JAZZ - Axsome: A Lot More Upside In 2023

Summary

• Axsome has one pending approval and two pending NDAs coming up in 2023.
• They are adequately funded, if not very strongly.
• I will hold on to my post-profit shares for one more year.

I have been covering Axsome Therapeutics ( AXSM ) since 2020, and have been consistently bullish. My most recent article with the somewhat catchy title - " Axsome: You won't find these prices again " - was from March, and I am glad to report that AXSM is up 131% from that day after it received a much-delayed approval for AXS-05. There's one more from August 2021 - " Axsome: Is The Pullback A Buying Opportunity? " - and the stock is up 238% from that price point. However, if you look at my earliest article - when AXSM was much less derisked compared to today - the stock is actually only up 8% from that day in October 2020. Such are the vagaries of biopharma investment. Just predicting a drug's approval isn't all. You have to time it really well, and have enough confidence to double down when the doubling is good.

So AXSM is now approved for one indication. The asset was earlier called AXS-05, now branded as Auvelity, approved for:

AUVELITY is a combination of dextromethorphan, an uncompetitive N-methyl D-aspartate (NMDA) receptor antagonist and sigma-1 receptor agonist, and bupropion, an aminoketone and CYP450 2D6 inhibitor, indicated for the treatment of major depressive disorder ((MDD)) in adults.

Auvelity has been given an annual price tag of $13.5K. This is twice what the company had guided for earlier, but still less than, for example, Spravato, approved for treatment resistant depression. TRD is a different indication from MDD, however both are related depressive disorders. Moreover, Spravato is approved for later line therapy only, while auvelity can be given in a front line setting. Note that AXS-05 did fail a trial in TRD after its MDD success.

AXS-05 is also running a phase 3 trial for Alzheimer's Disease Agitation. Another asset, AXS-07, submitted an NDA for migraine, but received a CMC-related CRL which will take one year to resolve. AXS-12 is in a phase 3 trial for catalepsy in narcolepsy patients. AXS-14 is in a phase 3 trial for fibromyalgia and both these assets may have regulatory filings this year. Another asset, sunosi, which they purchased last year, is approved :

SUNOSI, also called solriamfetol, is a dopamine and norepinephrine reuptake inhibitor (DNRI) indicated to improve wakefulness in adult patients with excessive daytime sleepiness associated with narcolepsy or obstructive sleep apnea.

In March 2022, AXSM bought Sunosi rights from Jazz Pharmaceuticals ( JAZZ ) for $53mn upfront, and royalties. SUNOSI had 2022 net sales of $57.9mn, so this seems like a "strategic" deal, done in anticipation of other approvals that will need the company to make strategic decisions for the future of its pipeline. By buying such a late stage approved asset, Axsome may plan to run it through trials in other indications, and get fresh approvals. Morgan Stanley analyst Vikram Purohit holds a $200mn peak sales estimate for sunosi.

Thus, this asset is also running a phase 2 trial for ADHD. Sunosi is an NDRI or norepinephrine-dopamine reuptake inhibitor with an MoA that is similar to AXS-12, Axsome's phase 3 drug asset. Just recently , the 59-patient SHARP trial saw statistically significant improvements in various outcomes including cognitive functions. These were in patients with excessive daytime sleepiness ((EDS)) associated with narcolepsy or obstructive sleep apnea ((OSA)).

Axsome has given a lot of investors a lot of headache, but it has ended well, with considerable profits. AXS-05, which got delayed by nearly a year due to CMC issues and so on, is now approved, and has another phase 3 trial. As I noted in an earlier coverage:

There was a previous phase 2/3 trial, designated pivotal by the FDA, which showed that AXS-05 reduced agitation in Alzheimer's patients with rapidity and statistical significance.

