2023-05-02 14:08:58 ET
Summary
- Axsome Therapeutics, Inc. has a lot of good things happening.
- Axsome Therapeutics has the potential to become a large CNS-focused biopharma.
- Cash is the only short-term worry for Axsome Therapeutics, Inc., but I wouldn't worry too much if the trials work out.
I have been covering Axsome Therapeutics, Inc. ( AXSM ) for three years now. In my February article , I discussed its strong IP estate and said that Teva Pharmaceutical Industries Limited's (TEVA) ANDA challenge is not a big deal; indeed, I said that the weak challenge only bolsters AXSM's strong IP case. I also detailed the company pipeline and provided catalyst updates.
Since then, there have been a few developments - an update on the Alzheimer's agitation trial for AXS-05, the earnings call, and a cash situation update. Let me cover these things one by one.
The update is that the FDA has asked "to provide additional long-term safety data and information for AXS-05," from the ongoing ADVANCE-2 trial in late stage Alzheimer's Disease ("AD") patients :
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Axsome recently received feedback from the FDA on the clinical development program of AXS-05 in AD agitation. The FDA feedback indicated that an NDA for AXS-05 in this indication should include placebo-controlled safety information from the ongoing ADVANCE-2 trial, as well as long-term safety data in the target patient population consisting of at least 300 patients treated for six months and 100 patients treated for one year. Based on this guidance, the Company intends to submit an NDA for AXS-05 after completion of the ongoing ADVANCE-2 and open-label safety extension trials.
This has been described as a "snag," but it isn't something new. I think we have known for long that this type of safety data will be required; what the FDA adds are specific numbers, although even those could have been guessed. So, this is nothing new, and certainly not a snag. Indeed, this data has already been collected, going by what the company says elsewhere in the same press release:
Based on current enrollment trends, the Company now anticipates completion of ADVANCE-2 in the first half of 2024, versus prior guidance of mid-2025.
So, this moves the trial timeline up by a year, which, to my experience, is somewhat unprecedented. Indeed, I cannot recall another example of a trial that was brought forward by a whole year - the opposite is, unfortunately, more common. They will need to complete the open-label study, however, per the registry, this study should be done by June 2023. So, the FDA feedback does not imply any delay.
Note, though, that the CEO says the following about this in their earnings call:
The open-label extension trial has been ongoing, and we would also expect that to read out in 2024. And with regards to NDA filing, we would be in a position to file an NDA within six months after we read out our clinical space.
The CEO also clarifies why there's need for this safety data after the successful ACCORD trial:
So, the ACCORD trial, it was a randomized withdrawal study. So, it does not provide the randomized safety data, which [indiscernible] is really important in this patient population.
Interestingly, a week before this, the FDA rejected Eli Lilly's accelerated approval pitch for donanemab, asking for the same sort of 12-month safety data.
AXS-05 or Auvelity was launched in October, and this is its first earnings. It made $5.2mn in net product sales in about 2 months of first launch quarter sales. This time's earnings, which will be released on May 8, will be very interesting. Sunosi, which they recently acquired, had $19.2mn of fourth quarter net product sales. This has been a very good buy for Axsome; I have seriously wondered why Jazz sold it off so cheap. So, this is a good buy, but Auvelity will soon overtake it.
Axsome also licensed Sunosi to Pharmanovia for Europe, for which it received an upfront payment of $66 million, and is eligible to receive sales-based and other milestones totaling up to $101 million. Sunosi was approved by the European Medicines Agency ((EMA)) in 2020 for patients with EDS associated with narcolepsy or Obstructive Sleep Apnea. In a fortuitous deal last year, Axsome acquired Sunosi from Jazz Pharma, and Sunosi net sales were $57.9 million in 2021. The acquisition was for all markets except some Asian markets. Axsome paid a total upfront payment of $53 million, a high single-digit royalty on Axsome's U.S. net sales of Sunosi in the current indication, and a mid single-digit royalty on Axsome's U.S. net sales of Sunosi in future indications. So far, in less than a year, Axsome has easily recouped its expenses (upfront payment) on Sunosi.
Last year, an SVB analyst, while saying that "the acquisition happened at a very attractive price, with good ROI on this investment to follow," also said that like Jazz, Axsome will struggle to differentiate Sunosi in the market. I think Jazz underestimated the potential of Sunosi, or rather, they spent too much on its development and did not think they could recoup their costs. I don't know, but Axsome had a good deal on Sunosi, as we are seeing over the past quarters.
I could also be because Sunosi never became a blockbuster for Jazz as xyrem once did. In 2019, when it was launched, Sunosi commanded high expectations from analysts:
Leerink analyst Ami Fadia has predicted Sunosi can generate more than $500 million by 2023, while RBC Capital Markets analyst Randall Stanicky has predicted 2024 Sunosi sales of $314 million. In a Monday note to clients, Wells Fargo analyst David Maris said the DEA scheduling was a positive for Jazz and said he believes the med can rack up $180 million in 2021.
Perhaps such figures not panning out forced Jazz to sell.
About AXS-07, a brief update on its NDA resubmission timeline was offered. We were now told that this would be a Class 2 submission, giving it a 6-month review period:
No additional clinical efficacy or safety trials have been requested by the FDA for a resubmission of the NDA. The Company expects the NDA resubmission to be designated as Class 2 which would be subject to a six-month review.
Another NDA, for AXS-14 in fibromyalgia, is also anticipated this year. Its sister molecule AXS-12'spPhase 3 SYMPHONY trial in narcolepsy will be read out in 1H.
Financials
Axsome Therapeutics, Inc. has a market cap of $3.12bn and a pro forma cash balance "in excess of $300mn." They ended the year with cash and cash equivalents of $200.8 million, then accessed a $55mn tranche from their current $350mn loan from Hercules Capital, plus made $66mn from the upfront payment for EU for Sunosi. Research and development (R&D) expenses were $14.7 million for the fourth quarter, while selling, general, and administrative (SG&A) expenses were $61.5 million. Including the term loan, this gives them a runway of 4-5 quarters, possibly more, but expenses are going to increase, so it is best to remain conservative. The company says the cash "is sufficient to fund anticipated operations into cash flow positivity." That means they are expecting to make upwards of $400mn in the next 1-2 years, per year.
On March 10, Axsome Therapeutics made something of a mess in its haste to announce that it has "material deposits" at the failed SVB Financial Group (SIVBQ). While it did say that its cash at Citi and the Hercules loan is enough to get it to "cash flow positivity," investors were concerned by this "material deposit" statement. 3 days later, the company filed another 8-K, telling us that the so-called "material deposit" was only 2% of its entire cash balance, or $4mn. Thus, Axsome created needless worry for its investors probably because someone did not wait to look up its actual account balance at SVB before filing an 8-K.
Bottom Line
Axsome Therapeutics, Inc. has a few minor worries, cash being the principal one. Any delay in one of the pipeline indications will hurt them for cash. However, with a rapidly expanding pipeline, increasing sales from two drugs, and their still untapped potential, Axsome Therapeutics, Inc. is a solid investment.
For further details see:
Axsome Therapeutics: Things Are Coming Together Nicely