New York City-based biopharmaceutical company Axsome Therapeutics (AXSM) had some depressing news for investors: In a teleconference last week, the U.S. Food and Drug Administration informed the company that it will not be able to complete its review of Axsome’s new drug application for the antidepressant AXS-05, a drug for treating major depressive disorders, by the agency’s statutory August 22, 2021 deadline.
This probably didn’t come as a surprise. For that matter, as far back as August 9, Axsome had already informed investors (as part of its Q2 earnings announcement) that “the FDA recently notified us that they have identified deficiencies that preclude labeling discussions at this time” and that “this development may lead to a delay in the potential approval of AXS-05.”
But no matter, says Mizuho analyst Vamil Divan. “There’s a chance” the drug will still be approved, although it may take a bit more time. Here’s how Divan comes to this conclusion:
Ordinarily, when the FDA identifies “deficiencies” in a new drug application (NDA), it issues a formal “Complete Response Letter” (CRL) — as in, “you didn’t give us a complete enough response, so please complete it by providing a lot more data, which will take you a lot more time.” But that didn’t happen in this case.
As Axsome pointed out in its announcement Monday: “The FDA did not request additional information from the Company, and the review of the application is ongoing.”
Divan notes that it’s possible to interpret this lack of a CRL as a “positive sign” for Axsome. As the analyst points out, “AXS-05 has received Breakthrough Therapy designation by the FDA and … granted Priority Review” to the application, “suggesting that the FDA potentially just ran out of time in getting everything completed ahead of the Action Date,” and “that the review will be completed soon and the drug may receive a near-term approval.”
That’s the optimistic scenario.
For the pessimistic (and I’d suggest, more realistic) scenario, you have to remember that the FDA did already say the NDA had “deficiencies,” and this argues against the view that the agency simply ran out of time. Deficiencies, identified and not yet rectified, are probably going to have to get rectified before the FDA awards its O.K. to the NDA.
Problem is — and here’s where we get even more pessimistic — with the statutory date for review now passed, there’s essentially no limit on how much more time the FDA may drag out this review process. And even when it finally does get back to Axsome with a decision, that decision may be to issue a CRL and demand more data.
In short, Divan cautions that the “update [may be] just delaying the inevitable and further pushing out the time to approval.”
Regardless, given that there’s still a better than breakeven chance that AXS-05 will get approved eventually (Divan assigns a 65% probability, and a two-year timeline for approval), Divan insists that the valuation on Axsome stock remains attractive. Accordingly, he’s sticking with his “buy” recommendation and his unchanged price target: $55 a share. (To watch Divan’s track record, click here)
Overall, Axsome stock has a Moderate Buy rating from the analyst consensus, with 11 reviews breaking down to 9 Buys, 1 Hold, and 1 Sell. The shares are selling for $24, and their $99.38 average price target suggests they have a whooping 314% upside potential for the year ahead. (See AXSM stock analysis on TipRanks)
