Selling Acadia Pharmaceuticals Out Of My Jubak Picks Portfolio

Today I’m selling Acadia Pharmaceuticals (ACAD) out of my Jubak Picks portfolio. I have a 13.52% loss on this position since I added the shares to the portfolio on November 15, 2016.

There are short- and long-range reasons to sell.

From a short-range perspective for the fourth quarter of 2017 sales of the company’s drug Nuplazid came in slightly below consensus estimates for the quarter at $43.6 million. That’s only about 5% below Wall Street estimates. But the market has been counting on Nuplazid, the company’s drug for treating psychosis resulting from Parkinson’s disease, to grow quickly into a blockbuster. Here the disappointment isn’t in the growth per se but in the speed of the growth. Acadia has initiated late-stage trials to expand the drug’s label to other forms of psychosis, such as that resulting from dementia, but the results from those trials won’t be available for two years. In the meantime Nuplazid is on track to generate revenue of $255 million to $270 million for the 2018 year. That’s not bad but it’s not blockbuster ($1 billion plus) territory.

The longer term problem is that Wall Street was expecting someone to make a buyout offer for Acadia in 2016 when the U.S. Food & Drug Administration approved Nuplazid. When no offer emerged, Acadia became something of an orphan. Promising biotech stocks are usually valued on the premise that larger drug company will make a buyout offer. Without that possibility, a startup biotech is left with the tough and expensive task of taking a new drug to market itself. That’s costly since it requires the build out of a sales force from scratch.

This isn’t to say that Acadia can’t go it along on Nuplazid or that the company won’t get a buyout offer later this year or next. It’s just that any catalyst for the stock from either of these sources is likely to require positive news from the Nuplazid trials and that news is likely to take quite a while to emerge. Given the uncertainties in the general market–and the very high risk in any biotech stock (the beta on Acadia is close to 4), I’d prefer to wait until we’re closer to that news.