AXSM - Axsome: Show Me Another Company With Such A Stack Of Catalysts

2023-12-24 09:28:20 ET

Summary

• Axsome Therapeutics has consistently beaten revenue estimates since the approval of Auvelity, indicating better-than-expected performance.
• While the company's expenses, particularly in commercial activities for Sunosi and Auvelity, have been high, leading to consistent earnings per share (EPS) misses, these expenses are justifiable.
• No other company of similar valuation has a stacked pile of catalysts like AXSM.

Axsome ( AXSM ) has been a bellwether of a stock for many investors. After a poor couple of years starting around 2020, when the FDA wasn’t being on the same page with it vis-a-vis the approval of Auvelity, things have really taken a turn for the better after Auvelity’s approval and its extremely bullish sales growth. This quarter, AXSM’s bottom line hasn’t done as well as its topline, however, management has assured us that their cash runway is enough to take them to cash flow positivity. We still want to figure out why the expenses are so high, and whether that’s good for business growth, or because of lack of efficiency.

An interesting metric is that, according to Seeking Alpha, in the last 2 years, AXSM has beaten EPS estimates 75% of the time and has beaten revenue estimates 38% of the time. What does that mean, though? A large number of EPS estimate beats means that the company has managed its cash better than analysts thought it would; while a lower number of revenue estimate beats simply means it has just received approval for Auvelity, and since approval, it has done surprisingly well, better than Street expectations, as evinced by the fact that this quarter, as well, AXSM managed to beat revenue estimates.

The situation was exactly the same in the quarters since Auvelity’s approval, proving my point. Here’s a capsule of the news quarter by quarter for the last few quarters:

Axsome Therapeutics GAAP EPS of -$1.32 misses by $0.09, revenue of $57.79M beats by $2.93M - Q3 2023

Axsome Therapeutics GAAP EPS of -$1.54 misses by $0.30, revenue of $46.7M beats by $5.75M - Q2 2023

Axsome Therapeutics EPS of -$0.26, revenue of $94.6M beats by $69.12M (includes Sunosi ex-U.S. license agreement upfront payment) - Q1 2023

Axsome Therapeutics GAAP EPS of -$1.41 misses by $0.28, revenue of $24.37M beats by $2.49M - Q4 2022

And then the quarter before Auvelity approval:

Axsome Therapeutics GAAP EPS of -$1.07 beats by $0.02, revenue of $16.8M misses by $0.26M - Q3 2022

So, before Auvelity’s approval, it was EPS beat and revenue miss; but after approval, it has been exactly the opposite - EPS miss and revenue beat. This is just like I thought it would be before I actually checked the revenue figures. This means that Auvelity has performed well ahead of expectations, but consistent EPS estimate misses probably means AXSM is spending more than is expected in business growth. Let us check their R&D/G&A spends over the last few quarters to see where they have been spending money:

This little exercise clearly identifies for us where the money is going - in commercial activities for sunosi and auvelity. Just a quarter before the one I provided details for, they had a mere $30mn in G&A expenses. By now, that figure has almost tripled - however, revenue hasn’t been so much as to substantially improve income. That is why the company is beating on revenue but missing on EPS for the last 4 quarters since auvelity’s approval.

R&D expenses have also doubled in the same period, primarily because of the FOCUS trial of sunosi in ADHD, a very critical trial for their pipeline development; as well for costs related to upcoming NDAs, two of them - again very good reasons to spend money on.

What I might have worried about is a sudden spurt in spending due to management compensation or similar wasteful expenditure, like we have seen some companies do on positive news, like approvals and so on. However, that does not appear to be the case here. AXSM is spending money in order to make money, and like it assures us, what it is making will soon beat what it is spending, making it cash flow positive.

The company has increased its sales reps for auvelity by nearly 100, as reported in the latest earnings release (from 162 to 260). This, the company thinks, will increase its outreach from 26,000 to approximately 44,000 physicians who write approximately 90% of new branded antidepressant prescriptions. Prescription increase has also been tremendous, from 31000 in Q1 to 53000 in Q2 to 69000 in Q3, an increase of 72% and 30% respectively. This has been made possible by improving payer coverage, which is currently at approximately 70% of all covered lives, increasing from 65% to 68% in Q1 and Q2 respectively. As is evident, though, the marginal improvement in payer coverage cannot by itself explain the very substantial increase in Rx; increasing market penetration through the efficient use of sales force is also a major factor.

However, this is just the beginning for AXSM; as management said in the conference call :

While we are proud of the positive market reception for Auvelity to-date and the progress we have made with Sunosi, we believe that we have barely scratched the surface of these opportunities.

The company has a host of late stage catalysts in 2024. These are:

1. AXS-07, acute treatment of migraine, resubmit NDA, first half of 2024.

2. NDA submission for AXS-14 for the management of fibromyalgia, first quarter of 2024.

3. Phase III SYMPHONY trial of AXS-12 for the treatment of narcolepsy, complete enrollment in 2023, top line results, first quarter of 2024.

4. Phase III ADVANCE-2 trial of AXS-05 for the treatment of Alzheimer's disease agitation is on track for completion in the first half of 2024.

5. FOCUS Phase III trial of solriamfetol in ADHD, completion in the second half of 2024.

Thus, there are 5 major near term catalysts, two NDAs and 3 phase 3 topline data announcements. Show me another $3bn company with a stacked pile of major catalysts like this.

Bottomline, I am holding on to my AXSM shares for as long as I can. Not only so, I am a buyer at every dip.

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