Axsome Therapeutics (AXSM 0.27%) was one of last year's hottest stocks. It climbed more than 100% and beat the bear market. The biotech company had reached an exciting time: the launch of its first products. Since then, demand for the shares has cooled somewhat. The stock has slipped about 6% since the start of the year.
Now, you may be asking yourself whether Axsome still makes a great buy -- after all, its days as a commercial-stage company have just begun. Or is all the good news priced into Axsome shares today? Before deciding whether to invest in Axsome or avoid it, let's take a look at the bear and bull cases for the stock.
The bear case
One reason investors may hesitate to invest in Axsome now is that the stock advanced quite a bit last year, as mentioned above. That resulted in the company's market value more than tripling in just a few months. A look into the past shows us that Axsome has seen market cap rise like this before -- and later decline.
AXSM Market Cap data by YCharts.
That track record may scare away the cautious investor. At the same time, much of Axsome's good news may be priced into the shares right now. These two elements could limit gains.
A look at Axsome's financial situation also may worry some investors. The company has about $300 million in cash -- up from $200 million after amending a loan agreement. This is positive. But the concern is that Axsome's expenses are climbing -- and its net loss is widening.
AXSM Total Expenses (Annual) data by YCharts.
The idea is that Axsome's two newly commercialized products will generate revenue growth, eventually translating into profit. But it's too early to guarantee the products' success -- and, therefore, too early to be 100% certain about the company making it to profitability.
The bull case
Last year, Axsome launched Sunosi, a sleep disorder drug it bought from Jazz Pharmaceuticals. The company also won regulatory approval for the antidepressant Auvelity. Both drugs could generate more than $1 billion in annual revenue. So they may be significant products for Axsome.
At the same time, Axsome is advancing other candidates through the final developmental stages. It recently reported positive phase 3 data on a candidate for Alzheimer's disease agitation. Treatments currently don't exist for this -- opening up a big market for Axsome if its candidate wins approval.
And Axsome plans to resubmit its migraine candidate to regulators later this year. After resolving regulators' questions regarding certain manufacturing data, there's reason to be optimistic about the review.
So if all goes well, Axsome could bring two additional products to market over the next couple of years. And others may not be far behind as all the candidates in Axsome's pipeline are in at least phase 2 development, meaning more revenue growth could be on the way.
Bear or bull?
Should you adopt the bear or bull attitude? It depends on your comfort with risk. If you're an extremely cautious investor, you may not feel comfortable diving in right now. And you may prefer a biotech company that's already profitable.
Otherwise, I'd favor the bull case. It's very common for a biotech company at this stage in its story to see expenses rise and losses widen. The advantage here is that Axsome has two potential blockbuster products freshly on the market now, and its pipeline is late-stage. All these elements support the idea of revenue growth ahead.
At the same time, Axsome shares have slipped from their high last year. Wall Street even predicts they'll climb more than 47% in the coming 12 months. Even if that's a bit optimistic, Axsome stock still looks like it offers more opportunity than risk right now. And that's why I consider this biotech stock a great one to buy and hold.
