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Why Axsome Therapeutics Is Plunging Again Today

By Zhiyuan Sun – Aug 10, 2021 at 2:44PM

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Investors are losing hope in this promising biotech.

What happened? 

Shares of Axsome Therapeutics (AXSM -5.22%) are down 14% to $23.53 apiece as of 2:30 p.m. EDT after a brutal sell-off on Aug. 9 wiped out nearly 50% of its equity value. Investors are still upset that the U.S. Food and Drug Administration (FDA) outlined deficiencies in Axsome's New Drug Application filing for its central nervous system drug, AXS-05 -- which will lengthen the approval process. 

Seeking counseling for depression.

Image source: Getty Images.

So what 

The FDA issued neither a complete response letter nor a refusal to file -- leading many shareholders to wonder if the stock is oversold in the face of a small blunder. But the setback did bring up a few issues. Axsome planned to submit its NDA filing for AXS-05 last year after the drug succeeded in a phase 3 study to treat depression, but it got delayed due to a COVID-19-related logistical delay from one vendor. 

Now what 

But the more important problem that came to light is the drug's composition. AXS-05 consists of Wellbutrin (or bupropion, an antidepressant) and dextromethorphan, a common ingredient in cough syrups. The company could run into problems protecting its intellectual property even if AXS-05 makes it to approval. Nothing is stopping pharmacies from compounding the drug, or even for patients themselves to buy over-the-counter cough syrup and mix it with their Wellbutrin prescription. 

At this point, Axsome has a market cap of only $880 million. So investors are pretty much valuing the company's AXS-07 migraine drug and AXS-14 fibromyalgia drugs for next to nothing. And both drugs attained success in clinical studies. So even if AXS-05 fails to impress, the biotech stock is a good buy on the dip. 

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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