Axsome Therapeutics (AXSM -2.61%) has had a transformative past 10 months. The biotech company started the year with no drugs on the market, and now its portfolio includes two therapies. That's partly why Axsome stock has crushed the market this year -- although it has been a bit of a roller-coaster ride.
Investors will want to know whether the drugmaker can maintain this momentum. If so, it might be a good idea to consider purchasing its shares today. With that said, let's see what the future may hold for Axsome Therapeutics.
A massive opportunity for Axsome's key asset
In August, Axsome Therapeutics earned approval for Auvelity, a treatment for major depressive disorder (MDD). Before that, in May to be exact, it acquired Sunosi, a treatment for excessive daytime sleepiness in narcolepsy patients, from Jazz Pharmaceuticals. The transaction cost Axsome Therapeutics an upfront payment of $53 million and additional future royalties.
These two medicines will allow the biotech to generate some revenue and help it push other programs through the pipeline. Auvelity, in particular, looks highly promising. It delivered solid results in clinical trials, delivering improvement in depressive symptoms in as fast as two weeks in one phase 3 study, with sustained improvement over a year.
This is in stark contrast to many current options, most of which typically take six to eight weeks to generate results, and that's for those patients for whom they work at all. Initial therapy fails to lead to remission (when the symptoms of the disease decrease or disappear) for 63% of patients. Further, Auvelity's approval comes at an opportune time.
The prevalence of MDD increased during the pandemic, although this trend pre-dates the coronavirus outbreak. Axsome Therapeutics estimates that 8.5% of U.S. adults suffered from symptoms of depression as of 2018, and that number had risen to 27.8% as of April 2020 and again to 32.8% as of one year later. The disease's economic burden is also massive.
In 2018, it was estimated to be $236 billion. With a target market of 19 million people in the U.S., Auvelity could exceed $1 billion in annual sales at its peak in this indication.
More approvals on the way
Axsome Therapeutics is advancing Auvelity in a couple of other indications as well. Most notably, the company could seek approval for this medicine to treat Alzheimer's disease (AD) agitation, a condition marked by aggressive or restless behavior. The company initiated a phase 3 clinical trial for Auvelity in AD in September.
There are about 6 million AD patients in the U.S., 70% of whom suffer from agitation. With an aging population, AD will become even more prevalent, and so will the agitation associated with it. Elsewhere, Axsome is advancing several programs, including AXS-07, a potential migraine treatment. Authorities in the U.S. declined to approve AXS-07 back in May.
Thankfully, the thumbs-down had nothing to do with AXS-07's safety or efficacy. Instead, it was related to manufacturing issues. After talking things through with health industry authorities, Axsome plans to resubmit AXS-07's application in the third quarter of 2023. The company estimates a market of 37 million patients here.
Axsome Therapeutics' other potential targets include smoking cessation, ADHD, fibromyalgia, and cataplexy in narcolepsy patients. Of course, there is no guarantee that everything will go well for the company. It could run into clinical or more regulatory roadblocks, as biotech companies often do. Further, Axsome isn't profitable yet. The company reported $16.8 million in revenue in the third quarter versus none in the prior year.
Axsome Therapeutics' net loss came in at $44.8 million, slightly worse than the $34.9 million net loss reported during the year-ago period. The widening net loss is hardly surprising considering it had to initiate the launch of a brand new product recently. Further, revenue will start coming in more now that Auvelity is approved.
And although the company does run some risks, its market capitalization of $2.5 billion seems more than reasonable given the opportunity of Auvelity in MDD and that of AXS-07 in treating migraines, which is almost certain to hit the market eventually. That's before factoring in the rest of Axsome's pipeline. Given those factors, I still think Axsome Therapeutics is a buy, even after substantially outperforming the market this year.
