ACADIA Pharmaceuticals Stock Now Looks Oversold At $27 Levels

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 near $27 currently and it is, in fact, down 43% from its pre-Covid high of around $47 in February 2020 – before the coronavirus pandemic hit the world. ACAD stock has had a volatile ride the past few months. It rallied from levels of under $35 in March 2020, when broader markets made the bottom, to levels north of $50 in late February 2021. However, over the recent weeks, the stock has plummeted to levels of $27 currently. The recent drop can be attributed to the U.S. FDA finding deficiencies in its application for its psychosis drug – Nuplazid. This is an important update given that Nuplazid sales with the new approval were touted to add as much as $2 billion in incremental sales. At the current price of $27, ACAD stock is actually trading below the levels seen in March 2020, while the broader S&P500 Index has rallied 77% over the same period.

However, the selling now appears to be overdone. After the recent development many analysts cut their price targets for ACAD stock, but still the average price estimate stands at $44, implying a potential 60% premium to the current stock price of $27. Furthermore, the company has stated that it will work with the U.S. FDA to resolve the discrepancies in its application. It should be noted that Nuplazid is already approved for hallucinations and delusions related to Parkinson’s disease, while the current trial was for patients with hallucinations and delusions due to dementia-related psychosis. Any hopes of approval in this space will be a positive for the company. In this note we focus on a comparative analysis of ACADIA Pharmaceuticals stock performance during the current financial crisis with that during the 2008 recession 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 recovers 77% 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%. It staged 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 $442 million in 2020, led by increased sales of Nuplazid. The company is currently running into losses, partly due to higher R&D investments. The company reported a loss of $1.79 per share in 2020, compared to a loss of $2.36 per share in 2017. Though the company is not profitable, it has seen the loss from operations narrow over the recent years.

Does ACAD Have Sufficient Cash Cushion To Meet Its Obligations?

ACADIA does not have any meaningful debt on its books, while its total cash increased from $341 million in 2017 to $632 million in 2020. It also utilized $136 million in cash for its operations in 2020. The company has a sufficient liquidity cushion to meet its near term requirements.

Conclusion

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
• July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and progress with vaccine development aided stock indices growth.
• Early 2021: Multiple countries approved the vaccines for Covid-19, further buoying market sentiment, though new variants of coronavirus resulted in uptick in active cases in several countries.

As the global economy opens up and restrictions are lifted in phases, overall new patient starts volume will rise. This could be reflected in the form of higher total revenues in 2021, boding well for ACAD stock in the near term. We believe that ACAD stock could rally back to levels of over $40, implying over 50% upside from the current levels.

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