The bear market hasn't dragged down Axsome Therapeutics (AXSM 0.40%). The biotech company specializes in treating central nervous system conditions. And it's been on a roll with good news -- and share performance -- in recent weeks. Axsome has climbed 167% from a low in June. That gives it a 53% gain for the year so far.
Axsome's status as a commercial stage company is pretty new. It acquired a treatment for sleep disorders this spring -- and it's also getting ready to commercialize a potential blockbuster drug for major depressive disorder (MDD). Axsome has reached an exciting moment in its story. Does that mean it's time to invest in the stock? Two things point to yes. And one thing indicates it might be time to sell. Let's check them out.
Reason to buy: Two new drugs
Well, one of the drugs isn't exactly new. Jazz Pharmaceuticals sold Sunosi to Axsome this year. But it's new to Axsome's portfolio -- and it represents Axsome's first commercialized product.
Sunosi treats excessive daytime sleepiness in patients with narcolepsy or obstructive sleep apnea. Growth looks promising. Sunosi's sales soared 104% to $57.9 million last year when it belonged to Jazz. And it generated $8.8 million in revenue in only about six weeks during Axsome's second quarter of this year.
But the even better news is this: Axsome recently won U.S. Food and Drug Administration (FDA) approval for Auvelity for MDD. The antidepressant market might be crowded, but Auvelity has a key feature that may help it stand out: It's fast-acting. Clinical trials showed significant improvement in just one week. Most antidepressants take two to three weeks to spur signs of progress.
Now here's the really good news: Auvelity may be on the road to becoming a blockbuster. The treatment could generate as much as $1.3 billion in sales by 2029, according to GlobalData.
These two drugs may usher in a whole new era for Axsome -- one of major earnings growth.
NASDAQ: AXSM
Key Data Points
Reason to buy: Late-stage pipeline
Axsome doesn't have dozens and dozens of candidates in the pipeline. Instead, it has five. But these candidates all are in phase 2 studies or further along.
Of course, failures can happen during any stage of clinical development -- so it's too early to bet on the success of every Axsome candidate. But the fact that the candidates have made it this far does reduce risk to a certain degree. They've reached important safety endpoints in earlier trials, for example.
A late-stage pipeline also means potential products are closer to market from a timeline perspective. So even if only one or two of them make it to market, that could happen in just a few years rather than several years down the road.
An upcoming candidate to watch is a treatment for fibromyalgia. It met primary endpoints in phase 2 and phase 3 trials. Axsome expects to submit the candidate for regulatory approval next year.
All of this equals more visibility for investors about potential revenue down the road. And that supports the idea of buying the stock now.
Reason to sell: One regulatory uncertainty
The one dark spot in this bright picture is a recent FDA decision concerning Axsome's migraine candidate. The regulatory agency rejected the potential treatment. The good news is that this decision wasn't based on safety or efficacy data.
Instead, it concerned something Axsome can more easily address: Questions about chemistry, manufacturing, and controls. The company plans to meet with the FDA and eventually resubmit a request for approval.
It seems likely Axsome could handle these types of issues -- and that the migraine candidate may win approval. But there aren't any guarantees. It's also possible communications with the FDA and the general resubmission process will drag on. Any bad news here could seriously hurt share price performance.
So, investors in Axsome shares might see this uncertainty as a reason to sell -- and lock in gains now.
Should you buy or sell?
In my opinion, the reasons to buy outweigh the reason to sell. Axsome is ready to start reporting revenue from two products -- and one could become a blockbuster. The company is also close to market with other potential drugs. So, as a commercial-stage company, Axsome is just getting started.
At the same time, the shares -- even considering the recent gain -- are still lower than they were a couple of years ago. And back then, the company's revenue prospects were further off.
Wall Street is also optimistic about Axsome. The average analyst estimate predicts an increase of more than 70% from here within 12 months. All of this means Axsome's share price performance may just be getting started too.
