Should You Invest In Axsome Therapeutics?

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Below is an example of a BioPsi Note that I produce on dozens of biopharma names over at BioPsi is a subscription-based equity research platform that rates potential investments in the biopharma sector based on my "5C's of Biotech Investing™". 

Axsome Therapeutics (Nasdaq: AXSM) is a clinical-stage biopharmaceutical company developing novel therapies for the management of central nervous disorders for which there are limited or inadequate treatment options. The company has two product candidates, AXS-05 and AXS-02, in late-stage clinical development where the company is focusing on multiple indications. Management's goal is to become a fully integrated biopharma company that develops and commercializes CNS products in the U.S.

AXS-05 is a novel, oral formulation of bupropion and dextromethorphan currently in a Phase 3 clinical trial called STRIDE-1 as a therapy for treatment-resistant depression (TRD) and nearing the initiation of a Phase 2/3 study as a therapy for agitation in patients with Alzheimer's disease (AAD).

- Bupropion is an oral norepinephrine dopamine reuptake inhibitor (NDRI) medication once marketed by Glaxo as Wellbutrin® and Zyban® as a second-line treatment for depression when SSRI medications are proven to be ineffective. The drug also has nicotinic anticholinergic activity and sees significant use as an aid for smoking cessation, attention deficit hyperactivity disorder, sexual dysfunction, and obesity. It is now available as a generic molecule.

- Dextromethorphan (DM) has multiple mechanisms of action, including nonselective serotonin reuptake inhibition, Sigma-1 agonism, and NMDA receptor antagonism. It is commonly used as a cough suppressant in many over-the-counter cold and cough medications. It is also used recreationally as a dissociative anesthetic. The drug is prescribed off-label for the treatment of AAD as an adjunctive medication for patients with TRD. In 2010, the U.S. FDA approved a combination dextromethorphan/quinidine product for pseudobulbar affect disorder.

The concept of AXS-05 is that DM is an effective medication for TRD and AAD, but because the drug has a short half-life and is rapidly converted into inactive dextrorphan (DXO) making it difficult to achieve therapeutic plasma levels. Bupropion has two important attributes within AXS-05. Firstly, it inhibits the metabolism of DM to DXO, thus increasing the plasma concentrations of the therapeutic DM molecule; and secondly, it acts as a nicotinic acetylcholine receptor antagonist that aids in therapeutic effect. Importantly, Axsome has 17 issued patents that protect the novel formulation of AXS-05 through 2034.

The Phase 3 STRIDE-1 trial initiated in March 2016 and is still currently enrolling TRD patients (target of 350) at 43 centers in the U.S. It is a randomized, double-blind, active-controlled, 12-week, two-period study consisting of an open-label, bupropion lead-in period, and a double-blind treatment period designed to evaluate the efficacy and safety of AXS-05 relative to bupropion in subjects with TRD. The primary endpoint is the measure of change in depression based on MADRS. Top-line data are expected in the Q1-2018. The drug has U.S. FDA Fast Track designation.

Axsome also plans to investigate AXS-05 in a Phase 2/3 trial in patients with agitation and aggression associated with Alzheimer's disease (AAD). AAD is associated with accelerated cognitive decline and early nursing home placement. There are no FDA-approved products on the market for AAD, although Nuedexa® (dextromethorphan + quinidine) is used off-label and did successfully complete a Phase 2 clinical trial in this indication. AXS-05 has Fast Track designation for AAD. The design for the planned Phase 2/3 study is a three-arm (1:1:1) randomization between AXS-05, bupropion, and placebo, with a target enrollment of 330 AAD subjects in the U.S.

AXS-02 is a potentially first in class, oral, targeted, non-opioid therapeutic for chronic pain. The company is initially developing AXS-02 for the treatment of pain in the following three conditions: complex regional pain syndrome (CRPS), knee osteoarthritis (OA) associated with bone marrow lesions (BMLs), and chronic low back pain (CLBP) associated with Modic changes (MC). AXS-02 has been granted Fast Track designation by the FDA for the treatment of pain associated with CRPS as well Fast Track for the treatment of knee OA associated with BMLs. AXS-02 has also been granted Orphan Drug designation by the FDA and EMA for the treatment of CRPS.

AXS-02 is an oral formulation of zoledronic acid (disodium zoledronate tetrahydrate). An intravenous formulation exists from as Zometa® / Reclast® (Novartis). Zoledronic acid is a potent inhibitor of bone-resorbing cells called osteoclasts. Osteoclasts break down bone by secreting protons or acids known to excite pain receptors. My impacting osteoclasts, AXS-02 may reduce pain by suppressing localized overproduction of acid in bone. The drug may also inhibit the production of pro-inflammatory cytokines that have been shown to contribute to pain. Importantly, the generic IV formulation is not approved for any pain indications. Axsome's formulation has 37 issued patents that protect the drug through 2034.

