The best biotech growth stocks typically have one clear-cut value driver. This fact is a testament to the extreme difficulty involved in bringing a major new drug to market and subsequently capturing market share. As a result, a large chunk of small- to mid-cap biotech stocks end up burning brightly for short periods of time, before ultimately lagging behind the broader markets over a multiyear period. Axsome Therapeutics (AXSM 0.27%) may have what it takes to escape this less-than-ideal fate.
Since going public in 2015, Axsome's shares have appreciated by a jaw-dropping 876%. The company's meteoric rise has been fueled by the Food and Drug Administration (FDA) approval of the major depressive disorder drug Auvelity (AXS-05), as well as the acquisition of the narcolepsy medication Sunosi from Jazz Pharmaceuticals. But as the company highlighted in a recent filing with the Securities and Exchange Commission (SEC), it has a lot more to offer shareholders in the years to come.
Organic growth galore
On the low end, Axsome's management believes the company's first two commercial-stage products should deliver at least $1.3 billion in peak sales. On the high end, the company's leadership thinks Auvelity and Sunosi could hit a whopping $3.5 billion in combined sales. At the time of this writing, Axsome's market cap stands at roughly $3.7 billion. Hence, these two FDA-approved drugs have the potential to drive significant organic growth over the balance of the current decade.
Axsome's robust pipeline of central nervous system disorder drug candidates could be a game changer for shareholders, however. At present, the biotech is trialing AXS-05 as a novel treatment for both Alzheimer's disease agitation and as a smoking cessation agent. Peak sales from these two additional indications (if approved) are forecast to range from $2 billion to $4 billion. Its late-stage migraine (AXS-07), narcolepsy (AXS-12), and fibromyalgia (AXS-14) candidates have the potential to generate between $1.5 billion and $3 billion in sales, per yesterday's SEC filing.
While there's little chance Axsome hits on all of these high-value indications, the company has enough in the pipeline to create enormous value for shareholders in the years ahead. Going one step further, this mid-cap biotech might even have the potential to transform into a large-cap entity before the decade's end. So, in short, Axsome's stock could quite possibly triple in value from current levels.
Is Axsome stock a screaming buy?
Normally, investors would be wise to take a skeptical view of a biotech company touting the commercial prospects of its various pipeline assets. These kinds of upbeat presentations, after all, are all too often followed up by a large public offering. What's more, peak sales targets for experimental drugs rarely pan out. There are simply too many moving parts to accurately forecast a clinical-stage drug's long-term commercial opportunity, after all.
Axsome, though, is in a unique situation. First off, the company's cash runway ought to extend well into 2026, and by then, it may be cash-flow-positive. So there's no pressing need for the company to execute a large public offering. Second, Axsome's market cap would probably be considerably higher if it wasn't emerging from one of the worst bear markets in the modern era. Axsome, in fact, is arguably woefully undervalued at current levels.
Bottom line, Axsome stock should continue to tick higher, making it a great growth stock to buy right now. The company's FDA-approved products have yet to be fully valued by this moody market, and its robust clinical pipeline could deliver multiple positive catalysts over the next year.
