Earning outsize returns in the stock market over a short period can be exciting, but doing so over the long run is even better. Can some companies provide both? Yes, especially those relatively small corporations that have yet to become household names. After all, many currently well-established companies were once small- or mid-cap stocks.
That's why it's worth keeping an eye on promising corporations on the smaller side. With that as a backdrop, let's look at two stocks along those lines: Axsome Therapeutics (AXSM -2.61%) and Bluebird Bio (BLUE -4.91%). These biotechs could deliver excellent returns this year, but it's essential to look carefully at their risk-reward profiles before pulling the trigger.
1. Axsome Therapeutics
Axsome Therapeutics is a mid-cap drugmaker coming off a solid performance in 2022, during which its shares more than doubled. The company could carry this momentum into this year. Axsome is launching Auvelity, a fast-acting treatment for depression that earned approval in August. And there are other catalysts on the way for the biotech.
The company is currently running a phase 3 study for AXS-12 as a potential treatment for narcolepsy (a sleep disorder); it expects data from this trial in the first half of this year. Positive results could help move the company's shares in the right direction.
Elsewhere, Axsome is planning a regulatory submission for another candidate, AXS-14, in treating fibromyalgia. This disorder is characterized by symptoms such as pain, fatigue, and sleep problems. Axsome will also resubmit its potential treatment for acute migraines, AXS-07, to U.S. regulators.
In May, the Food and Drug Administration (FDA) declined to approve AXS-07 due to manufacturing issues. But after discussing the matter with the agency, Axsome Therapeutics plans on having a second go at this therapy, with the resubmission planned for the third quarter.
There is still more news from the company's pipeline. In November, Axsome released positive results from a phase 3 study for Auvelity in treating Alzheimer's disease (AD) agitation, which is characterized by anxiety, aggressive behavior, and emotional distress.
Patients treated with the medicine showed statistically significant improvement in AD agitation compared to those treated with a placebo. Axsome Therapeutics started another late-stage study for Auvelity in AD agitation in September. The potential here is vast. There are roughly 6.5 million AD patients in the U.S., up to 70% of whom display symptoms of agitation.
Yet, no treatment is approved for it. Auvelity still has a long way to go before earning this indication as Axsome Therapeutics is planning a data readout of the second late-stage study in 2025. Still, it helps highlight the biotech's long-term potential. The company has a newly approved therapy, and multiple exciting candidates that could expand its lineup within a couple of years, some of which, including Auvelity, could earn various label expansions.
Axsome Therapeutics looks like a solid pick this year as it could again deliver excellent returns thanks to several potential catalysts. And even for patient long-term investors, the biotech is worth serious consideration.
2. Bluebird Bio
Late last year, small-cap biotech Bluebird Bio earned U.S. approval for Zynteglo and Skysona, which are gene-editing treatments for transfusion-dependent beta-thalassemia (TDT, a rare blood disease) and cerebral adrenoleukodystrophy (CALD, a progressive neurological disease), respectively. The biotech is in the process of launching these therapies.
Also, the company is eyeing another regulatory submission this year. Bluebird plans to request FDA approval for lovo-cel in the first quarter. Lovo-cel is a potential treatment for sickle cell disease, a blood-related disorder that causes red blood cells to turn crescent-shaped, eventually leading to a lower count of red blood cells, which can cause serious health complications.
So far, all of the illnesses Bluebird has targeted have very few safe and effective treatment options. There is no question that the company has been an innovator. And if money starts rolling in from Zynteglo and Skysona -- and the company moves forward with lovo-cel -- investors could reward the biotech this year, especially considering its tiny market capitalization of $575 million. At these levels, Bluebird's stock could indeed soar if the stars align.
But Bluebird's prospects remain uncertain. The rollout of its two approved gene-editing treatments will likely be slow, given they can only be administered in qualified treatment centers with the equipment and trained staff to work with gene editing therapies. The process of manufacturing Zynteglo is done for each specific patient using the person's collected cells sent to a specialized lab.
Once manufactured, the therapy is inserted back into the patient via intravenous infusion. That's the short version. And even then, it sounds like a long and complicated process. The complexity of its treatments could be a significant roadblock for Bluebird. As could the price tags: Zynteglo and Skysona go for $2.8 million and $3 million, respectively.
If third-party payers are willing to pay these exorbitant prices, enough qualified treatment centers get ready to administer Skysona and Zynteglo, and the company treats a reasonable number of patients while lovo-cel gets approved, its shares will perform very well from here on out. But that's a lot of "ifs," and the slightest misstep could sink the company's stock, making it a risky bet.
Investors should keep that in mind before even considering initiating a small position in this biotech company.
