Here's Why You'll Regret Ignoring This Biotech Stock Rocket

Taking two old drugs and combining them to treat depression was a roll of the dice that hardly anyone paid attention to during Axsome Therapeutics' (NASDAQ: AXSM) first few years as a publicly traded drugmaker. Clearly, that was a mistake.

At the beginning of 2019, this clinical-stage biotech was worth just under $80 million because its lead candidate seemed a little ridiculous. Since then, the stock has risen sevenfold and it's just getting started. Here's why you'll regret turning up your nose at Axsome in a few years, and probably a lot sooner.

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So what if it's simple?

Axsome's lead candidate, AXS-05, is simply a combination of bupropion and dextromethorphan, two well-known drugs that make a dangerous combination because they amplify each other's effects. Bupropion is a norepinephrine and dopamine reuptake inhibitor that's been used to treat depression under the name Wellbutrin for decades. More recently, bupropion's been used as a smoking-cessation aid branded as Zyban, and off-label for attention-deficit hyperactivity disorder.

Bupropion's isn't nearly as common as dextromethorphan, a drug that nearly everyone has taken before and will probably take again. If you've swallowed anything to suppress a cough, it probably contained dextromethorphan, but that's not its only use. It's also a commonly abused over-the-counter medication that happens to amplify the effects of bupropion.

In fact, when someone regularly taking bupropion for depression, smoking cessation, or ADHD happens to chug a bottle of cough syrup, that person can end up in the hospital, or worse.

Major depressive disorder (MDD) affects around 6.7% of American adults, and available antidepressants aren't enough to break through for around one-third of them. Taking advantage of the interaction between the two drugs and finding the right balance seems obvious in retrospect, but Axsome was the first to combine a relatively small amount of both into a single tablet.

Beyond all expectations

Everyone who thought about boosting the power of bupropion with a measured dose of cough syrup but never did anything about it must be kicking himself right now. Few were paying attention to Axsome this January, but those who were had their minds blown.

During the phase 2 Ascend study, AXS-05 helped 47% of patients with MDD achieve clinical remission, compared with just 16% of patients in the group given bupropion on its own. The increased benefit isn't limited to depression, either. The amplification appears to carry over to bupropion's use as a smoking-cessation aid. During a 58-patient study, those taking AXS-05 smoked significantly less than those given bupropion on its own.

Axsome's ball to drop

During midstage studies, AXS-05 appeared just as safe and tolerable as bupropion monotherapy. Using two well-known drugs may not win awards for innovation, but it could help Axsome race along the path from a clinical-stage drugmaker to one with a product to sell. That's because the FDA is practically pushing the sorely needed new treatment option through the late-stage development process.

The FDA appears willing to accept a new drug application for the treatment of MDD based on results from the completed 80-patient Ascend study, instead of waiting for an ongoing phase 3 trial to wrap up. Unless Axsome forgets to include something in its new drug application, the company could receive an expedited review of AXS-05 and launch the potential blockbuster in the first half of 2020.

We have no idea where Axsome will price AXS-05, but it probably won't need to rely on an exorbitant sum to drive several billion in annual sales within a few short years. In the U.S. alone, there are roughly 7 million people suffering from treatment-resistant MDD, and they're clamoring for a better treatment option.

More on the way?

Axsome did so well with dextromethorphan and bupropion that it's ready to try another combination for the treatment of migraine headaches, and it's roaring forward at top speed. Before the end of the year, we could have phase 3 trial results for AXS-07, another combination of well-known drugs.

Rizatriptan is a powerful headache pain reliever that contracts blood vessels in the head, but it doesn't work for everyone. Meloxicam is a prescription-strength non-steroidal anti-inflammatory usually used to relieve arthritis symptoms.

After meeting with the FDA, Axsome is confident it can earn approval for AXS-07 without any early clinical-stage data -- just a single phase 3 trial should be enough. The phase 3 Momentum study has already finished enrolling people that don't respond to existing migraine pain relievers including rizatriptan.

We should be able to see results from the 875-patient Momentum trial before the end of 2019, which means Axsome could launch a second product for millions of underserved patients less than a year after AXS-05 reaches pharmacy shelves.

More fuel in the tank

Axsome Therapeutics stock has already soared 737% since the beginning of 2019, but its market cap is still just $786 million at recent prices. Drugmaker stocks generally trade at mid-single-digit multiples of trailing sales. With the FDA bending over backward to the company launch two potential blockbusters as quickly as possible, this stock probably has a lot more room to run over the next few years.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.