It can be stressful to watch shares of companies you own (or are thinking about buying) significantly underperform the market. But this also provides an opportunity to scoop up said company's stock on the dip -- if, of course, there are good reasons to think a rebound is in the cards. Take Axsome Therapeutics (AXSM +0.48%), a biotech whose shares have been struggling of late.
The drugmaker's stock is down by 21.98% in the past 12 months, compared to gains of 37.54% for the S&P 500. But this clinical-stage biotech has a lot going its way, and with a major potential catalyst in the near future, now might be an excellent time to purchase its shares. Let's look deeper into why Axsome Therapeutics could be a steal at current levels.
AXSM data by YCharts.
Mark this date on your calendar
Axsome Therapeutics doesn't have any products on the market, but that could change soon. The U.S. Food and Drug Administration (FDA) is currently reviewing the company's AXS-05, a potential treatment for major depressive disorder (MDD). The regulatory agency set a PDUFA goal date of Aug. 22 for the end of its review. There are good reasons to think AXS-05 will earn the green light from regulators.
In a phase 3 clinical trial, the medicine was shown to improve the symptoms of depression. The FDA granted AXS-05 priority review for the treatment of MDD, an honor reserved for medicines that would represent a significant improvement compared to the current standards of care for an illness. The priority review designation also comes with a six-month review period (as opposed to 10 months for regular applications).
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What does the market opportunity look like for AXS-05? Depression was already a huge problem before the pandemic, but the events of the past year and a half have severely exacerbated the scope of this issue. Roughly 80 million people showed symptoms of depression during the outbreak, compared to 22 million prior.
Even if that number decreases as the pandemic subsides, it is unlikely to drop to or below pre-pandemic levels. In other words, there is a dire need for medicines like AXS-05. In my view, the drug has a good chance of topping $1 billion in sales within the next couple of years. If the FDA approves it, Axsome Therapeutics' stock will jump.
More reasons to jump in
Axsome Therapeutics is also developing AXS-05 as a potential treatment for Alzheimer's disease (AD) agitation (psychological and behavioral symptoms). This condition affects roughly 70% of the AD population in the U.S., or about 4 million people. The number of people with AD is projected to continue growing in the coming years.
AXS-05's potential in both AD and MDD looks very strong. But the company does have other candidates to consider as well. The most promising of the bunch is AXS-07, a potential migraine treatment. In December 2020, Axsome announced positive results from a phase 3 study for AXS-07 in this indication. The company said it would file a New Drug Application (NDA) for the medicine during the second quarter and announce the FDA's decision regarding acceptance of the NDA in the third quarter.
Given a patient population of 37 million, AXS-07 could also become an important growth driver for Axsome if approved. The biotech's other pipeline candidates include investigational treatments for narcolepsy and fibromyalgia.
A bright future
Axsome has two catalysts to look forward to within the next four months or so. First, there is the FDA's decision regarding AXS-05 as a treatment for MDD, and then there is the regulatory body's decision concerning the biotech's NDA for AXS-07 in treating migraine. If the company manages a win in both cases, expect its shares to get a noticeable boost.
More importantly, though, thanks to these medicines (and others), Axsome Therapeutics' long-term prospects look bright. Investors would do well to purchase shares of this biotech stock before they soar.
