Seeing returns of 200% in the stock market in a mere 12 months is challenging to pull off but not impossible. However, companies that can offer such mouthwatering upsides tend to be high-risk, high-reward plays. It's always essential to proceed with caution when investing in stocks, but when looking for companies that can skyrocket in a short period, it's even more important to be careful.
With that as a backdrop, let's look at one company that could nearly triple your money in the next year, at least according to Wall Street. This company is none other than clinical-stage biotech Axsome Therapeutics (AXSM 4.71%).
The drugmaker currently boasts an average price target of $81, according to Yahoo! Finance. The company's stock price is $27.10 as of this writing, so that amounts to a nearly 200% upside. Can Axsome Therapeutics pull it off?
Here's why Axsome dropped last year
Shares of Axsome Therapeutics have dropped by nearly 60% in the past 12 months. The recent market correction didn't help, but the biotech's shares have been southbound for much longer than just a few months. Arguably, the biggest headwind the company ran into last year related to one of its leading pipeline candidates, AXS-05.
This potential treatment for major depressive disorder (MDD) could have been on the market already. The U.S. Food and Drug Administration (FDA) had initially set a PDUFA goal date (the latest day by which it was supposed to complete the regulatory process for the drug) of Aug. 22, 2021. However, on account of deficiencies the FDA found in Axsome's application, the agency still isn't done with its review process for AXS-05.
These deficiencies do not seem to be related to the medicine's safety or efficacy, and the FDA didn't request additional information from the company. Still, the uncertainty isn't helping -- the market doesn't like uncertainty. This issue will continue to weigh on Axsome Therapeutics until the FDA makes a decision.
Image source: Getty Images.
Better days ahead?
AXS-05 reported excellent results in a phase 3 clinical trial. The study in question enrolled 327 patients with moderate-to-severe MDD in the U.S. Patients received either a placebo or AXS-05 once per day for the first three days and twice daily for the remaining six weeks of the study.
The medicine led to a statistically significant decrease in symptoms of depression compared to the placebo. Further, AXS-05 was generally safe and well-tolerated. The FDA granted AXS-05 priority review, a designation reserved for therapies that would be an improvement over existing treatment options.
Given all these facts, AXS-05 seems very likely to earn regulatory approval eventually. Even if the FDA initially chooses to reject the drug, the decision will likely be related to issues that aren't related to the medicine's safety or efficacy, and that's the most important thing.
MDD is a severe problem that blew up in scope during the pandemic. Axsome estimates a potential patient population of 19 million people in the U.S. for AXS-05 in this indication alone. If the FDA approves AXS-05 for MDD this year, Axsome's shares will soar. But that's not the only potential catalyst ahead for the biotech.
Last year, the company submitted an application for AXS-07 as a potential therapy for migraines. The FDA set a PDUFA goal date of April 30, 2022. More than 37 million people in the U.S. suffer from migraines, and while therapy options exist, more than 70% of this patient population isn't satisfied with them. Further, 80% of Americans who suffer from migraines would try a new medicine. Once again, a regulatory nod for AXS-07 would have a positive impact on Axome's stock price.
Can Axsome meet Wall Street's expectations?
No one knows for sure which way the FDA will go with either AXS-05 or AXS-07. Unforeseen regulatory headwinds represent a significant risk when investing in biotech companies, especially those like Axsome that don't have any products on the market. That's why it's difficult to predict how the coming year will go for the company. If everything goes its way, I expect its shares to rise significantly. But even under this best-case scenario, Wall Street's average price target looks a little bit out of range.
What's more important, though, is the company's long-term prospects. On that front, the future looks good for Axsome. Both AXS-05 and AXS-07 look likely to earn regulatory approvals eventually -- even if they run into regulatory setbacks. Axsome is also testing AXS-05 as a potential therapy for Alzheimer's disease agitation. And it boasts two other products: AXS-12, a potential treatment for narcolepsy, and AXS-14, an investigational therapy for fibromyalgia.
All of these programs are at least in phase 3 studies. Axsome estimates that its late-stage portfolio targets conditions that affect more than 60 million patients in the U.S. So while the company's near-term outlook remains uncertain, Axsome Therapeutics' long-term prospects look bright. That's why it's worth purchasing shares of this biotech stock even if it fails to match Wall Street's target.
