What happened

Shares of Axsome Therapeutics (AXSM -1.89%) rose as much as 32.5% today following a 161% gain the day before. From the beginning of the week to 11:40 a.m. EST on Tuesday, the stock has gained 210%, valuing the company at $250 million. Why has Mr. Market plucked this tiny pharma company from obscurity this week?

On Jan. 7, the company reported that its lead drug candidate, AXS-05, hit its primary endpoint in a phase 2 trial evaluating it as a treatment for major depressive disorder (MDD). The results immediately drew comparisons to Sage Therapeutics (SAGE -4.75%), which on Monday announced that its next-generation depression treatment, SAGE-217, successfully wrapped up a phase 3 trial in postpartum depression. The two drugs work differently, but offer a promising glimpse at the future of treatments for depression, which have seen relatively little innovation in the last 15 years. 

As of 11:40 a.m. EST, Axsome Therapeutics stock had settled to a 21.1% gain for the day.

A woman checking her phone and pumping her fist in excitement as cash money falls around her.

Image source: Getty Images.

So what

While many pharma and biopharma companies try to outdo one another by concocting never-before-seen chemistries for new drugs, AXS-05 is a refreshing reminder that there's always low-hanging fruit. The drug candidate is actually two drugs in one: the common cough treatment dextromethorphan (sold under brand names like Vicks DayQuil) and bupropion, a common treatment for depression and helping people to quit smoking (under brand names such as Wellbutrin). Both compounds interact with certain receptors in the central nervous system, while the latter also increases the effectiveness of the former.

Axsome Therapeutics figured that combining the two might create a novel treatment for depression -- and the phase 2 trial results show it might be correct. The well-designed trial included 80 patients, of which 47% taking AXS-05 achieved remission from symptoms in six weeks. The comparison arm of the study didn't use a placebo, but instead gave patients an equivalent amount of bupropion as found in AXS-05. Only 16% of these patients achieved remission.

By comparison, Sage Therapeutics reported that 45% of patients with postpartum depression taking SAGE-217 achieved remission in two weeks, versus 23% taking a placebo. The improvements held up at the six-week follow-up. In late 2019, the drug candidate will complete a phase 3 trial in MDD -- the same depressive disorder treated by the most advanced trial for AXS-05.

Now what

While it's important not to get too carried away drawing comparisons between SAGE-217 (likely headed for marketing approval after completing a phase 3 trial) and AXS-05 (which still needs to start and complete a phase 3 trial), the comparison is pretty impressive for the tiny Axsome. That said, early and mid-stage results for drug candidates treating disorders of the central nervous system are notoriously poor indicators of success in late-stage trials.

Investors should dig around Axsome Therapeutics a bit more before jumping into a position or assuming it will earn a multibillion-dollar market cap like its larger peer Sage Therapeutics. The tiny company appears to be on the right path, but there's still a long way to go.

Check out the latest Sage Therapeutics earnings call transcript.