Axsome Therapeutics: SYMPHONY Catalyst Unlocking (NASDAQ:AXSM)

When you aren’t prepared to personal a inventory for 10 years, do not even take into consideration proudly owning it for 10 minutes. – Warren Buffett.

Creator’s Be aware: This text is a shortened model of a analysis initially printed for members of the Built-in BioSci Investing Group on March 08, 2023.

In biotech investing, I discover it thrilling to comply with an organization from its earliest day of medical investigation to product launch. It is like taking good care of a baby from infancy, and seeing how she grows into previous age. Regardless of the upper dangers of investing in clinical-stage corporations, you’d take advantage of sizeable revenue right here. Now, a commercialized-stage innovator can nonetheless be an incredible funding with way more upsides. Supplied that its permitted therapeutics can generate blockbuster outcomes. Furthermore, there must be different catalysts to spice up additional progress.

That being mentioned, Axsome Therapeutics, Inc. (NASDAQ:AXSM) epitomized the aforesaid phenomenon. As you can see, I have been overlaying AXSM inventory for the previous 5 years, even when Auvelity has not even posted any superior knowledge. I found Axsome throughout an knowledgeable interview with a fellow Looking for Alpha analyst who’s a dealer scientist (Biotech Beast). Quick ahead to in the present day, Auvelity is FDA-approved and launched. Since 2017, Axsome shares have elevated by 2,167.86%. Nonetheless, there may be nonetheless a flurry of catalysts to energy additional progress within the subsequent few years. On this analysis, I will function a elementary evaluation of Axsome whereas sharing with you my expectation of this intriguing progress fairness.

Determine 1: Axsome chart.

About The Firm

As standard, I will current a short company overview for brand spanking new buyers. If you’re conversant in the agency, I like to recommend that you just skip to the subsequent part. I famous within the prior analysis,

Working out of New York, Axsome dedicates its efforts to the innovation and commercialization of novel medicines to satisfy the unmet wants in psychiatry. Powering the pipeline are 4 promising molecules in improvement, together with AXS05, AXS07, AXS12, and AXS14. Because the crown jewel of this pipeline, AXS05 is both being assessed or permitted for numerous issues akin to main depressive dysfunction (“MDD”), agitation related to Alzheimer’s illness (“AD”), and smoking cessation. By experimenting with a number of makes use of for a single drug, Axsome can maximize the worth of its innovation. That’s to say, it will increase the probabilities a minimum of one indication would grow to be a bonanza. That apart, there may be one other new and commercialized drug (i.e., the Sunosi acquisition).

Determine 2: Therapeutic pipeline.

Auvelity Approval

Opposite to the market expectation, you already know that Axsome overcame the percentages to obtain the Auvelity FDA approval for treating MDD in August 2022. As you may respect, the approval is particular as a result of it is the primary time in six many years that an MDD drug with a novel mechanism of motion is permitted. Notably, the regulatory resolution is predicated on the strong Section 3 (GEMINI) trial knowledge in which there’s an awesome variety of sufferers who achieved full remission.

Determine 3: Sturdy Auvelity knowledge for MDD.

Curiously, Auvelity works as quickly as Week 1 which is superior to most antidepressants. Exactly talking, it normally takes over one month (i.e., 4-6 weeks) for these medicines to kick in. That apart, you may see that the Auvelity label is fairly clear, which fosters sturdy gross sales progress.

Determine 4: Wonderful Auvelity product label.

As you may think about, COVID exerts great stress on the worldwide inhabitants. It’s estimated that as many as 32.8% of adults within the U.S. suffers from elevated depressive signs initially of the pandemic. Importantly, the vast majority of sufferers failed each their preliminary (i.e., 63%) and second-line remedy (69%). Placing these dynamics collectively, you may see that there could be strong demand for Auvelity.

Determine 5: Excessive prevalence of MDD.

Commercialization Progress

As you may see, Axsome started to commercialize Auvelity in October final 12 months. Within the 4Q2022 submitting, the corporate disclosed that Auvelity gross sales registered at $5.2M. Whereas it is a small determine, Auvelity is in the marketplace for under three months. For a agency launching its drug in-house, it’d take a lot time for skilled reps to develop relationships with physicians to foster prescription. Sometimes, you’d count on a minimum of three years for Axsome to take pleasure in vital market traction.

