It's been a great year for Biogen (BIIB 4.72%). The big biotech won a controversial U.S. approval for its Alzheimer's disease drug Aduhelm. Because of this surprising victory, Biogen's shares have soared close to 40% year to date.
The story hasn't been so great, though, for Axsome Therapeutics (AXSM 2.05%). The U.S. Food and Drug Administration (FDA) recently identified issues with the company's filing for approval of AXS-05 in treating major depressive disorder. Axsome stock plunged on the news and is now down more than 70% this year.
But Axsome's pipeline still has plenty of potential. And Biogen seems likely to look for smaller drugmakers to gobble up. Could Biogen acquire Axsome? There are three reasons why the answer could be a resounding "yes."
A good fit
The most important reason why Axsome could be on Biogen's radar is that it seems to be a pretty good fit for the big biotech. Biogen focuses primarily on neurological disorders. So does Axsome.
Biogen first rose to success with its multiple sclerosis (MS) franchise. Its spinal muscular atrophy drug Spinraza achieved blockbuster sales. Aduhelm will likely become one of the best-selling drugs on the market as a treatment for Alzheimer's disease.
The company's pipeline includes nearly 30 candidates. Most of them target neurological disorders, from additional experimental Alzheimer's disease therapies to stroke.
Axsome is somewhat unusual for a clinical-stage biotech in that it has two lead candidates. The company had hoped to win FDA approval for AXS-05 in treating major depressive disorder this month, although that's unlikely now with the agency's review of deficiencies in Axsome's regulatory filing. Axsome filed for FDA approval of another drug, AXS-07, in treating migraines in the second quarter of this year.
In addition to these two programs, Axsome is evaluating AXS-05 in a late-stage study targeting Alzheimer's disease agitation. It hopes to advance the drug into a late-stage study as a smoking-cessation therapy. The company should soon initiate a late-stage study of AXS-12 in treating narcolepsy. Axsome anticipates filing for FDA approval by the end of 2022 for AXS-14 in treating fibromyalgia.
There aren't many positives when a biotech stock crashes more than 70%. However, such a meltdown does make a company much cheaper for a potential acquisition.
That's certainly the case for Axsome. The company's market cap is now below $800 million. With multiple late-stage programs that could win FDA approvals in the not-too-distant future, Axsome could be viewed as a bottom-barrel bargain. This assumes, of course, that its pipeline candidates still have reasonable prospects for approvals.
Biogen should be able to buy Axsome on the cheap if it chose to do so. The company could definitely afford the deal. Biogen ended the second quarter with a cash stockpile of nearly $4 billion. As Aduhelm picks up sales momentum, the company's cash position will likely improve significantly.
Biogen needs a deal
Prior to the FDA approval of Aduhelm, Biogen was in a position where it desperately needed to make an acquisition or significant licensing deal. Sales for its MS franchise continue to decline. Spinraza isn't the growth driver that it once was. Rituxan, which Biogen licensed to Roche, faces biosimilar competition.
It probably wouldn't be correct to say that Biogen is now desperate to make a deal with the FDA approval of Aduhelm. However, the drug seems likely to face some stiff challenges winning acceptance.
Some healthcare providers have stated they won't prescribe the drug. Some payers, including the Veterans Administration, have refused to include Aduhelm on their formularies.
Other Alzheimer's disease drugs could be on the way that might threaten Aduhelm. Eli Lilly, for example, plans to file for FDA approval for its Alzheimer's disease drug donanemab by the end of this year.
Meanwhile, Biogen doesn't have an especially strong late-stage pipeline. With all of these dynamics, it would make a lot of sense for the company to look to make an acquisition that could quickly provide sales growth. There aren't many small drugmakers around that would enable Biogen to accomplish this goal. But Axsome would if at least one or two of its late-stage programs win FDA approval.
Biogen might not have its eye on Axsome -- but it wouldn't be surprising if it does.