Axsome Therapeutics (AXSM 1.61%) is approaching that important day in the life of a biotech when it shifts from unprofitable company to one that is marketing pharmaceuticals to the public. This specialist in drugs for the central nervous system is applying for two new drug applications with the Food and Drug Administration in 2021, and has two additional drugs just a year or two away from market. In this video clip from Motley Fool Live, recorded March 5, Corinne Cardina, bureau chief of healthcare and cannabis at Fool.com, and Motley Fool contributor Taylor Carmichael discuss Axsome.

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Corinne Cardina: Let's talk about Axsome Therapeutics. What does this company have and what are briefly a green flag and red flag or yellow flag, any flags.

Taylor Carmichael: OK. Axsome Therapeutics is a company in the central nervous system space. If you have a lot of cancer stocks and you're like, I need to diversify, Axsome is a wonderful company. Thirty years ago, 40 years ago, we had a wave of depression drugs. We had Prozac, we had Zoloft and just a lot of depression drugs. Depression is a huge worldwide market. But we haven't had any new discoveries in a while and what Axsome has done, they've taken Wellbutrin, which is I think it was a GlaxoSmithKline (GSK -0.69%) drug. They've discovered that if you mix it with cough syrup, that it makes a more powerful drug. And so they reduced the dosage. Both of these drugs are off-patent now. They reduced the dosage of Wellbutrin, reduced dosage of cough syrup, figured out a way to make it safe, lowered the dosage and it's more effective than the original antidepressant. They've had this amazing run that they had two years ago from a micro cap all the way to about a $2 billion market cap valuation. Last year I think it was down slightly. They don't have any drugs on the market yet, but they're about to have a bunch. They have many drugs in phase 3 trials and they are out of phase 3 trials. They're going to have, I think, if I remember right, two approvals this year, might be one or two, I can't remember exactly.

Cardina: Right. The yellow flag for basically both of these, Nano-X and Axsome Therapeutics is execution risks. It's the biggest risk with any biotech company that hasn't sold anything on the market before.

Carmichael: Right.

Cardina: They're going to have to prove that they know how to commercialize. For some of these companies, they may partner with companies that have experience to get that. Others, they're going to be going at it alone. Definitely pay attention to how they debut on the market with these things.