AXSM - Axsome: Beyond The Numbers - Q2 Earnings Sparkle And A Pipeline Full Of Promise

2023-09-01 09:29:09 ET

Summary

• Q2 2023 earnings update shows higher than expected revenues, leading to an elevated full-year 2023 revenue forecast.
• Axsome Therapeutics plans to expand its sales force and utilize digital marketing strategies to reach more physicians and drive growth.
• Solriamfetol presents label expansion opportunities in narcolepsy, binge-eating disorder, and shift work disorder, signaling promising revenue streams for Axsome by 2025.
• We reiterate our buy rating moving into 2024.

Reason for the update: Q2 2023 earnings update, reiterating a buy rating

Q2 2023 Earnings Update

Axsome Therapeutics (AXSM) recently unveiled its Q2 2023 financial results on August 7th, reporting impressive top-line revenues of $46.7M, which is higher than what we were expecting, reinforcing our previous Buy thesis on Auvelity's robust ramp driven by early signs of launch success (we will build more on our previous thesis). The positive earnings were driven by the successful market adoption of AUVELITY (AXS-05) in major depressive disorder ((MDD)); the company's robust commercial performance has led us to elevate our full-year 2023 revenue forecast above >$92, beyond the street forecast.

However, potential delays in FDA approval for AXS-07 in migraine may mean that our 2024 revenue estimate may need to be trimmed down to under $381m. Considering peak sales of $1.5Bn, using peak sales multiple of x3, we believe the appropriate valuation for AXSM should be ~$4.5bn just looking at the two approved pipeline assets, which represent around ~20% upside from the current valuation.

Cogent sales force strategy

Diving deeper into the company's strategic initiatives, Axsome's commitment to expanding its sales force is evident. Increasing the AUVELITY sales force from 162 to 260 representatives will undoubtedly amplify the company's reach. This expansion, synergized with their state-of-the-art DCC digital marketing strategy, targets to cover approximately 44K physicians - a key segment responsible for over 80% of branded antidepressant prescriptions. With AUVELITY demonstrating a 76% sequential quarter-over-quarter growth rate in 2Q23, and with around 53K prescriptions in the same period, the momentum seems to continue, which we believe should be net positive for the stock moving forward.

Pipeline and label expansion

Turning to the product pipeline, solriamfetol, commercialized as Sunosi, presents lucrative label expansion opportunities. Apart from its existing label in narcolepsy, the drug's potential applicability in binge-eating disorder (BED) and shift work disorder (SWD) is noteworthy. As BED currently affects an estimated 2.8% of U.S. adults with limited treatment options, and SWD is a condition affecting a considerable chunk of the American workforce, the forthcoming Phase 3 trials for both indications signal promising revenue streams for Axsome by 2025.

BED and SWD Overview:

• Binge-Eating Disorder (BED): Marked by episodes of excessive, uncontrolled eating without compensatory behaviors. A prevalent disorder, yet underdiagnosed.
• Shift Work Disorder (SWD): Affects individuals on non-traditional hours leading to sleep disturbances and cognitive issues.

Current Treatments & Unmet Needs:

• BED: Treatment options include CBT and medications like Sertraline and Vyvanse. However, these treatments are not exclusively designed for BED, highlighting the need for specificity.
• SWD: Workers use Modafinil and light therapy, among other treatments. Still, more targeted treatments addressing SWD's root causes are needed.

Risks

The anticipated resubmission of the AXS-07 NDA could face regulatory hiccups. The market entry of new drugs like AXS-07 and potential outcomes from ongoing clinical trials, such as the ADVANCE-2 trial of AXS-05 in Alzheimer's disease-associated agitation, are surrounded by uncertainty. Moreover, while Axsome has shown intent to defend its intellectual property, challenges such as the Paragraph IV contest to Sunosi could disrupt expected revenue streams.

Concluding thoughts

In summary, Axsome stands out as an attractive investment proposition, and we remain a buyer of the stock moving forward into Q4 2023 and 1H 2024. Its solid Q2 2023 financial performance, reinforced by a strategic sales force expansion, sets the stage for sustained growth. Furthermore, we believe the company's robust $437.11M cash balance should offer two years of cash runway, considering TTM OPEX was around $162M and $175 M for last year (2022), which is reassuring. Although clinical and regulatory risk remains, similar to all biotech companies, net-net, the pipeline's potential, especially around solriamfetol's label expansion opportunities, further sweetens the deal, and we believe AXSM to be a compelling de-risked opportunity for long-term investors who want exposure in the neurology space.

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