What happened

Shares of Axsome Therapeutics (NASDAQ:AXSM) rose as much as 14.8% today after the company announced the pricing of a public stock offering. The pharma will offer up to 2.3 million shares at $87 apiece and raise up to $200 million in gross proceeds. 

Management is wisely taking advantage of a soaring stock price thanks to favorable results for its lead drug candidate. Shares of Axsome Therapeutics have jumped 264% in the last month and 3,460% since the beginning of 2019. 

As of 10:19 a.m. EST on Thursday, the pharma stock had settled to an 11.1% gain.

A man cheering after viewing his laptop.

Image source: Getty Images.

So what

The fundraising move is hardly surprising. Axsome ended September with only $43.6 million in cash, but was expecting to announce clinical results from three pipeline assets and six clinical trials by the first half of 2020

If the pipeline assets succeeded, then there would be opportunities to raise cash in a more shareholder-friendly manner. After all, if a company wants to raise $200 million, then the higher the stock price, the fewer shares that need to be offered. The result: less dilution. 

That's exactly what happened. In early December, Axsome announced that AXS-12 met its primary endpoint in a phase 2 trial in narcolepsy. It was a good start, but all eyes were on AXS-05, which is being developed as a treatment for conditions such as major depressive disorder (MDD) and treatment resistant depression (TRD). The stakes were heightened after a high-profile disappointment from Sage Therapeutics, which is also developing next-generation depression treatments.

Investors got what they were hoping for. In mid-December, Axsome announced that AXS-05 met its primary endpoint in a phase 3 trial in MDD, causing shares to erupt higher. Another trial in TRD should have results in early 2020. If that study proves successful, then the drug candidate could easily top $1 billion in peak annual sales.

Now what

Investors will now be watching to see if AXS-05 earns regulatory approval and how well commercialization succeeds. The proceeds from the public stock offering will help those efforts get off the ground.

That said, investors can't forget that Axsome Therapeutics is a relatively inexperienced company. Promising drugs have faltered in the market -- even after amazing clinical results or regulatory approval -- due to everything from paperwork errors to botched sales and marketing campaigns. The company must dodge those obstacles and execute to live up to its full potential.