The past year hasn't been great for Axsome Therapeutics (AXSM -5.72%). Shares of the company are down by about 24% in the trailing 12-month period. Given this recent poor performance, it could be hard to believe that Axsome has the tools to turn things around.
However, this biotech has several catalysts that could send its stock price soaring. Axsome's average price target currently stands at about $81, according to Yahoo! Finance, which is almost double its current stock price of $41. Let's consider why this biotech could live up to the Street's expectations even before the year comes to a close.
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Multiple catalysts on the way
Regulatory wins can send shares of biotech companies -- especially small-cap ones -- skyward. With a market cap of just $1.6 billion, Axsome Therapeutics falls squarely in the small-cap category. And the company is currently awaiting a couple of regulatory decisions.
Last year, it submitted an application to the U.S. Food and Drug Administration (FDA) for AXS-07 as a potential therapy for migraines. The FDA set a PDUFA goal date (the latest date by which it is to complete its review of the application) of April 30. That's coming up soon, and if the agency approves AXS-07, expect Axsome Therapeutics' shares to soar.
What is the commercial opportunity for AXS-07? Axsome estimates that there are more than 37 million people in the U.S. who suffer from migraines, and the annual direct and indirect costs of these in the U.S. amount to $78 billion. Further, more than 70% of people within this patient population are not fully satisfied with current treatments, and about 80% of them would try a new medicine.
In other words, there is a dire need for newer options in this market, and AXS-07 could become one. For a company that did not generate a single dollar in revenue last year, the potential launch of AXS-07 this year could be a big deal.
But AXS-07 isn't the only medicine for which Axsome is awaiting a regulatory decision. There is also AXS-05, a potential treatment for major depressive disorder (MDD). Things are a little more complicated with AXS-05, however. The FDA had initially set a PDUFA goal date of Aug. 22, 2021 for this medicine. But regulators lengthened the review process because they found deficiencies in Axsome's application.
The good news is that whatever problems the FDA had with AXS-05, they do not seem related to the therapy's safety or efficacy. It's also worth noting that AXS-05 performed well in a late-stage study that enrolled some 327 patients with MDD.
During the trial, AXS-05 significantly improved symptoms of MDD when compared to a placebo. Here too, the commercial opportunity is exciting, with a patient population of 19 million people eligible for the medicine in the U.S.
The regulatory headwind that struck AXS-05 last year is a significant reason why Axsome has underperformed the market in the past 12 months. And while it isn't clear when regulators will finally complete the review of the medicine, recent turns of events indicate that a regulatory green light could come down relatively soon -- and almost certainly before the end of the year. An approval here would also work wonders for Axsome Therapeutics and its shareholders.
Other reasons to be optimistic
Axsome Therapeutics boasts several other promising candidates. The rest of the company's late-stage pipeline includes AXS-12 and AXS-14, which are potential treatments for narcolepsy and fibromyalgia, respectively. Meanwhile, Axsome is also developing AXS-05 as a potential treatment for Alzheimer's disease agitation.
In addition, the company recently said it would acquire Sunosi, a treatment for excessive daytime sleepiness in patients with narcolepsy, from Jazz Pharmaceuticals. Axsome will pay $53 million up front for this medicine as well as various royalties; the transaction will close in the second quarter.Sunosi first earned FDA approval in 2019. Axsome plans on adding new indications to Sunosi, thereby expanding its commercial opportunity.
Sunosi generated $57.9 million in net sales last year, representing a 104% increase compared to 2020. This medicine's revenue should continue to grow in the coming years. When added to Axsome's already promising late-stage pipeline, the future looks bright for the biotech.
Of course, things could still turn sour for Axsome. While the catalysts ahead could send its stock price skyrocketing before the end of the year, if it runs into more regulatory headwinds, its share price will drop even further.
However, new regulatory problems related to AXS-05 would likely not condemn the therapy to never make it to the market since, as mentioned, the deficiencies mentioned by the FDA were not related to safety or efficacy. Further, the company has enough programs in its late-stage pipeline to earn at least a couple of major regulatory wins within the next two to three years.
That's why the rewards associated with this biotech stock seem to outweigh the risk. And even if its shares fail to double by the end of the year, Axsome Therapeutics looks like a solid biotech stock to buy and hold.
