"The world is a tragedy to those who feel, but a comedy to those who think.” ― Horace Walpole
The biotech sector continues to rally strongly in 2019 after a dismal fourth quarter. It is amazing how fast we have transitioned from a market that did not want to go up throughout the fourth quarter to one that does not want to go down in the new year.
One of the biggest winners of 2019 so far is Axsome Therapeutics (AXSM) which is in the 20-stock model portfolio over at The Busted IPO Forum. We provided a 'deep dive' on the name on December 12th as well as on the regular SA site.
Today, we will take a look at what caused the huge rise in the stock as well as upcoming trial milestones, a recent capital raise and analyst commentary that has centered around this small cap 'Tier 4' stock in 2019.
Axsome Therapeutics is a New York-based firm developing novel therapies for the management of central nervous system disorders. The company is focused on developing central nervous system (CNS) therapeutics that have novel mechanisms of action, novel delivery approaches, and well-characterized molecules. After the stock's run in 2019, it trades at just over $6.50 a share and has a market capitalization of approximately $225 million.
Key Trial Results Announced:
Monday, the company announced encouraging Phase 2 trial results from a study call ASCEND. This involved its compound AXS-05 to treat a major depressive disorder also known as MDD.
Source: Company Website
AXS-05 has Fast Track designation for this indication. It is also being tested against other indications and is one of a couple of compounds in Axsome's pipeline.
AXS-05 is described on the company's website as the following:
"AXS-05 is a novel, oral, investigational drug product under development for the treatment of central nervous system disorders. AXS-05 utilizes Axsome’s technology of combining bupropion and dextromethorphan. DM is an NMDA receptor antagonist, sigma-1 receptor agonist, and inhibitor of the serotonin and norepinephrine transporters. Bupropion serves to increase the bioavailability of DM and is a norepinephrine and dopamine reuptake inhibitor, and a nicotinic acetylcholine receptor antagonist. AXS-05 has been granted Fast Track designation by the FDA for both the treatment of agitation associated with Alzheimer’s Disease and Treatment Resistant Depression (TRD). AXS-05 is an investigational drug product not approved by the FDA."
Analyst Commentary & Balance Sheet:
H.C. Wainwright reissued their Buy rating and $15 price target on AXSM right after trial results with the following commentary:
"We utilize a risk-adjusted net present value (rNPV) approach to assessing Axsome shares. Our composite analysis ascribes value to Axsome’s three clinical candidates across five indications — namely, TRD, AD-associated agitation, smoking cessation, knee OA, and migraine — and we apply a 20% discount rate to all future cash flows along with a 28.1% effective tax rate and 33% sales and marketing rate."
Cantor Fitzgerald ($16 price target) and BTIG ($20 price target, up from $16 previously) also reiterated their Buy ratings on Axsome this week. BTIG's analyst stated "his new price target reflects the net present value update in the company's major depressive disorder, adding that the expected 2019 readouts by Axsome Therapeutics - including the phase 3 data for AXS-05 for treatment resistant depression and Phase 2/3 ADVANCE-1 trial data in agitation in Alzheimer's - could be potential catalysts for the stock." The company smartly took advantage of the spike in its stock this week to raise just over $23 million through the sale of shares under its existing at-the-market (ATM) facility with Leerink Partners. This approximately doubles the company's cash on hand. With a burn rate of around $8 million a quarter, Axsome has an acceptable 'cash runway'.
The company has multiple 'shots on goal' and the stock is trading significantly below analyst price targets. Obviously, ASCEND trial results this week were a positive. In addition, the company has myriad upcoming potential catalysts which were captured nicely by this article earlier this week on SA.
That said, I always recommend to cull some profits using the 'Jensen Rules' if you captured this big rally. I do so earlier this week by selling the June $7.50 calls against part of my position for a $2.10 a share option premium. I continue to hold the rest of my AXSM shares 'uncovered'. If the company continues to post positive trial developments, the stock could rally much further over the longer term.
"Being Irish, he had an abiding sense of tragedy, which sustained him through temporary periods of joy.” ― William Butler Yeats
Disclosure: I am/we are long AXSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.