(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ACAD.)
Acadia Pharmaceuticals Inc. (ACAD) has had a terrible run the past few years with a stock that continues to bounce around in the range of approximately $20 and $40. But more recently signs have emerged that perhaps the trend is nearing an end, with the stock recently breaking out of a multi-month technical downtrend, which could help boost shares higher by about 32% to $42. (For more, see also: Why Biotech Acadia Might Be Undervalued by 40%.)
The fundamentals of the company continue to improve as sales of its lead drug Nuplazid begin to ramp up. Nuplazid is the only FDA-approved drug for the treatment of Parkinson disease psychosis. Additionally, the company should get a readout for the drug in its Phase 2 trial for the treatment of major depressive disorder in the early fall, which could act as a significant catalyst for the stock should the result be positive.
Solid Bottom May Have Been Put in Place
The chart below shows how the stock has recently risen above a multi-month downtrend and has also been able to break a resistance level around $31. It is also worth noting that it appears a double bottom has been put in place, around $28. The recent bottoming pattern in the price is very different than the bottoms over past couple of years, which typically appeared to be more "V" shaped.
A Rise to $42
The next significant level for the stock comes when it faces off against the multi-year downtrend around $34. Should that downtrend be broken, the stock has a clear path on towards $42, approximately the same price the stock has failed on three prior occasions. The three failures created a triple top formation, which is typically a reversal pattern. But the neckline in the pattern was never breached at $24 during the latest downturn, and it would suggest that if the stock were to rise above $34, it would likely breakout when reaching $42 on the fourth attempt.
The company should be reporting results for the fourth quarter in mid-February. Analysts are looking for revenue to have grown by roughly 275% over the past year to $45.18 million, on a loss of about $0.57. But a more important factor will be any guidance the company gives regarding sales expectations for 2018. Currently, analysts are looking for guidance of approximately $250.48 million for 2018, which would be annualized revenue growth of nearly 100%. (For more, see also: Why Acadia Pharma Could Be Worth $10 Billion.)
The fourth time may be the charm for Acadia, but perhaps on this next attempt, the stock will have the strong fundamentals to support the technical breakout.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.