Why Acadia Pharmaceuticals Stock Is Soaring Today
Key Points
Acadia Pharmaceuticals focuses on underserved rare diseases.
Although they’re (by definition) small markets, there’s often little to no competition to treat rare and underserved diseases.
This profitable company’s potential revenue is actually significant compared to its relatively small market cap.
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Already recovering from weakness suffered early this year, Acadia Pharmaceuticals (NASDAQ: ACAD) shares were outright catapulted higher today. Indeed, the pharmaceutical stock's 12.2% gain as of 12:17 p.m. ET Friday has pushed it back within sight of its 52-week high hit late last year.
The prompt for this bullishness? Unsurprisingly, encouraging news regarding one of its two approved drugs.
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A new market is about to open up
With a market cap of less than $5 billion, Acadia is anything but a pharmaceutical powerhouse. But, it's not trying to be one. Its focus is relatively narrow, aimed at underserved rare conditions like neurological disorder Rett syndrome, or psychosis stemming from Parkinson's disease and Alzheimer's.
To this end, the company's only two treatments currently approved anywhere are Daybue (for Rett) and Nuplazid (for psychosis), which produced revenue of $101 million and $167 million -- respectively -- during the first fiscal quarter of this year.
Image source: Getty Images.
After growing 20% year over year in Q1, however, sales of Daybue could soon be even higher. On Friday, the company announced that the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) recommends its approval in the EU as a treatment for the neurobehavioral symptoms of Rett syndrome. If ultimately approved, it would be the first treatment permitted in Europe for this particular purpose.
Just be patient
It's unclear how big Europe's Rett syndrome market is, though given what's known about the U.S. market and Acadia's focus on rare diseases, it's presumably not enormous.
On the other hand, neither is Acadia Pharmaceuticals, and it faces little to no real competition on either front.
Acadia is also -- surprisingly enough for a pharma company of its size, age, and ilk -- profitable. It's testing a handful of drugs other than Daybue and Nuplazid for the treatment of other rare diseases as well, and each of these trials is showing strong promise. There are certainly worse, riskier investment prospects out there.
The only arguable downside to stepping into this stock right now is the sheer scope of today's gain, which has left behind a sizable gap from Thursday's high. Some investors may feel it needs to be backfilled first before shares can move higher.
That pullback doesn't necessarily need to happen, to be clear. Some investors simply think it does.
Nevertheless, this worry can and likely will weigh on the stock for at least a few days. Interested risk-tolerant investors might want to wait for Friday's surge to settle down before stepping in.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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