Bitcoin and other cryptocurrencies are all the rage these days, and many investors are thinking of jumping on the bandwagon. Some Bitcoin optimists believe that it will replace fiat currency, that is, government-issued (or government-backed) currency whose value isn't linked to any commodity such as gold or silver.
The value of fiat currency is, roughly speaking, determined by the government. If Bitcoin ends up replacing this kind of money in the future, those who got on early would be sitting pretty. But Bitcoin itself isn't currently backed by any government or commodity. It is also very volatile, leading some investors to think it is best to stay as far away as possible.
The latter argument seems more convincing to me, and even for investors with a penchant for risk, I think there are much better options than Bitcoin (and other cryptos) on the stock market. One example is Axsome Therapeutics (AXSM 0.27%). This clinical-stage biotech has several exciting pipeline candidates that could help it deliver excellent financial results and solid returns in the future.
Here are some of the risks Axsome Therapeutics carries
Axsome Therapeutics, which focuses on developing treatments for disorders that affect the central nervous system, is subject to many of the same risks as other biotechs. The company could run into regulatory roadblocks or negative results from clinical trials.
These potential headwinds are even more severe for this company since it currently has no products on the market. Axsome Therapeutics' stock could fall off a cliff if it doesn't meet investors' expectations to a T with its regulatory updates. It is also essential to look at Axsome Therapeutics' financial position, as the company needs enough capital to fund its clinical trials and other day-to-day operations.
As of Sept. 30, 2020, the company had $202.4 million in cash and cash equivalents. Axsome Therapeutics did not earn a single dollar in revenue during the first three-quarters of 2020. However, Axsome Therapeutics did secure a $225 million term loan facility with Hercules Capital back in September. The company thinks that the cash it currently has on hand, along with the funding it has secured through its agreement with Hercules Capital, will be enough to support its operations at least into 2024.
Even so, clinical-stage biotechs often resort to dilutive forms of financing, particularly when they are gearing up to launch new products on the market. The drugmaker raised capital by issuing new shares back in December 2019, and if it chooses to do so again, its stock will probably sink. With these risks in mind, though, let's look at the potential upside for Axsome Therapeutics.
The bullish case for Axsome Therapeutics
Axsome Therapeutics is developing several exciting medicines. The most promising of the bunch is AXS-05, a potential treatment for Major Depressive Disorder (MDD) and Alzheimer's Disease (AD) Agitation. AD Agitation refers to a set of behaviors, including aggressive behaviors and irritability, that arise as a result of Alzheimer's Disease. In a phase 3 clinical trial, AXS-05 significantly improved symptoms of depression compared to a placebo.
The medicine was also well-tolerated during the trial; the only serious adverse event reported was not related to the drug. Axsome Therapeutics is gearing up to file a New Drug Application (NDA) for AXS-05 as a treatment for MDD. The company had said it would complete the filing process in January, but it has yet to do so.
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The U.S. Food and Drug Administration (FDA) granted AXS-05 breakthrough therapy designation, meaning the review process will be faster. And given the excellent results it scored in clinical trials, AXS-05 is very likely to earn regulatory approval as a treatment for MDD. Axsome Therapeutics is currently testing this medicine in a phase 3 clinical trial in treating AD agitation. But in a previous phase 2/3 study, AXS-05 significantly improved agitation in AD patients compared to a placebo.
What is the potential commercial opportunity of AXS-05? Axsome Therapeutics estimates that roughly 17 million MDD patients and 4 million AD patients will be eligible to take this drug. The company is eyeing peak U.S. sales between $1 billion and $3 billion for each indication, meaning AXS-05 has a good chance of achieving blockbuster status. But there is another one of the company's pipeline candidates investors should be excited about, which is called AXS-07.
This potential treatment for acute migraine also achieved its primary endpoints in a phase 3 clinical trial. The company said it would submit an NDA for AXS-07 during the first quarter of this year. It sees peak sales in the U.S. between half a billion and $1 billion for AXS-07 in this indication. The company has other promising products in its pipeline, but its late-stage programs alone have a very high ceiling.
A better bet than Bitcoin
Axsome Therapeutics could still run into some major headwinds. But the company looks well on its way to launch two drugs that could top $1 billion in sales within the next two to three years. This could push the company's stock to new heights. And after dropping by 16.3% over the past 12 months, the company's market cap stands at $2.8 billion, a reasonable level for a clinical-stage biotech, particularly one with such a high-growth potential.
Meanwhile, the price of Bitcoin is beholden to supply and demand -- and investor sentiment. If investors' attitudes regarding the cryptocurrency remain optimistic, it is likely to rise significantly in the next few years. Otherwise, Bitcoin could fall precipitously. Whether it goes up or down is more or less anyone's guess. Of these two investment options, I think the biotech stock is a much better one for the buy-and-hold investor.
