In the biotech industry, companies are able to successfully advance a drug from phase 2 to phase 3 studies and beyond about 50% of the time. But Axsome Therapeutics (NASDAQ:AXSM) is currently developing four drug candidates targeting seven conditions with significant medical needs -- and nearly all of the company's clinical trials have succeeded in their phase 2 and phase 3 investigational goals. That success rate is wild. Just what exactly could be behind the company's track record of success? 

Axsome's flagship product is AXS-05, a compounded drug made up of an over-the-counter cough medication, dextromethorphan (DM), combined with bupropion, an antidepressant. AXS-05 is being investigated for four different conditions, and it's thought that its components work together synergistically, with bupropion increasing the circulation of DM in the bloodstream while retaining its antidepressant characteristics. As a result, the drug can target multiple receptors in the central nervous system, whereas traditional antidepressants only target one. I recently wrote about about the drug's the potential to become a new first-line therapy for depression, but its potential doesn't stop there.

Woman raising her hands high after getting off wheelchair.

Image source: Getty Images.

A potential miracle drug 

Aside from treating depression, AXS-05 was also able to reduce the effects of agitation in patients with Alzheimer's disease (AD) by up to 48%, and it achieved this metric with statistical significance compared with placebo in a phase 2/3 clinical trial. A company press release noted that "agitation is observed in up to 70% of patients with Alzheimer's disease and is associated with accelerated cognitive decline, earlier nursing home placement, and increased mortality risk."

The drug has also shown promise in treating nicotine addiction; patients who took AXS-05 in phase 2 witnessed a 25% reduction in the number of cigarettes consumed per day compared with placebo, as well as a 50% reduction in their inhaled carbon monoxide levels. Again, the results had a high degree of statistical significance.  

AXS-05 does have its limitations. Recently, the drug failed a late-stage clinical trial evaluating its effects in treatment-resistant depression (TRD). Nonetheless, the rest of the indications it targets are more than enough to cover its flaws. 

And we're not done yet ...

If this wasn't enough, developments in other areas of Axsome's pipeline are also superb. Its formulation of reboxetine (AXS-12), an already approved antidepressant, saw success in treating narcolepsy in phase 2 trials. Narcolepsy is a chronic sleep disorder that causes an overwhelming desire to fall asleep during the day. Patients with the condition may also experience sudden, frequent, and uncontrolled loss of muscle control during the day; this is known as cataplexy. In the study, more than three-quarters of patients who took AXS-12 saw a greater than 50% reduction in the number of cataplexy attacks they experienced weekly, a significant reduction compared with placebo. 

Similarly, AXS-07, a compounded drug consisting of a headache medicine and an arthritis drug, also saw good top-line results in its phase 3 clinical trials in April. Between 32.6% and 43.9% of migraine patients who took AXS-07 were able to achieve freedom from pain two hours from dosing -- again, a significant result compared with placebo. 

Finally, the company was given a license by Pfizer (NYSE:PFE) to develop a central nervous system depressant (AXS-14) for the treatment of fibromyalgia (widespread muscle pain and tenderness). The drug previously achieved success in phase 2/3 clinical trials, but was discontinued by Pfizer because of uncertainty as to whether it would be more effective than drugs that are already on the market. 

Takeaways for investors 

The global market opportunity of all seven indications of Axsome's pipeline candidates combined will amount to more than $60 billion by the middle of the decade. Investors should note that Axsome is doing well on its path to capture market share, as it plans to file New Drug Applications with the U.S. Food and Drug Administration for AXS-05 and AXS-07 in the fourth quarter of this year. Keep in mind, these drugs demonstrated robust efficacy and statistical significance while being well tolerated in their phase 3 clinical trials, so there shouldn't be any uncertainty with regards to their approval. 

While investors wait for commercialization efforts to take hold, Axsome has nearly $200 million in cash on hand, with a run rate of $130 million per year spent on research and development expenses. The company expects it will have enough cash to fund at least two years of operations. This is good news for investors, because by 2022, phase 3 results will likely have been released for AXS-12 regarding narcolepsy and for AXS-05 regarding TRD and agitation for AD. By then, AXS-05 (for regular depression), AXS-07, and AXS-14 would have hit the market, contingent on FDA approval. All in all, I think this is a stock that can make biotech investors rich, and is a must-have in our portfolios. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.