The biotech industry is volatile. It's not that rare to see shares of relatively small drugmakers skyrocket on positive clinical or regulatory news. Case in point: Axsome Therapeutics (AXSM 1.94%) and DBV Technologies (DBVT +2.73%) -- two small-cap biotechs -- recently saw their shares explode following positive developments.
What exactly is going on with these companies? And are they worth buying today for investors focused on the long game? Here is the rundown on these two biotechs.
1. Axsome Therapeutics
On June 27, shares of Axsome Therapeutics jumped by as much as 52% after the company announced an update regarding one of its leading programs, AXS-05, which is a potential treatment for major depressive disorder (MDD). While the U.S. Food and Drug Administration (FDA) was supposed to complete the review of Axsome's application for the investigational MDD therapy in August 2021, regulators delayed the review process because of deficiencies in the biotech's application that precluded labeling discussions at the time.
The latest news is that Axsome has received proposed labeling from the FDA for AXS-05. The company is currently reviewing the proposed labeling. These developments seem to suggest that AXS-05 could finally earn regulatory approval very soon -- ending a nearly one-year-long saga. The market does not like uncertainty, and the approval of AXS-05 would remove a lot of uncertainty for Axsome Therapeutics.
But does this news make its stock a buy? In my view, the company was a buy before this news; here's why. There was never any indication that the issues surrounding AXS-05 had anything to do with safety or efficacy, nor that Axsome would have to run additional clinical trials -- all of which would have been much bigger problems than the deficiencies found in the company's application.
NASDAQ: AXSM
Key Data Points
At worst, Axsome Therapeutics may have had to refile its application, which isn't ideal but isn't the worst thing in the world. Even so, the market severely punished the biotech. The company's market cap is $1.5 billion as of this writing, and it was lower than $1 billion before this rally. AXS-05 could easily reach blockbuster status at its peak, and that's why Axsome was worth more than the market seemed to think.
I believe that is still the case, especially when considering Axsome Therapeutics' other programs. The FDA recently declined to approve AXS-07 as a treatment for acute migraines, but the agency did not question the medicine's safety or efficacy either; instead, it mentioned manufacturing issues. Axsome Therapeutics' late-stage pipeline also includes potential narcolepsy treatment AXS-12 and investigational fibromyalgia therapy AXS-14.
That's not to mention Sunosi, a treatment for excessive daytime sleepiness associated with narcolepsy which Axsome Therapeutics recently acquired. With a potential catalyst on the way (the approval of AXS-05) and multiple promising late-stage programs, Axsome Therapeutics still looks like a buy, especially at current levels.
2. DBV Technologies
DBV Technologies is a biopharmaceutical company that focuses on fighting food allergies. The company has encountered severe obstacles for its leading pipeline candidate, Viaskin Peanut. This "peanut patch" is designed to desensitize the immune systems of patients with peanut allergies by gradually exposing them to increasing amounts of peanut protein. In August 2020, the FDA declined to approve Viaskin Peanut in children between the ages of four and 11.
The agency had concerns regarding the effect of patch-site adhesion on the efficacy of Viaskin Peanut. After multiple rounds of talks with the FDA, DBV Technologies decided that it would run a new phase 3 clinical trial for a modified version of Viaskin Peanut in children age 4 to 11.
But DBV Technologies' shares soared on June 8 for another reason. The company's Viaskin Peanut performed well in a phase 3 clinical trial for patients between the ages of 1 and 3. That's very encouraging news for the France-based biotech. As management points out, most children with a peanut allergy are diagnosed between the ages of 1 and 3, but there are no FDA-approved treatments for this patient population.
NASDAQ: DBVT
Key Data Points
In other words, if Viaskin Peanut earns FDA approval in this indication, it would be the only game in town. But does that make DBV Technologies a buy? First, note that even if DBV Technologies' modified Viaskin Peanut goes on to knock it out of the park in its new clinical trials and earns FDA approval, it will face competition from Palforzia, an already approved treatment for peanut allergy in children who are at least 4 years old.
Palforzia was approved in early 2020 and is designed to increase patients' tolerance to peanuts. Viaskin Peanut looks promising as a peanut allergy option for patients between 1 and 3, but DBV Technologies could meet more regulatory roadblocks in its quest to earn approval for this patient population. Further, DBV does not have any products on the market, generates little revenue, and is consistently unprofitable.
For now, investors would do well to stay away from this biotech stock.
