Axsome Therapeutics (AXSM 0.27%) stock jumped more than 10% on June 14 after the company made its latest investor presentation public. The market was reacting to new estimates that suggest peak annual U.S. sales of up to $11.5 billion for the drugs it sells now and the ones it still has in development.
Even after the recent run-up, this company's market cap is just $3.5 billion, and commercial-stage biotech stocks tend to trade at mid-single-digit multiples of their sales. In other words, investors who buy the stock now could earn better than a 10-fold return if the company actually reaches the expectations it laid out for investors. And that's before factoring in sales outside of the U.S.
If you've paid much attention to the biopharmaceutical industry, you know that most companies in it fail to meet expectations. So before you open the brokerage app on your phone to pounce on what looks at first glance like an amazing opportunity, let's take a closer look at what went into that $11.5 billion estimate.
About Axsome's numbers
The first thing to know about Axsome Therapeutics' peak sales guidance is that management provided ranges for each drug that it sells and for the drug candidates it has in development. While $11.5 billion was the upper end of its peak sales estimate, the lower end was $5.8 billion.
Also, just two of these drugs -- Auvelity and Sunosi -- have received marketing approval from the Food and Drug Administration (FDA).
| Drug | Indication | Launch Year (Estimate) | Estimated Peak Annual U.S. Sales |
|---|---|---|---|
| Auvelity | Major depressive disorder | 2022 | $1 billion to $3 billion |
| Sunosi | Excessive sleepiness | 2022 | $300 million to $500 million |
| AXS-05 | Alzheimer's disease agitation | (2025) | $1.5 billion to $3 billion |
| AXS-05 | Smoking cessation | (TBD) | $500 million to $1 billion |
| AXS-07 | Migraine | (2024) | $500 million to $1 billion |
| AXS-12 | Narcolepsy | (2025) | $500 million to $1 billion |
| AXS-14 | Fibromyalgia | (2025) | $500 million to $1 billion |
| Solriamfetol | ADHD | (TBD) | $1 billion |
Data source: Axsome Therapeutics.
Auvelity is a branded version of AXS-05 that was approved by the FDA to treat major depressive disorder (MDD) in 2022. It's a combination of two already-popular drugs, bupropion and dextromethorphan. While bupropion is already used to treat millions of people with depression each year, Auvelity is arguably the first new treatment option for MDD in decades.
The MDD indication is so large that Axsome's peak estimate range seems conservative. In 2020, the National Institute of Mental Health estimated 6% of adults experienced at least one major depressive episode with severe impairment and more than two-thirds of this group received treatment.
The low end of the company's estimated peak U.S. sales range for Auvelity is down around $1 billion annually because cheap generic versions of popular antidepressants such as Zoloft are widely available. That could make selling a relatively expensive new competitor to the familiar names an uphill battle.
However, while many of those well-known antidepressants are cheap, a majority of patients aren't satisfied with their first choice of treatment. Endorsements from patients who receive Auvelity could convince physicians to try prescribing the new drug more frequently before attempting treatment with generic antidepressants. That could drive its sales in the MDD indication upward substantially, but the $3 billion peak figure still might be too ambitious.
Image source: Getty Images.
A buy now
I don't expect Auvelity to be commonly prescribed as a first-line treatment for MDD until it's off-patent itself. That said, I think it could soon become a commonly prescribed second-line MDD treatment, and could be bringing in well over $1 billion in annual sales in just a few years.
Q1 2023 was Auvelity's first full quarter on the market, and its annualized sales rate in that period reached an impressive $63 million. AXS-05 also has a good chance to become a popular treatment for Alzheimer's disease agitation. In November, Axsome announced the successful results of a pivotal study of AXS-05 in Alzheimer's disease agitation patients.
Right now, it looks like sales of Auvelity alone could grow to a size that justifies Axsome's current market valuation. In a sense, buying shares now gives you Sunosi, which is already on the market, plus several promising clinical-stage candidates for free. Add it up, and this looks like a great stock to buy now and hold for the long run.
