Sell Acorda Therapeutics
28th September 2016 |
Acorda Therapeutics has a promising pipeline of products that could see it trade at significantly higher levels over the coming years. So why did it fall so abruptly over the last two trading sessions?
The simple answer is that its bestselling drug, Ampyra, is the subject of patent challenges from generic drug manufacturers. So far the company has been able to either settle or debunk such claims, but a decision on the latest challenge is expected in 1Q 2017 – so volatility is picking up. As a drug ages the risk of patent challenges increases; this is coming at a pivotal time for Acorda because it has such a strong pipeline of potential success stories but none have yet reached commercial success. The company needs the revenue from Ampyra to tide it over until the next products are ready for market.
In a note to investors yesterday, Royal Bank of Canada (RBC) spelled the risk out. If Acorda wins the suit then it will likely have its Ampyra patent’s validity confirmed through 2026/27. However, if it loses the suit the patent will run out sometime in 2018. In 2016 Ampyra is expected to represent upwards of 95% of the company’s revenue, so this is going to be a big decision.
The share had been rallying since early this month on more positive sales data, but the RBC note, which was followed up by an even more cautionary prognostication from IPD Analytics, served to rob the market of the bullish bias that had been developing. The problem for investors here is that it is becoming increasingly clear that Acorda is becoming the plaything of hedge funds and automated trading systems. I’ve been looking and I can’t come to any other conclusion, so I am now recommending that you sell the share.
An additional rationale for this decision is I do not wish to leave you open to the possibility of what is in effect now a 50/50 bet that the generic challenge can be fended off. The problem is that if the company fails in its legal struggle, the fate of its drug pipeline will be called into question and prices could trade meaningfully lower. That may in fact represent a catalyst for getting interested once more but at a much lower price. In the meantime, I believe standing aside is the best course of action.
Action to take: sell Acorda Therapeutics
Day range on 28.09.16 – $21.89 – 22.36
52 week low/high: $21.89 – 43.63
Until next time,
Eoin Treacy,
Investment Director, Frontier Tech Investor