Determine 6: Auvelity’s launch strategy.

Asides from Auvelity, the Sunosi gross sales for the mentioned quarter tallied at $19.2M. Regardless of that Axsome not too long ago acquired Sunosi from Jazz (i.e., solely as not too long ago as Could 2022), the drug is already producing $44.8M. As proven within the determine beneath, the most important alternative for Axsome is to serve over 60M of sufferers worldwide. Whereas that will not happen in a single day, every medical and regulatory milestone success would get the corporate near that lofty objective. Commenting on the current improvement, the CEO (Dr. Herriot Tabuteau) enthused,

The previous 12 months was a landmark for Axsome, which noticed us deliver our first totally in-house end-to-end developed drug to market, doubtlessly remodeling the therapy panorama for melancholy and offering the potential to enhance the lives of tens of millions of sufferers and their family members. With two differentiated merchandise in Auvelity and Sunosi now commercialized, encouraging early launch metrics for Auvelity, a broad and advancing late-stage CNS pipeline, and a powerful monetary place, Axsome is effectively positioned to proceed to ship vital worth to sufferers and shareholders. We’re wanting ahead to a different milestone stuffed 12 months which has already kicked off with an vital licensing settlement for Sunosi in Europe that serves to increase affected person entry to this vital therapy whereas offering vital potential future worth to Axsome. Over the subsequent 12 to 18 months, we glance to persevering with to execute on the commercialization of Auvelity and Sunosi, initiating or studying out a minimum of 4 registration trials in indications of excessive unmet want, and doubtlessly submitting 4 new NDAs.

Determine 7: Axsome’s complete potential addressable sufferers.

Promoting Ex-US Rights of Sunosi to Pharmanovia

On February 22, Axsome disclosed that the corporate entered an settlement to out-license Sunosi to Pharmanovia for a complete of $66M plus a possible milestone/sales-based royalty as much as one other $101M. As you already know, Axsome in-licensed Sunosi’s worldwide rights from Jazz Prescription drugs (JAZZ) for $53M.

Determine 8: Sunosi’s therapeutic deserves.

As a dual-acting dopamine and norepinephrine reuptake inhibitor, solriamfetol (i.e., Sunosi) gained FDA approval for treating extreme daytime sleepiness (i.e., EDS) related to narcolepsy and obstructive sleep apnea (i.e., OSA) within the US again in 2019 and within the EU in 2022. In increasing its label, Axsome is at the moment learning the security and efficacy of Sunosi in a Section 2 trial for adults affected by consideration deficit hyperactivity dysfunction (i.e., ADHD).

Determine 9: Sunosi’s upcoming improvement.

You need to remember the fact that Axsome solely out-licensed Sunosi’s “ex-USA” rights to Pharmanovia. As such, Pharmanovioa will take over the event/commercialization of Sunosi in Europe and sure nations within the Center East and North Africa (i.e., MENA). Extremely enthused by the deal, the CEO of Pharmanovia (James Burt) remarked,

We’re proud to have the ability to ship Sunosi, a novel, first-in-class neurological drugs, to the tens of millions of sufferers affected by EDS on account of narcolepsy or OSA in Europe and shortly in MENA. We’re delighted to accomplice with Axsome, a number one CNS-focused biopharmaceutical firm, and to increase the abroad launch and additional the medical improvement of Sunosi. A pivotal Section 3 research and longer-term extension research, exploring the security and effectiveness of Sunosi in youngsters with narcolepsy, shall be initiated by Pharmanovia, with the goal of bringing this breakthrough remedy to younger individuals affected by this debilitating illness.

As you may see, I like analyzing offers. And, I strongly consider that this deal is extremely favorable for Axsome. First, you may see that it takes Axsome $53M to purchase the worldwide rights to Sunosi. In a matter of months, the corporate then bought solely the rights in Europe and MENA to Pharmanovia for $66M. As such, Axsome will get to pocket the $13M distinction proper off the bat.

On condition that Axsome solely out-licenses the Ex-USA rights to Sunosi, the corporate strategically retains its rights in essentially the most profitable market (i.e., the USA). In spite of everything, medicines which are marketed within the U.S. tends to get the best premium. By retaining rights in essentially the most profitable market, Axsome can guarantee a wholesome revenue margin. That, my pal, is strong proof within the pudding that Axsome administration is nice at executing and making strong offers.

