped over $3 several times. Should its trading mirror its parent, Neptune, it could climb quickly like NEPT stock did last year. In the long-term, should Acasti be acquired for $1 billion in a deal similar to the one between GSK and Reliant Pharmaceuticals, the buyout price per share could be over $13.

Disclosure: I am long ACST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: and I intend to increase my position in the next 72 hours