The biotechnology space is about as risky as it gets when it comes to industry groups. The hard to predict nature of clinical trials can make for some dramatic swings in stock prices.
Investors that have the risk tolerance (and stomach) to venture into biotech have to weigh the risks and rewards of these companies. One name that appears to be well worth the risk is biopharmaceutical mid-cap Axsome Therapeutics (NASDAQ:AXSM).
What is the Focus of Axsome Therapeutics?
Axsome Therapeutics develops therapies for central nervous system (CNS) disorders. It has several candidates in its pipeline for major depressive disorder (MDD), treatment-resistant depression (TRD), and agitation related to Alzheimer's disease (AD).
Its most promising product candidate is AXS-05 which is being evaluated for multiple indications. Axsome plans to submit a new drug application (NDA) to the U.S. Food & Drug Administration (FDA) for AXS-05 in MDD as soon as this month.
The novel AXS-05 oral treatment is also being studied as a possible treatment for Alzheimer's disease agitation. In June 2020, the FDA granted the Breakthrough Therapy designation for AXS-05 in AD agitation. The designation is said to put a drug candidate on the fast track towards potential approval.
The company's lead candidate is also part of a study involving patients with MDD and suicidal ideation. Positive results from Phase 2 of that study were recently announced.
Back in January, Axsome's migraine drug, AXS-07, demonstrated positive long-term safety data in a study of patients who suffer from migraine attacks. The data showed an ability to provide migraine pain relief and had a favorable safety profile. Out of the 706 patients enrolled in the study, two-thirds were pain-free two hours after receiving AXS-07. An NDA for this product candidate is also expected to be filed this quarter.
What are Axsome Therapeutics' Market Opportunities?
So, while Axsome's development pipeline is clearly impressive, how does this translate to its potential financial performance? The global market for MDD alone is estimated to be more than $9 billion. Its this opportunity that the market took notice of after Axsome reported positive efficacy and safety data from its Phase 3 study. It was also the reason the stock gapped significantly higher in six-times its average trading volume in April 2020.
The potential windfall from AXS-05 is expanded by the candidate's potential use with Alzheimer's agitation which the company estimates to be a $3 billion global market. AXS-05 is also being evaluated as a possible cessation product for cigarette smokers. If approved for this purpose, it would tack on another $4 billion to Axsome's market opportunity.
The opportunity in the migraine market is not as big as that of MDD but is still substantial considering approximately 1 billion people worldwide will suffer from migraines this year. At an estimated $1.5 billion to $2.0 billion, the global migraine market represents a diversifying growth avenue for Axsome that surely any biotech company its size would welcome.
The huge revenue opportunities don't end there. Axsome's narcolepsy drug, AXS-12, is also in a pivotal clinical trial. Narcolespy, which is becoming an increasingly prevalent issue globally, is expected to become a $5 billion market within the next five years.
Last but not least, is AXS-14, Axsome's fibromyalgia therapy which it actually acquired from Pfizer years ago for $11 million. Pfizer chose not to move forward with the drug, but considering it showed positive data in a Phase 3 study at Pfizer, it could be yet another product to generate revenue for Axsome.
Is Axsome Therapeutics Stock a Buy?
A little over two years ago Axsome Therapeutics stock traded below $2 only to skyrocket above $100 in April of last year. The stock has since trended lower largely due to concerns that the pandemic will push back the timeline for the possible approval of AXS-05 and its other candidates.
This has created a great buy opportunity for investors as the long-term narrative hasn't changed. Although anything can happen in the world of biotechnology and disappointments occur frequently, Axsome's lead candidate appears to be on a solid path to eventually earn its breakthrough tag.
It seems that market impatience has contributed to this stock's $40 swoon since the April breakout. Perhaps some traders didn't want to wait around for the big news. But those that do hang on could get their high risk reward later this year—and see Axsome's share price head back to triple digit territory quickly.
Ten of the 11 sell-side analyst that cover Axsome call it a 'buy'. All price targets for the stock are north of $100 and one firm, H.C. Wainright sees the $68 stock heading above $200.
Axsome has a potential blockbuster drug on its hands in AXS-05 which could soon hit the market as a treatment for several indications. Positive late-stage data may soon translate to some much-needed treatment for CNS disorder patients, billion in revenue for Axsome, and major gains for Axsome shareholders.7 Entertainment Stocks That Are Still Delighting Investors
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