Biotech company Axsome Therapeutics (AXSM 0.70%) did not perform well in the first six months of 2022, partly due to regulatory troubles. However, the drugmaker has rebounded tremendously since, and shares have doubled in the past three months.

What happened? Well, Axsome finally earned an important approval from regulators in the U.S. (more on that later). Furthermore, there are other things to cheer for about the company.

Should investors get in on Axsome Therapeutics while it is gaining momentum, or is now a good time for shareholders to cash in and leave?

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A one-year-long saga comes to a close

On Aug. 19, Axsome Therapeutics announced that the U.S. Food and Drug Administration (FDA) had approved Auvelity to treat major depressive disorder (MDD). This regulatory nod comes about a year late -- the FDA had initially planned to release a verdict on Axsome's application by Aug. 22, 2021.

Due to deficiencies in the company's application that precluded labeling discussions last year, the agency extended the review of Auvelity, but without saying when it would conclude this review. The uncertainty affected Axsome and caused a sell-off that was (probably) overdone. With this approval in its back pocket, Axsome Therapeutics can move forward.

Auvelity's potential

The approval of Auvelity comes at a time when symptoms of depression seem to be increasing, partly due to what has transpired throughout the world in the past two and a half years: the COVID-19 pandemic. The prevalence of elevated depressive symptoms in adults in the U.S. increased from 27.8% in March of 2020 to 32.8% one year later.

As of April 2021, 85 million adults in the U.S. lived with symptoms of this illness. MDD can be debilitating as it impacts various critical dimensions of day-to-day life, including a patient's sleep, mood, and much more. MDD is a leading contributor to disability and likely causes vast sums of money in lost productivity. Auvelity successfully decreased symptoms of MDD in a late-stage clinical trial.

The medicine also works quickly, with patients feeling the results in as early as one week. Thanks to its strong clinical profile and the massive patient population it targets, Auvelity could achieve blockbuster status at its peak.

More reasons to be optimistic

Axsome Therapeutics' lineup of approved medicines now features two products: Auvelity and Sunosi. The latter treats excessive daytime sleepiness in those with narcolepsy. Axsome acquired Sunosi from Jazz Pharmaceuticals in May for $53 million along with various royalty payments it will have to make later.

These two therapies should help Axsome generate solid revenue, but there are even more things to look forward to ahead. In May, the biotech announced that the FDA had declined to approve AXS-07, a potential therapy for migraines. There were no issues of safety or efficacy with the medicine, at least none that the agency mentioned as a reason for the thumbs-down.

Instead, regulators flagged issues related to the manufacturing of the product. It's never good news when a biotech company fails to earn regulatory approval for a candidate, but had the FDA claimed that AXS-07's side effects were too severe or that the data didn't sufficiently support its efficacy, that would be worse for Axsome. The company expects to work things out with the agency; there's still an excellent chance that AXS-07 will earn the green light eventually.

Axsome Therapeutics boasts a couple of other pipeline candidates: AXS-12, a potential treatment for cataplexy (loss of muscle control) in narcolepsy patients, and AXS-14, an investigational therapy for fibromyalgia (a condition marked by pain, fatigue, and various other symptoms). Both of these medicines are in phase 3 studies.

The company expects top-line results from the study of AXS-12 in the first half of 2023, while it expects a regulatory submission for AXS-14 next year. That's in addition to its two approved products that will seek label expansions. Axsome's lineup will almost certainly expand in the next five years. I think the company's market cap of $2.6 billion still somewhat underestimates its potential.

That's why Axsome Therapeutics is a buy in my view, even after its recent doubling.