Acadia: Multiple Data Points Suggest Further Upside In The Stock

| About: ACADIA Pharmaceuticals (ACAD)

Acadia Pharmaceuticals (NASDAQ:ACAD) has to be one of the top performing stocks over the past year with a chart looking like this. The stock is now trading at about $14 a share which is 10 times higher than it was trading at one year ago. The run has been explosive, led by two news announcements, one in late-November and one in mid-April, that have served as big catalysts for the shares. Even though the shares are now trading much higher than anyone would have thought a year ago, or even two months ago, I think the potential for further gains is there.

Taking a look at the company, Acadia is a biopharmaceutical company focused on innovative treatments that address unmet medical needs in neurological and related central nervous system disorders. Acadia has a pipeline of product candidates led by pimavanserin, which is in Phase III development as a treatment for Parkinson's disease psychosis. Acadia also has clinical-stage programs for chronic pain and glaucoma in collaboration with Allergan (NYSE:AGN) and two advanced preclinical programs directed at Parkinson's disease and other neurological disorders. All product candidates are small molecules that emanate from discoveries made at Acadia.

The shares started really moving in late November after the company announced successful top-line results from its pivotal Phase III trial evaluating the efficacy, tolerability and safety of pimavanserin in patients with Parkinson's disease psychosis ((NASDAQ:PDP)). Pimavanserin met the primary endpoint in the Phase III trial by demonstrating highly significant antipsychotic efficacy as measured using the 9-item SAPS-PD scale (p=0.001). Pimavanserin also met the key secondary endpoint for motoric tolerability as measured using Parts II and III of the Unified Parkinson's Disease Rating Scale. The announcement boosted the market's optimism on getting the drug to market.

That was followed by a 64% pop in April with an announcement that the FDA agreed that the data from the pivotal Phase III -020 study, together with supportive data from other studies with pimavanserin, are sufficient to support the filing of a New Drug Application for the treatment of Parkinson's disease psychosis. As a result, Acadia will no longer conduct the Phase III -021 study that was planned as a confirmatory trial and was scheduled to be initiated later in April. With that announcement, the risk in the shares was reduced as the additional confirmatory trial was deemed unnecessary, as well as timing of the NDA filling shortened. In other words, pimavanserin will potentially come on the market a lot quicker than previously expected. One analyst called the news a "major positive" for the shares while saying that he now expects the drug to launch in the third quarter of 2015 instead of his previous projection for 2016.

Pimavanserin has blockbuster potential with some suggesting it becoming a $2 billion drug. According to the National Parkinson's Foundation, about one million people in the United States and from four to six million people worldwide suffer from Parkinson's disease. Parkinson's disease psychosis, or PDP, is a debilitating disorder that develops in up to 60% of patients with Parkinson's disease. Currently, there is no FDA-approved therapy to treat PDP in the United States.

The outlook for the shares is just as good as the company story. The momentum in the stock is in place with the stock being strong over the past year and the stock being clearly above its key moving averages. The demand for the stock has continued in May as the stock is now up 7% month to date. The market's response to the company's $100 million offering confirms the momentum of the shares. Even though the company announced that 8 million new shares are coming on the market, or 10% of the current shares outstanding, the shares rose on the day. Stock offerings are typically associated with investors selling the shares of the stock in question because they dilute the value of the current shareholders. A neutral, or better yet up day on the day of the offerings, suggests that investors still have a strong appetite for the stock.

On Monday, the company announced that it will be added to the NASDAQ Biotechnology Index. As company's shares are added to the index, the funds that operate with the index as a benchmark will have to purchase the shares of the stock so the funds fairly represent the index. This in turn adds more upside pressure to the shares.

The icing on the cake is that the company may be an M&A target. Roth Capital Partners analyst Robert Hazlett said the FDA's recent decision to allow Acadia to file for marketing approval of its drug pimavanserin based on just one late-stage clinical study will reduce the company's spending, speed up the potential approval of the drug, and make Acadia a more tempting target for potential acquirers. The decision increases the possibility of a takeover of Acadia because there are not many "meaningful" drugs for central nervous system diseases. Takeovers are typically associated with healthy premiums to the share price.

Other data pointing for the shares continuing their run include the fact that smart money is buying shares of the company and the Street's continued bullishness on Acadia with its $17 plus price target on the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.