Acadia’s Pharmaceuticals: Optimal Capital Structure

Jeffrey Cepeda

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.ACCOUNTING

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

The objective of this analysis is to find the optimal capital structure for Acadia Pharmaceuticals by examining how changes in leverage affects their weighted average cost of capital. Acadia Pharmaceuticals is a mid cap biopharmaceutical company that develops first in class therapies for central nervous system disorders and rare neurogenetic diseases. Based on Bloomberg Terminal data, Acadia has a total value of approximately 4.47 billion, with a raw beta of 0.665, and a tax rate of 4.57%. Acadia’s low beta and low tax rate stands out compared to other companies within this industry, making them an interesting company to analyze. In order to evaluate Acadia’s capital structure sensitivity, a synthetic rating method is used to model different debt levels and estimate their effects on cost of equity, cost of debt, and weighted average capital. In accordance with prior literature findings, it’s expected that increases in leverage will only create gradual changes in Acadia’s weighted average capital. This suggests that taking on additional debt will not raise or lower the overall financing costs for Acadia in any meaningful way. Therefore, indicating that Acadia is relatively insensitive to adjustments in capital structure.