<p>Are there opportunities with the Acasti Pharma (NASDAQ: ACST) stock with more than 80% smaller shares? Do not bet on it! Shares have been hammering since January due to poor phase 3 results for its potential hypertriglyceride treatment CaPre. As with many biotech stocks, the Acasti Pharma stock is a binary game on the success of a single drug. Faults on CaPre are bad news for Acasti shares.
Source: Pavel Kapysh / Shutterstock.com
Given this factor, there are good reasons why stocks may fall further. Bleeding for cash, the company will probably need a diluting stock infusion to stay in business. This would put further downward pressure on Acasti Pharma shares.
Still, I would not say that the Acasti Pharma stock has no shot to come back. If the company can continue with CaPre, the shares can increase if subsequent trials prove to be successful. But with Amarin’s (NASDAQ: AMRN) competing treatment Vascepa ahead, CaPre could easily end up in the dust.
With the long side up and a significant downside risk, there are better opportunities out there. Let’s dive in and see why the Acasti Pharma share is far from a good biotechnology game.
Grim Future for CaPre corresponds to bad news for Acasti Pharma Stock
What went wrong with CaPre? There are plenty of options for a treatment with omega 3-bsaed hypertriglyceride. So far, only Amarin’s Vascepa has seen success. Vascepa and CaPre are similar medicines. Except that CaPre uses krill oil, while Vascepa uses fish oil. AstraZeneca (NYSE: AZN) also had a similar treatment underway, but saved after poor phase 3 results.
But it may not be so terrible for the Acasti Pharma share. CaPre is down, but not out. As InvestorPlace’s Ian Bezek discussed on February 26, CaPres TRILOGY 1 Phase 3 results were not statistically significant. In other words, the drug’s results were not significantly better than placebo. The company is investigating why this happened and continues to bring CaPre to market.
CaPre has a second study (TRILOGY 2), for which results from the top line have not yet been released. When the company reviews TRILOGY 1’s results, they do not expect to release the TRILOGY 2 top-line results until at least July.
In high risk, high return space you have to double down. But for investors in Acasti Pharma shares, are the odds in their favor? Given Acasti’s cash situation, it does not look so hot. The company has enough cash to survive during the year. But in the future, Acasti needs an infusion of shares.
Such a measure can keep the lights on, but with a stock increase comes dilution. If Acasti continues with CaPre, but it does not pay off, shares may fall further down.
With dilution, the shares may fall further
The shares may be below the 50-cent price level, but the Acasti Pharma share may go lower. Why? The dilution factor. Acasti needs more share capital to continue trying to bring CaPre to market. This is not uncommon for a biotech warehouse. If this happens, but CaPre again does not pay off, equities may continue to decline.
With stocks below the $ 1 price level, Acasti Pharma is likely to make a reverse stock split to maintain its NASDAQ listing. They have done it before, back in 2015, but that does not stop stocks from falling further. Looking at shared adjusted prices, Acasti shares have fallen significantly in their history as a public company.
If you had invested $ 10,000 in Acasti Pharma shares as early as February 2012, you would today have $ 388.31 left on your investment. In other words, a loss of 96.12%. By comparison, $ 10,000 invested in the S&P 500 (NYSEARCA: SPY) would have grown to $ 28,351 (assuming the dividend was reinvested) by the end of January 2020. In other words, a cumulative return of 183.52%.
Acasti’s past bad results cannot mean bad results in the future. As InvestorPlace’s Vince Martin wrote on January 29, Acasti Pharma shares have one last chance. If TRILOGY 2 is a success, and the company can justify the results of TRILOGY 1, it’s not a game over for CaPre. The shares can bounce back considerably when CaPre’s approval odds reverse.
This is not an invitation to buy Acasti Pharma shares. But should be remembered for anyone who wants to shorten this name. The shares may have cratered, but with so much bad news priced in the share, an ounce of positive development can drive the shares higher.
Look at other biotechnology opportunities
It does not look good for Acasti Pharma shares. If they plan to double at CaPre, they need more capital. A diluting share increase would put further pressure on the shares even if they split the stock.
Nevertheless, shares are not guaranteed to reach zero. If their subsequent actions with CaPre pay off, stocks may hover when the potential drug returns on track.
With this in mind, Acasti Pharma is neither a purchase nor a sale. If you are looking for speculative biotechnological names, consider other options.
Thomas Niel, contributor to InvestorPlace, has been writing a one-share analysis for web-based publications since 2016. At the time of writing, Thomas Niel had no position in any of the above-mentioned securities.