AXSM - Axsome: Promising Early Launch

2023-05-15 13:54:00 ET

Summary

• Axsome Therapeutics, Inc. has come a long way since its early year as a clinical-stage innovator.
• The company is enjoying early launch success for its two stellar medicines (Auvelity and Sunosi).
• Stacked by many catalysts this year and beyond, you can expect much more upside from Axsome.

If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes. - Warren Buffett.

In biotech investing, you want to choose a company that has multiple catalysts stacked in close succession. As such, if one fails or a few fail, others can still add more fuel to boost growth. Now, you can expect to have a high-flying stock when most catalysts turn out positive. That is to say, you'd enjoy multi-bagger investment profits if such a stock turns out more positive developments.

On that note, I want to revisit Axsome Therapeutics, Inc. ( AXSM ). Though it had some setbacks two years ago, Axsome's flurry of catalysts like the Auvelity approval and Sunosi acquisition allowed the company to deliver alpha returns for shareholders. In this research, I'll feature a fundamental update on Axsome while sharing with you my expectations for this intriguing company.

Figure 1: Axsome chart.

About The Company

As usual, I'll present a brief corporate overview for new investors. If you are familiar with the firm, I recommend that you skip to the next section. I noted in the prior research ,

Operating out of New York, Axsome dedicates its efforts to the innovation and commercialization of novel medicines to fulfill the unmet needs in psychiatry. Powering the pipeline are four promising molecules in development, including AXS05, AXS07, AXS12, and AXS14. As the crown jewel of this pipeline, AXS05 is either being assessed or approved for various disorders such as major depressive disorder ("MDD"), agitation associated with Alzheimer's disease ("AD"), and smoking cessation. By experimenting with multiple uses for a single drug, Axsome can maximize the value of its innovation. That is to say, it increases the chances at least one indication would become a bonanza. That aside, there is another new and commercialized drug (i.e., the Sunosi acquisition).

Figure 2: Therapeutic pipeline.

Auvelity Commercialization Progress

As you know, Auvelity was approved back in August 2022. Commercialization progress started in early Q4 last year. As you can appreciate, this is a "historic approval" because it's the first time in six decades that we have an antidepressant approval that has a novel mechanism of action.

Figure 3: Auvelity Mechanism of Action.

Importantly, you don't have to wait at least a month to see the drug working. Instead, efficacy is observed as early as Week 1 into treatment. Safety was also excellent, which differentiated Auvelity from the competition.

Figure 4: Auvelity Mechanism of Action.

Just months into its in-house launch, Auvelity sales registered at $15.7M for the first full quarter launch (i.e., Q1). While this is a small figure, there are signs of a robust sales ramp-up. Precisely speaking, prescriptions for the quarter grew by 298% with 31K scripts written for the quarter. As you can imagine, the number of prescription growth is an excellent sign that the sales for subsequent quarters will ramp up. After all, most patients would need to get their prescriptions refilled.

Moreover, the number of docs prescribing the drug jumped from 2.2K to 6K docs. Just like the rising number of prescriptions, more docs adopting the drug would boost prescription and thereby sales growth. You can see that the results of such growth come from the expanding sales force base that Axsome is building.

In terms of coverage, there is currently 65% coverage for all channels. However, Medicare and Medicaid coverage is at 100%. As such, the coverage is performing much better than the usual 6-9 months post-launch that you typically see with other drugs. And, it underlies Auvelity's excellent therapeutic profiles (i.e., super efficacy and excellent safety) that warrant robust coverage.

Figure 5: Robust Auvelity efficacy.

Sunosi's Launch Update

As you know, Sunosi is a drug acquired from Jazz that is approved to treat patients suffering from excessive daytime sleepiness (i.e., EDS) associated with obstructive sleep apnea (i.e., OSA). Notably, Axsome bought it from Jazz last year for only $55M.

Figure 6: Sunosi's differentiated profile.

