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Building a portfolio that can stand the test of time is no easy task. Only a handful of individual stocks are truly capable of outperforming low-cost index funds over long periods of time. After all, the U.S. stock market is a fairly efficient machine.

Companies that steadily grow revenue and earnings over time tend to be rewarded with premium valuations, and vice-versa. As a result, it can be a serious challenge to spot hidden gems in today’s market.

Acadia Pharmaceuticals (NASDAQ: ACAD), a commercial-stage biopharma specializing in treatments for central nervous disorders, is a potential market-beating play. Over the past five years, the biotech’s shares have soundly outperformed the broader markets. And this year, Acadia’s shares have continued their winning ways by rocketing by more than 90% year to date.

Can the drugmaker’s stock keep delivering above-average returns for shareholders? Let’s dig deeper to find out.

ACAD Total Return Level data by YCharts.

A mid-cap biotech stock with room to run

Acadia Pharmaceuticals is a California-based pharma company with two Food and Drug Administration (FDA) approved medicines on the market. In 2016, the FDA approved the company’s Parkinson’s disease psychosis (PDP) medication Nuplazid, and in 2023, it green-lit its Rett Syndrome drug Daybue.

Thanks to these clinical and regulatory successes, Acadia’s top line has surged over the prior 6 1/2 years:

ACAD Revenue (Annual) data by YCharts.

Despite these FDA approvals, however, Acadia has been a money-losing operation for most of its existence as a commercial-stage company. But this unfavorable situation may be about to change for the better.

Some analysts think the biotech is on the verge of becoming cash-flow positive on a consistent basis as a direct result of Daybue’s commercial launch. This rare-disease drug, after all, holds blockbuster sales potential, due to the large unmet medical need represented by this uncommon neurological disorder.

Acadia also sports a robust pipeline of experimental compounds and potential line extensions, which should provide a surfeit of catalysts for its shares over the next 12 to 24 months. For example, in the first quarter of 2024, the biotech is on track to announce top-line results for the phase 3 trial evaluating pimavanserin in patients with predominantly negative symptoms of schizophrenia.

Later this year, the biotech plans on advancing its newly acquired Prader-Willi syndrome drug, ACP-101 (intranasal carbetocin), into a pivotal-stage trial. On the early-stage front, Acadia has an ongoing collaboration with Stoke Therapeutics to develop RNA-based medicines for severe and rare genetic neurodevelopmental diseases of the central nervous system.

Is it time to buy?

Acadia’s stock has soared in 2023 but may not be done yet. The company has a strong portfolio of drugs for central nervous system disorders and may not require another clinical-trial success to handsomely reward its shareholders over the next two to three years. After all, the biotech’s valuation is still fairly attractive, as its shares trade at less than 5x projected sales.

All things considered, Acadia’s shares ought to perform reasonably well over the next few years due to Daybue’s rising sales, Nuplazid’s entrenched market position, and the company’s modest valuation. Positive data readouts or encouraging regulatory developments should provide additional upside for shareholders in the years to come.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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