It has been a rough year for biotech stocks. The SPDR S&P Biotechnology ETF is down more than 26%. Of course, it hasn't been a good year overall, with the S&P 500 Index down more than 20%. It's not a new trend, either, with the sector falling 21% in 2021 after soaring during the early months of the pandemic.
It doesn't make sense to write off the entire biotech sector, however. Axsome Therapeutics (AXSM -0.84%) and Exelixis (EXEL 2.23%) are growing revenue and net income, making the two mid-cap biotech stocks attractive long-term buys.
Axsome's revenue is hitting the bull's-eye
Axsome Therapeutics' growth arc is just getting started. The company specializes in treating central nervous system disorders. Its stock has risen 100% so far this year after the company got Food and Drug Administration (FDA) approval for Auvelity to treat major depressive disorder in August.
Aurelity was launched on Oct. 20, so the company hasn't reported revenue numbers for it yet, but GlobalData forecasted the drug could bring in $1.3 billion in annual global sales by 2029. The advantage of the drug is it is fast-acting and, unlike many antidepressants, not associated with weight gain.
Axsome made the jump from clinical stage to commercial stage this year with its purchase from Jazz Pharmaceuticals of Sunosi, used to treat excessive daytime sleepiness. Axsome reported $16.8 million in revenue from the drug, up by 15% year over year and by 3% sequentially. It lost $44.8 million, or $1.07 in earnings per share (EPS) in the quarter, but with its expected revenue growth, it shouldn't be unprofitable for long.
The company is also waiting to see whether the FDA will approve Auvelity to treat agitation in Alzheimer's Disease, a condition which has no approved treatments. The oral N-methyl D-aspartate (NMDA) receptor antagonist met its primary and secondary endpoints in a phase 3 trial, and the company said it expects to file its New Drug Application (NDA) with the FDA sometime in 2023. Nearly three-quarters of Alzheimer's patients experience some form of agitation, so the potential market is large.
The company has several other late-stage candidates in its pipeline, including AXS-12 to treat narcolepsy, AXS-14 for fibromyalgia, AXS-07 to treat migraines, and solriamfetol to treat ADHD. The company said it expects to resubmit its NDA for AXS-07 in the third quarter of 2023 and submit its initial NDA for AXS-14 sometime in 2023.
Exelixis continues to branch out
Exelixis has a blockbuster oncology molecule, cabozantinib, that has allowed it to increase revenue by 2,920% over the past 10 years. The tyrosine kinase inhibitor is marketed as Cabometyx and Cometriq, the first to treat kidney, hepatocellular carcinoma (the most common form of primary liver cancer) and thyroid cancer, and the latter as a treatment for metastatic medullary thyroid cancer.
In the third quarter, Exelixis reported total revenue of $411.7 million, up 25.3% year over year, with its cabozantinib franchise bringing in $366.5 million of that total, up 39.3% over the same period last year and an increase of 6% over the second quarter. The bottom line number is surging as well, with net income in the third quarter of $73.2 million, or $0.23 in EPS, a rise of 91.6%, year over year, for both figures. The company's guidance puts annual revenue between $1.575 billion and $1.6 billion, compared to $1.435 billion last year.
Despite the strong revenue growth, Exelixis' shares are trading at only slightly more than 16 times earnings, which provides a strong opportunity for investors. The company's shares are down more than 13% so far this year despite Exelixis' profitability.
The company has more than 100 ongoing trials, led by various combination therapies that include cabozantinib to treat a multitude of cancers, so some of those will likely make their way to market. Exelixis is not a one-trick pony, however. It has $1.2 billion in cash, which should help its effort to find other breakout therapies, led by another tyrosine kinase inhibitor, XL092, which is in late-stage trials to treat metastatic colon cancer and earlier trials to treat various solid tumors.