In February this year, Axsome announced that the firm would out-license Sunosi's ex-USA rights to Pharmanovia for $66M. As you can appreciate, that was a great deal for Axsome because the company continues to hold rights to the most lucrative market (i.e., the USA) while enjoying a huge sum of cash plus royalty payments.

For Q1, Sunosi's sales tallied at $13.2M, which is powered by the 13% prescription year-over-year (YOY) growth rate. Sequentially, the prescription growth from the previous quarter came in at the 4% clip. Of that figure, U.S. sales accounted for $11.2M with $2M in international sales which enabled the company to enjoy the $300K royalty payment.

That aside, payer coverage for Sunosi remains strong at 96%. Marketing efforts are promising for Sunosi because the company recently launched an "all-day" campaign for it. With more patients suffering from OSA, EDS, and MDD, you can anticipate both Sunosi and Auvelity sales to continue rising. Encapsulating recent developments in the Q1 earnings call, the CEO (Dr. Herriot Tabuteau) remarked,

The first quarter of 2023 was another important milestone for Axsome as it marked the first full quarter of launch for Auvelity. Based on the performance in the quarter, we are pleased that our marketed products are making a difference in the lives of a growing number of patients with major depressive disorder for Auvelity, and with excessive daytime sleepiness associated with narcolepsy or obstructive sleep apnea for Sunosi. At the same time, our broad late-stage pipeline continues to advance with important near and intermediate-term clinical and regulatory milestones including pivotal trial initiations, read-outs, and NDA filings. Our strong commercial, research, and financial profile positions us to continue to develop and deliver differentiated treatments for the millions of patients living with difficult-to-treat CNS disorders.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll assess the 1Q2023 earnings report for the period that ended on March 31.

As follows, Axsome procured $94.5M compared to none for the same period a year prior. Of that figure, the total Auvelity sales are comprised of $28.5M. Out-licensing payment from Pharmanovia accounts for the $65.7M and its associated royalty payment tallied at $272K.

That aside, the research and development (R&D) for the respective periods registered at $17.7M and $12.5M, respectively. I viewed the 41.6% R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruits.

Additionally, there were an $11.2M ($0.26 per share) net losses versus a $39.6M ($1.03 per share) decline for the same comparison. It's great to see the company becoming more profitable from its operations, which is reflected in the bottom line (earnings) improvement.

Figure 7: Key financial metrics.

About the balance sheet, there were $246.5M in cash and equivalents. Moreover, there are $200M left from the $350M credit facility, which boosted the cash position to $446.5M. On top of the $29.5M product revenues and against the $100.9M quarterly OpEx, there should be adequate capital to fund operations into 3Q2024 before the need for additional financing.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock, regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the most immediate concern for Axsome is if various pending trials can deliver positive results. Negative trial outcomes tend to cause the stock to tumble significantly.

Moreover, the main concern for Axsome is whether the company can quickly ramp up sales growth for its lead medicine, Auvelity. Regardless of the high quality of the drug, you can imagine that it's just tough to quickly boost up sales with a small in-house team. Therefore, you should give Auvelity roughly three years to see significant sales ram up.

Concluding Remarks

In all, I maintain my strong buy recommendation on Axsome Therapeutics, Inc. with a 4.8/5 stars rating. As one of our best-performing stocks of all time, Axsome has come a long way since we first picked it up at the early clinical stage. Riding two approved and launched medicines (Auvelity and Sunosi), Axsome is showing signs of early marketing success. The latest sales report demonstrated that both drugs are enjoying significant topline growth. With the nearly three-fold increase in prescription growth and the new number of prescribers, you can bet that Auvelity would deliver much more aggressive sales growth in the coming quarters.

As Axsome Therapeutics, Inc. is aggressively expanding Auvelity/Sunosi labels, you can anticipate that both drugs would generate substantial sales. As part of Auvelity label expansion for AD, potential positive data release from the ADVANCE-2 trial next year should spark a huge rally in Axsome Therapeutics, Inc. shares.

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