The FDA has granted a breakthrough therapy designation to the asset in this indication and has confirmed that the second pivotal placebo-controlled ACCORD trial will be enough for an NDA. This was what we knew earlier, but in their latest earnings call, the company says this in response to David Hoang from SMBC:

David Hoang

Hi. Thanks so much for taking the questions, and congrats on the quarter. I just had a couple. So with the ADA indication for AXS-05, can you just remind us again, walk us through the different scenarios that are possible there? So if the ACCORD randomized withdrawal study is positive, do you still intend to file for approval based on that data? And then if it's not, then is the plan that you would need the ADVANCE-2 data to support the filing? Are there any other alternatives besides those pathways?

Herriot Tabuteau

So the way that we are approaching it is that we intend to have ADVANCE-2 readout before we file an NDA. We want to ensure that we have a robust package. As you are implying, there are a lot of different factors. And we'll know a lot more once we read out the ACCORD trial. But right now, our working assumption is that ADVANCE-2 would serve as the second positive trial for an NDA.

Now, this ADVANCE-2 trial will topline in 2025, so AXS-05 will not have an NDA in ADA until then.

Just a few weeks ago, AXSM announced topline data from the ACCORD trial, which met the primary endpoint and key secondary endpoints with statistical significance. Details:

The ACCORD trial was a U.S.-based multi-center study designed to evaluate AXS-05 in 178 patients with AD agitation in the open-label period and 108 patients in the double-blind period.

According to Axsome ( AXSM ), AXS-05 met the primary endpoint in ACCORD, indicating a statistically significant delay in the time to relapse of agitation symptoms as the hazard ratio for time to relapse stood at 0.275 (p=0.014), implying a 3.6-fold lower risk of relapse compared to the placebo.

AXS-05 also met the key secondary endpoint for relapse prevention, as relapse rates during the double-blind treatment period reached 7.5% and 25.9% in the AXS-05 and placebo groups, respectively.

While this data is good, there's a 2-3 year delay while the ADVANCE-2 trial runs through before we have an NDA. Note the following from Endpts about competing drugs in the pipeline:

The data come months after Lundbeck and partner Otsuka reported their own Phase III success in the indication, with their depression and schizophrenia drug Rexulti. Meanwhile, days earlier, Acadia's Alzheimer's-related psychosis drug was given a thumbs-down by FDA's advisors.

AXS-07, which originally had a PDUFA date of April 30, 2022 for the treatment of acute migraine, has been shown in trials to provide more durable and greater pain relief than rizatriptan, the most effective triptans used for migraine. However, before the approval date, the company announced that the FDA has found CMC (chemistry, manufacturing, and controls) issues in their NDA that preclude approval of AXS-07 at that time.

The CMC issues also include the stability of newly manufactured commercial scale batches of AXS-07. AXSM said it will resubmit its NDA in Q3 2023, and with a Class 2 designation, this will result in a six-month review . Thus, if all goes well, expect the next major AXSM catalyst in the form of AXS-07's approval sometime in early 2024.

Financials

AXSM has a market cap of $3.3bn and a cash balance of $222.7mn. R&D expenses were $14.9 million for the third quarter, while SG&A expenses were $40.7mn. At that rate, they have a cash runway of only 4 quarters. However, they have an ATM facility available; here are the details:

During the third quarter, we utilized our ATM facility realizing net proceeds of $175 million. As a reminder, with the FDA approval of Auvelity, up to $100 million is immediately available under our $300 million term loan facility. We believe that our current cash balance along with the remaining committed capital from the $300 million term loan facility with Hercules Capital is sufficient to fund anticipated operations into 2025 based on our current operating plan.

Bottomline

AXSM is turning out to be a blockbuster in terms of getting approvals. Commercial success is yet to be decided, however AXS-05 has estimated peak sales of more than $1bn. They also have a second approved drug which seems like a surprisingly good buy. In 2023, they will hope to get AXS-07 approved, and file NDAs for two more assets. All in all, AXSM is looking very good indeed, even after nearly doubling after the approval. I plan to keep holding a large chunk of my shares.

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