Acadia Pharmaceuticals Inc. (ACAD)

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2 Small Biotechs To Buy In This Week's Pullback

Oct. 13, 2016 9:11 AM ET|3 comments | About: ACADIA Pharmaceuticals Inc. (ACAD),

Bret Jensen Bret JensenPremium Research »Follow(28,165 followers)
Specializing in biotech stocks, Small Caps, managing optimized portfolios

The biotech sector has been hit hard in the last two trading sessions. The main trigger for this huge shift of sentiment is politics.

The main biotech indices have lost approximately 6.5% of their value in what has been a brutal and indiscriminate decline.

Attempting to make lemonade from lemons, here are two smaller names I would be opportunistically accumulating if one does not already have a full position in them.

"I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." - Thomas Jefferson

The biotech sector has been hit hard in the last two trading sessions. The main biotech indices have lost approximately 6.5% of their value since Tuesday in what has been a brutal and indiscriminate decline. The main trigger for this huge shift of sentiment is politics. Thanks to the recent implosion of the Republicans nominee's presidential campaign fears have grown that the Democrats could engineered a "clean sweep" this November and control all three branches of government. This could result in more regulation as well as other negative legislative actions on the Pharma & Biotech industries.

The Senate could well "flip". However, given how gerrymandered the House districts have become, the high negative ratings of both candidates and the fact two thirds of the nation thinks the country is heading in the wrong direction; a "clean sweep" is still only a 25% or 33% possibility in my view.

I have gotten a lot of questions on what smaller biotech stocks I would add to here after this week's steep decline. Here is a quick synopsis of two "Tier 3" stocks I have covered before I would start to accumulate Thursday if you do not already have a full position. Tier 3 biotech stocks, for those that are not regular readers of my columns; are companies that have recently approved and potentially lucrative new products but have not achieved profitability as of yet.


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Name: Acadia Pharmaceuticals (NASDAQ:ACAD)

Market Cap: $3.05 billion

Stock Price: $25.78 a share

52-week high: $43.30 a share

Median Analyst Price Target: $45.50 a share

Cash On Hand: ~$600 million

Primary Drug: Nuplazid. This compound received recent FDA approval in the second quarter as the first drug to be green lighted for the treatment of psychosis often associated with Parkinson's Disease. This disease affects approximately one million individuals in the United States with around 60,000 new cases annually. Psychosis occurs in 40% of this population. The compound is also in mid/late stage trials to treat the psychosis found in patients with Alzheimers and Schizophrenia. My own view is success for those indications is less than 50/50 but I could easily see physicians using Nuplazid "off label" if the drug shows some effect in those areas. Parkinson's alone should eventually garner $1 billion in annual sales.

Other Factors: Acadia is one of the few mid-caps in the biotech sector which is dominated by "whales" and "minnows". It is often speculated as a buyout target which I think will eventually happen but not until the first half of 2017. Biogen (NASDAQ:BIIB) is the most logical suitor. This company announced earlier this year it would be spinning off its hemophilia business that should be worth between $5 billion and $7 billion. The company has also stated it is interested in expanding its footprint in the neurology space. A hookup with Acadia seems like a match made in heaven.

These are two actionable ideas for biotech investors that want to take advantage of lower entry points created by the substantial pullback in the sector over the past couple of trading sessions.

Note: To get these types of articles on attractive biotech and pharma stocks as soon as they are published, just click on my profile and hit the big orange "follow" button and choose the real-time alerts option.

Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long ACAD,

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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