The Recent Sell-Off In Axsome Creates A Good Opportunity

Andy Jones2020-10-04

SummaryAxsome already has positive Phase 3 data on its first therapy and should be submitting the NDA later this quarter.The company already had a cash runway through 2022 and now has put in place a ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Recent Sell-Off In Axsome Creates A Good Opportunity\n</h2>\n\n<h4 class=\"meta\">\n\n\n2020-10-04 21:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4377481-recent-sell-off-in-axsome-creates-good-opportunity><strong>Andy Jones</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryAxsome already has positive Phase 3 data on its first therapy and should be submitting the NDA later this quarter.The company already had a cash runway through 2022 and now has put in place a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4377481-recent-sell-off-in-axsome-creates-good-opportunity\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AXSM","symbol_name":"Axsome Therapeutics, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4377481-recent-sell-off-in-axsome-creates-good-opportunity","article_id":"2072085648","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2072085648","pubTimestamp":1601816448,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Axsome already has positive Phase 3 data on its first therapy and should be submitting the NDA later this quarter.The company already had a cash runway through 2022 and now has put in place a credit facility that extends that out for the foreseeable future.Despite this progress, shares have dropped meaningfully, creating opportunity for the long-term investor.","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AXSM":"Axsome Therapeutics, Inc."},"translate_title":"最近Axsome的抛售创造了一个很好的机会","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AXSM":0.9},"content_text":"SummaryAxsome already has positive Phase 3 data on its first therapy and should be submitting the NDA later this quarter.The company already had a cash runway through 2022 and now has put in place a credit facility that extends that out for the foreseeable future.Despite this progress, shares have dropped meaningfully, creating opportunity for the long-term investor.Axsome Therapeutics (NASDAQ:AXSM) was a huge gainer in 2019, but has struggled for much of 2020. I first purchased the stock at about $78 back in June around the time I first covered the company on Seeking Alpha. Since then, the company traded up into the mid-$80's before now ending up around $70.  Figure 1: Axsome Stock Chart (Source: Finviz) This volatile ride might make one think that Axsome's performance has been uneven or had setbacks during the intervening months, but that isn't true at all. In fact, Axsome has continued to march towards its first product approvals while taking a mostly non-dilutive step to shore up its balance sheet for several years to come. Much of the negative sentiment of late seems to stem from a Bank of America analyst initiating coverage on Axsome as a sell, stating that its two likely 2021 launches will disappoint because the products are \"undifferentiated\" and in highly competitive markets. In this article, I discuss the biggest reason why I disagree and still view Axsome as a strong value play here. Axsome's AXS-05 Opportunity is Substantially Differentiated from Competitors I don't intend to completely re-review Axsome's pipeline in this article because I don't view anything beyond AXS-05 necessary for the specific thesis I'm presenting, but my prior article contains a more thorough summary if you want to refer back. The strength of the AXS-05 opportunity is the biggest reason why I view Axsome as a good opportunity at present.\n AXS-05 is a combination of dextromethorphan (DM) and bupropion that brings something to the table that no current therapy does. DM is an NMDA receptor antagonist, a class of drugs that is fairly well-understood at this point. NMDA receptors have been investigated for their role in CNS disorders since at least the '80s. The difference here though is that the bupropion increases the bioavailability of the DM and thus enhances its potential treatment effects while the bupropion itself also inhibits reuptake of norepinephrine and dopamine. In fact, bupropion was originally marketed as an antidepressant by itself as Wellbutrin. Traditionally, DM has been used more as a cough suppressant than an anti-depressant due to the low bioavailability that Axsome aims to fix.  Figure 2: AXS-05 Combination Potential (Source: Axsome's website) As you can see in Figure 2, this unique combination of drugs has an impressive pharmacodynamic profile as compared to either alone. There is strong scientific rationale based on prior approved versions of these compounds or similar ones for AXS-05's three targeted indications and much more. The differentiation here is not just my opinion though. AXS-05 has received the FDA's breakthrough therapy designation for both major depressive disorder and Alzheimer's disease agitation. The FDA gives out such a designation only when \"preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy.\" This means that the FDA views AXS-05 as a large enough step forward in these two indications that the FDA is willing to give the company \"all of the fast track program…, more intensive FDA guidance on an efficient drug development program, an organizational commitment involving senior managers, and eligibility for rolling review and priority review.\"\n  Figure 3: AXS-05 Late-Stage Trial Results for MDD (Source: Axsome's 10-K for 2019) Axsome has reported strong data in both indications to date. Figure 3 shows Phase 2 and 3 trial data in the MDD indication in which the company plans to file an NDA later this year. A Phase 3 will also likely be getting underway in relation to Alzheimer's disease agitation later this year after a successful meeting with FDA recently. Based on the clear differentiation and Axsome's positive clinical trial data, there is little reason to think AXS-05 will not get approved in the MDD indication, setting the company up to transition to commercial stage within the next 12 months. Axsome's Efficient Development and Spending Have Led to an Incredible Balance Sheet for a Clinical-Stage Company At the end of Q2, Axsome reported having $190.7 million in cash on hand which management viewed as lasting for another two years. With a cash burn rate of about $18 million in the quarter, this would imply about a 10-quarter runway, although cash burn will likely increase temporarily while the company starts to market its therapies. Axsome also only had $20 million in long-term debt. This burn rate is quite impressive given the number of late-stage therapies Axsome has and is far below what I have seen in analyzing many other similarly staged companies. Since the end of Q2, Axsome took another major step to ensure it has access to the capital it needs to finish developing and commercializing these late-stage therapies. On September 29, the company announced it had entered into an agreement with Hercules Capital for a $225 million term loan facility. $60 million of this was available at closing, and Axsome went ahead and drew $50 million of that, of which about $21.5 million went to repay the company's prior debt. $115 million of the total can be drawn in three tranches, contingent on the approvals of AXS-05 and AXS-07 and other sales related milestones. The last $50 million is subject to Hercules approval.