Upcoming Medical Catalysts

From the determine beneath, you may see that Axsome Therapeutics, Inc. is a singular funding. In spite of everything, it all the time has a number of catalysts stacked in shut classes. That’s to say, there are two upcoming massive knowledge releases. The primary and most speedy one is the AXS-12’s Section 3 (SYMPHONY) trial knowledge reporting for narcolepsy that’s scheduled for H1. Merely put, you will get knowledge outcomes from SYMPHONY throughout the subsequent 3-4 months. If constructive, you may anticipate the inventory to take pleasure in one other modest rally.

In 1H2024, you may count on one other Section 3 (ADVANCE-2) trial knowledge outcomes for Auvelity’s Alzheimer’s illness (i.e., AD) franchise. Right here, it is probably that the inventory would bear one other aggressive run. That apart, the opposite catalysts (i.e., software submission and trial initiations) sometimes don’t transfer the inventory. Although gradual, the inventory normally runs up towards approval as soon as the applying is filed.

Determine 10: Upcoming catalysts.

Monetary Evaluation

Simply as you’d get an annual bodily in your well-being, it is vital to examine the monetary well being of your inventory. For example, your well being is affected by “blood stream” as your inventory’s viability relies on the “money stream.” With that in thoughts, I will assess the 4Q2022 earnings report for the interval that ended on December 31.

As follows, Axsome procured $24.3M in comparison with no income for a similar interval a 12 months prior. That apart, the analysis and improvement (R&D) for the respective intervals registered at $14.6M and $13.7M. I seen the 6.5% R&D enhance positively as a result of the capital invested in the present day can flip into blockbuster earnings tomorrow. In spite of everything, it’s a must to plant a tree to take pleasure in its fruits.

Moreover, there have been $61.2M ($1.41 per share) internet losses in comparison with $33.9M ($0.90 per share) internet declines for the comparability. As you may see, Axsome invested way more capital into launching Auvelity which cuts into the underside line.

Determine 11: Key monetary metrics.

In regards to the steadiness sheet, there have been $200.8M in money and equivalents. Plus the $350M credit score facility from Hercules Capital, the money place is boosted to $550.8M. In opposition to the $84.2M quarterly OpEx and on high of the $24.3M quarterly income, there ought to be satisfactory capital to fund operations into 3Q2026. Merely put, the money place is robust relative to the burn price.

Potential Dangers

Since funding analysis is an imperfect science, there are all the time dangers related along with your inventory no matter its elementary strengths. Extra importantly, the dangers are “growth-cycle dependent.” At this level in its life cycle, the principle concern for Axsome Therapeutics, Inc. is whether or not the corporate can shortly ramp up gross sales progress for its lead drugs, Auvelity.

Regardless of being an incredible drug, it is troublesome to quickly ramp up Auvelity gross sales with the small in-house workforce. As such, it’s going to probably take a minimum of 3 years to see vital gross sales traction. That apart, there’s a threat that each AXS12 and Auvelity may publish damaging knowledge for his or her corresponding research, SYMPHONY and ADVANCE-2.

Concluding Remarks

In all, I preserve my sturdy purchase suggestion on Axsome Therapeutics, Inc. with a 4.8/5 stars score. Axsome has efficiently transitioned from a clinical-stage firm to a commercialized operator. The agency is at the moment launching two permitted medication: Auvelity for MDD and Sunosi for EDS. Being a particular funding with “catalysts stacking,” Axsome is shifting aggressively to increase its labels for the permitted medication.

The subsequent speedy catalyst for Axsome Therapeutics, Inc. is the H1 knowledge launch for SYMPHONY. If constructive, this catalyst can present gas for one more modest run. Going into H1 subsequent 12 months, the AD agitation knowledge is most fascinating. It might provoke a extremely aggressive runup. The opposite molecules (AXS07, AXS12, AXS14) are additionally getting into their superior stage of improvement. Although you will encounter periodic volatility, the way forward for Axsome Therapeutics, Inc. is vivid. Your persistence and braveness ought to be handsomely rewarded.