My Pick for 2025: A Biopharma Name That Just Deserves More
This small-cap pharma company already has needed treatments on the market and in the works. It's also surprisingly undervalued.
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The year 2024 has been stellar for investors, even as equities will end the year at some of their most stretched valuations in history by several metrics. Now it's all coming to an end. Expect 2025 to be a year where the market consolidates the large gains from 2023 and 2024 and adjusts to the policies of the new administration, which may or may not include substantial tariffs. I would not be surprised at all if equities trade sideways or even provide lower entry points for a good portion of 2025.
Looking back on the year, my stock pick for 2024, Blade Air Mobility BLDE, had a decent performance as it is up in the high teens as of mid-December. Not the same returns of some of my previous picks over the years like BioDelivery Sciences or Relypsa that were purchased for significant buyout premiums during the year they were highlighted.
So, in that vein, we return to the biopharma space for 2025’s selection. My pick is now Acadia Pharmaceuticals ACAD. This is a name I have highlighted several times in 2024, and the stock has been a consistent and successful covered-call trade for my portfolio for some time now. I don’t expect this mid-cap name to be acquired, but stranger things have happened. I do expect the shares to outperform the market and provide a solid return in the coming year. The stock has spent most of 2024 trading in the mid-to-high teens. I expect the equity to end 2025 in the low to mid-$20s, for a solid but not spectacular performance in what I expect will be a much more subdued performance for the overall market.
In 2025, I believe the stock will break out on the upside above its trading range it has established in 2024. The company has two approved products on the market. The company’s established franchise drug is Nuplazid. First approved in 2016, it remains the only Food and Drug Administration-approved treatment for hallucinations and delusions associated with Parkinson's Disease. Revenues are still growing around 10% annually and the compound should rack up some $600 million in revenues in fiscal 2024.
What is really driving the company’s current growth, however, is a drug named Daybue. It was approved by the FDA in early 2023 and is the first treatment to date that's approved for Rett Syndrome for patients two and older. Sales increased in the mid-30s in its most recently posted quarter and the drug should do nearly $350 million worth of revenues in fiscal 2024. Growth will slow in fiscal 2025, but overall revenues should increase in the high single digits for the company and Acadia has become profitable.
In addition, the company has two late-stage assets in its pipeline. One is being evaluated to treat hyperphagia -- a type of overeating -- associated with Prader-Willi syndrome, a rare genetic disorder, and the other for Alzheimer's disease-related psychosis. Acadia also just licensed an interesting early stage tremor treatment candidate as its builds out its pipeline.
The company’s balance sheet is pristine with just over $550 million of net cash. In addition, management is close to finalizing a deal that should net it an additional $150 million for the FDA Rare Pediatric Disease Priority Review Voucher the company garnered for the approval of Daybue. With a market cap of just under $2.9 billion, ACAD makes a compelling sum of the parts story and one that deserves a higher valuation. Something I feel is likely to happen in the coming year.
At the time of publication, Jensen was long ACAD and BLDE.
