Huge Upside for Biotech Acadia
Acadia Pharmaceuticals Inc. (ACAD) is a biopharmaceutical company utilizing innovative technology to fuel drug discovery and clinical development of novel treatments for central nervous system disorders. The company currently has five drug programs in clinical and preclinical development directed at large unmet medical needs and major commercial markets.
We are expecting a number of positive catalysts in 2008, including a partnership on pimavanserin for phase III trials in schizophrenia and phase IIb data on ACP-104 also in schizophrenia. We continue to recommend the name and are maintaining our $20 price target.
We turned bullish on the name after the positive phase IIb data demonstrating the benefit of pimavanserin as an adjunctive therapy to risperidone for the treatment of schizophrenia. Data from this trial was highly encouraging and we think Acadia is now in a strong position to seek a strategic partner perhaps later in 2008.
The shares sold off some over the past few months as management has refused to give a timeline or even comment on when a partnership would be formed. We think this is a wise move, as we can site several other biotech firms that are under heavy selling pressure because they have established a partnership timeline and failed to meet it. Nevertheless, when a partnership does come, it could act as major catalyst to send the shares higher.
We continue to see fair value at $20 per share. We arrive at this figure by applying a 25x multiple (the current peer-group average) to our 2012 EPS forecast of $2.31, and discounting to present day by 25%. We think this rate is fair, perhaps even high, given the four internal shots on goal before 2011, and collaborative programs with Allergan (AGN) moving forward.
AGCO Positives Priced In
AGCO Corporation (AG) reported first quarter EPS of $0.63, above our estimate at $0.54, due to greater-than-expected profitability in the South America and EAME regions. Even though North America reported a first quarter loss, we expect a profit rebound in the second half of FY08 on the back of favorable currency translation and double-digit sales growth.
The international growth story remains intact; the global demand for biofuels and animal protein should result in record corn plantings and increased farm equipment purchases. We reiterate our Hold recommendation on shares of AG. Our target price is $63.50, which is 18.6x our 2008 estimate of $3.42.
Currently, AGCO's stock is trading at a P/E multiple of 17.3x our 2008 EPS estimate of $3.42. The company trades at a premium to its peers, CNH Global NV (CNH) and Deere (DE), based on its higher long-term growth rate.
We believe AGCO's 2008 EPS will benefit from higher prices, a return to profitability in North America, continuous strong growth in South America, and continued strength in the EAME region. Nevertheless, the stock has factored in the bulk of the earnings recovery expected this year.
