1 Under-the-Radar Biotech Stock to Buy and Hold

Companies with exciting prospects aren’t always of the popular, headline-grabbing variety. Some little-known stocks also deserve serious consideration.

Take Axsome Therapeutics (NASDAQ: AXSM)a mid-cap biotech company that is not involved in the fast-growing GLP-1 weight loss drug business. While proceeding so quietly, this drugmaker has performed more or less in line with the broader market this year, and there’s good reason to believe it could produce strong long-term returns. Let’s dig.

Revenues are increasing

Axsome Therapeutics focuses on the development of diseases affecting the central nervous system. The company currently has two products on the market. One is Auvelity, a therapy for depression that won US approval in 2022. The other is Sunosi, which treats excessive sleepiness related to narcolepsy. Axsome acquired Sunosi from Jazz Pharmaceuticalsalso in 2022.

While Axsome’s topline isn’t too impressive yet, it’s growing fast. In the second quarter, revenue rose 87% year-over-year to $87.2 million. Auvelity’s $65 million in sales increased 135% year-over-year, while Sunosi’s $22.1 million in sales increased 16% year-over-year.

True, Axsome remains unprofitable. Net loss per share of $1.67 was weaker than the loss per share of $1.54 reported in the year-ago quarter. Why is the company’s bottom line getting worse? Probably because of the marketing efforts related to its two drugs, along with the late-stage clinical trials it is conducting.

Phase 3 studies can cost a lot of money. But Axsome’s pipeline is one of the best reasons to invest in the stock.

An interesting late stage pipeline

Axsome Therapeutics has a market cap of just $4.3 billion. It is not unusual for a biotech of this size, even one with a few commercialized products, to be unprofitable. The company looks attractive though as it is in the process of transforming its range. Some of its products could be approved or receive major label extensions within three to five years.

First, there’s AXS-07, a potential migraine drug. Axsome has already submitted an application to the US Food and Drug Administration (FDA) for AXS-07, but the agency declined to give it approval due to manufacturing issues. That was in 2022. The company recently resubmitted its application for this therapy, and approval seems all but assured this time, given that there have been no issues with safety or efficacy.

Next, Auvelity is being studied in a phase 3 study in the treatment of agitation (aggressive and agitated symptoms) associated with Alzheimer’s disease, with data expected before the end of the year. Auvelity has already completed an advanced phase clinical trial in this regard. If all goes well, Axsome could go after that indication soon.

The story continues

Meanwhile, Sunosi is also doing a Phase 3 trial for attention-deficit/hyperactivity disorder (ADHD), with top results expected by the end of the year.

Axsome has started another late-stage study for Sunosi in shift work disorder (a sleep disorder that can affect people who work at night). AXS-12, a potential treatment for narcolepsy, is also in phase 3 trials.

Finally, Axsome reported positive results for AXS-14 in treating fibromyalgia; it expects to complete a regulatory submission to the FDA by the end of the third quarter.

So Axsome Therapeutics’ pipeline could yield three new products and three label extensions. However, it’s no wonder his net losses are getting worse, but it’s for a good cause. As Axsome Therapeutics’ portfolio of approved products strengthens, its revenue will continue to move in the right direction, eventually hitting the bottom line.

Multiple clinical and regulatory catalysts ahead could help shake the stock price. In the long term, Axsome is poised to deliver strong returns to loyal and patient investors.

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Prosper Junior Bakiny has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Axsome Therapeutics. The Motley Fool has a disclosure policy.

1 Under-the-Radar Biotech Stock to Buy and Hold was originally published by The Motley Fool