Aegis Capital Downgrades Acadia Pharma (ACAD) to Hold; Sees Nuplazid as Key, but Valuation Now Full
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Aegis Capital downgrades Acadia Pharmaceuticals (Nasdaq: ACAD) from Buy to Hold and moves its price target from $54 to $41 following Q2 rtesults.
On the downgrade, analyst Robert LeBoyer commented,
We continue to believe Nuplazid is a breakthrough product for treating Parkinson's disease psychosis (PDP) and is likely to be a longterm success. Sales for the next 12 months depend on third party payors adding Nuplazid to their fomularies for reimbursement. This process takes about 90 days for some Medicare plans and between 6 to 12 months for private carriers. While we had expected Nuplazid to have a slow initial sales growth rate, we have lowered our profitablity estimates due to expectations of higher expense rates. In view of its price and market capitalization, we believe ACAD is fairly valued at this time.
We have seen several quarters over the past year in which pre-launch activities drove expenses above expectations, but the sequential increase to $50.7 million from $24.5 million in 1Q16 is a new highwater mark. Our new expense levels assume some one-time launch expenses in 2Q16, with continued marketing programs in the future quarters. This is consistent with management comments regarding high up-front investments in doctor and patient education programs needed for a novel, first-in-class product, the analyst said.
We still expect Nuplazid to be a significant treatment for Parkinson's disease psychosis (PDP), although we have lowered our expectations for lower sales in the first 12 months. Our valuation for the stock is now $41, based on our FY2021 EPS of $10.13 per share, with a discount of 30% and a 15X multiple. We have lowered ACAD to Hold from Buy and lowered price target.. Addition of coverage by insurance carriers, clinical milestones, Alzheimer's disease psychosis trials, and progress toward Eupopean approval could provide drivers for the stock toward year end. In view of the uncertainties combined with higher expenses and lower profitability, we believe the risk-reward necessitates a Hold rating.
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