\n Axsome has to start repaying the loan in May 2023 with the full maturity date not coming until October 2025. The loan facility part of the deal is non-dilutive, but Axsome also issued a warrant for about 15k shares at an exercise price of $80.43. This will be dilutive to current shareholders if Hercules chooses to exercise it, but for a company with 37 million shares outstanding, a 15k share warrant is trivial. A lot of people view Hercules as a lender of last resort for the biotech sector, meaning that a company must not have been able to get funding from anywhere else if they take out a loan with Hercules. I'm not going to get into that in-depth here, but I will say that I don't see how that could be possible in Axsome's case given how well the company's management has handled its finances over the last few years. Because of this good stewardship of the company's funds, Axsome now has a cash runway into at least 2024 which is plenty of time for the company to build up a substantial amount of cash flow. This good cash management decreases, but does not entirely remove, the risk of dilution which is typically one of the biggest long-term risks to a biotech investor's capital. Although I do not view it as likely, if Axsome is unsuccessful in getting many of its therapies to market or if sales are far slower than expected, then even a large cash reserve like Axsome's could prove insufficient, leading the company to raise more dilutive funds that could substantially wipe out current shareholders. AXS-05 Alone More Than Supports the Company's Current Market Cap Axsome is drawing near to the point where it will transition from a clinical-stage to a commercial-stage company with two indications that will hopefully garner approval within the next year. The most important of these in my mind is AXS-05 for MDD. \n Figure 4: AXS-05 Opportunity (source: Axsome's September 2020 Corporate Presentation) The current market cap after the recent sell-off is only about $2.63 billion. That's barely more than the combined low-end estimates for AXS-05 in MDD and Alzheimer's disease agitation alone and less than half of the combined high-end estimates. Given that a 5 P/S is about average for a commercial-stage biopharma, a strong argument could be made that AXS-05 in these two indications alone more than justify Axsome's current market cap. These estimates seem pretty reasonable for a major new therapy given that the overall market for depression therapies was over $15 billion in 2018 and that there are no currently approved therapies for Alzheimer's disease agitation. That's why the current market cap offers such a wide margin of safety.  Figure 5: Market Opportunities for AXS-07, AXS-12, and AXS-14 (source: Axsome's September 2020 Corporate Presentation) If you consider AXS-05 to justify at least the current market cap, then there is definitely substantial upside potential for Axsome in the rest of the pipeline. As you can see from Figure 5, Axsome views the rest of the pipeline as being a $1.5 billion to $3 billion opportunity. I agree with the Bank of America analyst that migraine treatment is an increasingly competitive market, but any niche that AXS-07 can carve out is ok by me given how wide a margin of safety I see for the company currently. \n Figure 6: Axsome Upcoming Milestones (Source: Axsome's September 2020 Corporate Presentation) Also, although my focus is certainly much more on the long term, it wouldn't be surprising at all to see a resurgence in Axsome shares given the substantial amount of upcoming potential catalysts within the next few months as shown in Figure 6. All the way around, Axsome continues to execute and show progress in its pipeline development, yet the market has majorly backtracked on the value assigned to the company.\nThe mismatch of a decreased price versus strengthened fundamentals that Axsome shows right now is perfectly in line with the type of opportunities that I cover in my newly launched Marketplace Service, Biotech Value Investing. This service provides in-depth coverage of my approach to finding high-quality, value-oriented companies in the biotech sector. Subscribers get my bi-weekly newsletter on value opportunities in the sector, my model portfolio, weekly deep-dive articles on portfolio companies and targets, and a much greater level of detail about my strategies for companies like Axsome. Check us out today with a free trial.\nDisclosure: 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.\nAdditional disclosure: I’m not a registered investment adviser. Please do not mistake this article, or anything else that I write or publish online, as any type of investment advice. This article and anything else that I post online are for entertainment purposes only and are solely designed to facilitate a discussion about investment strategy. I reserve the right to make any investment decision for myself without notification except where required by law. The thesis that I presented may change anytime due to the changing nature of information itself. Despite the fact that I strive to provide only accurate information, I neither guarantee the accuracy nor the timeliness of anything that I post. Past performance does NOT guarantee future results. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as a recommendation to buy or sell any form of security. Any buy or sell price that I may present is intended for educational and discussion purposes only. Please think of my articles as learning and thinking frameworks--they are not intended as investment advice. My articles should only be utilized as educational and informational materials to assist investors in your own due diligence process. You are expected to perform your own due diligence and take responsibility for your actions. You should consult with your own financial adviser for any financial or investment guidance, as again my writing is not investment advice and financial circumstances are individualized.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2072085648"}