Phase 1 data with AXS-02 demonstrate significant improvements pharmacodynamic effects - at therapeutically relevant plasma levels for pain - relative to the IV formulation. The oral formulation obviously provides a substantial improvement in preference and compliance.

Axsome is currently enrolling patients in a Phase 3 clinical trial called CREATE-1, designed to assess the safety and efficacy of AXS-02 in 190 CRPS patients (1:1) vs. placebo. The primary endpoint is the change in pain intensity on NRS after week 12. An interim analysis is expected in the Q4-2017. Management cites five independent studies (12345) that show statistically significant pain reduction in mixed patient populations on non-optimized formulations of bisphosphonates.

A separate Phase 3 in patients with pain associated with knee osteoarthritis (OA) with bone marrow lesions (BML) called COAST-1. The trial is being run under a special protocol assessment (SPA). It's a 24-week study that seeks to enroll 346 subjects (1:1), and interim data are expected in the Q3-2017. Phase 2 data with non-optimised formulations of zoledronic acid demonstrate reduced pain and BML size in patients with keen OA (see below).

The final indication for AXS-02 is in chronic low back pain (CLBP) in patients with Modic changes type 1 (M1). This is the result of increased bone turnover and pro-inflammatory cytokines and vascular density seen in M1 lesions. Zoledronic acid reduces bone turnover, suppresses the production of inflammatory mediators, and is anti-angiogenic. Phase 2 results with non-optimized formulations demonstrated reduce pain in patients with CLBP. Axsome is ready to move into a Phase 3 trial with AXS-02 in this indication but is waiting until the other two Phase 2 programs (CREATE-1 and COAST-1) read out.

Charisma = 3 (I'm Intrigued)

I've written a lot over at BioNap on NMDA receptor antagonism (see this piece in April 2017) and it's potential as a new medication for patients with resistant depression. I really like the strategy with AXS-05 because it hits upon several validated targets for depression and Alzheimers, like NMDA (ketamine/Namenda), Sigma-1R agonism (Luvox/Aricept), serotonin reuptake inhibition (Lexapro/Prozac/Zoloft), norepinephrine reuptake inhibition (Cymbalta/Effexor), dopamine reuptake inhibition (Wellbutrin), and nicotinic inhibition. TRD and AAD are enormous patient populations. Success in either would result in blockbuster sales.

AXS-02 also targets some potentially enormous patient populations. In CRRS, the companies preclinical data looks very good, and there have been five randomized, double-blind, placebo-controlled trials assessing the IV formulations of bisphosphates showing a statistically significant reduction in pain. Keep in mind, these were non-optimized formulations for bisphosphates, potentially as much as 1000x less potent than AXS-02 (according to management); so I feel good about the CREATE-1 study.

Similarly, Phase 2 data on knee OA associated with BML were strongly positive and provide investors with a good bit of confidence going into the interim analysis expected in the third quarter 2017. The Phase 3 trial in CLBP is ready to initiate, but on hold until data from the CRPS and knee OA-BML studies read out.

Catalysts = 4 (About 3-6 Months Away From Being A '5')

Data from the Phase 3 STRIDE-1 study is expected in the Q1-2018.

The Phase 2/3 study with AXS-05 in AAD is expected to start in the Q2-2017 and offer top-line data in about 12 months (so mid-2018).

An interim analysis from Phase 3 CREATE-1 with AXS-02 in CRPS is expected in the Q4-2017.

An interim analysis from Phase 3 COAST-1 with AXS-02 in knee OA with BML is expected in the Q3-2017.

Credibility = 3 (Don't Sing It, Bring It)

While I love the concept of AXS-05, we are flying a little blind into the Phase 3 data on this exact formulation. To date, management has really only pointed to Phase 1 pk data to suggest the drug works. There are several independent studies that show both DM and bupropion work in TRD, as well as Nuedexa in PseudoBulbar Affect (PBA). The Phase 3 STRIDE-1 trial is well designed, but there's not a whole lot of previous data we can analyze to get a sense of the effect size or statistically powering.

Confidence in AXS-02 is higher because management has identified numerous clinical trials with non-optimized formulations of zoledronic acid that demonstrated efficacy (pain reduction) in patients with CRPS and knee OA associated with BML. The Phase 3 knee OA trial, COAST-1, are up first; so, I recommend this is where investors start their due diligence on the drug.

I also like the fact that the company has proprietary manufacturing and understands that IP is an important piece of the specialty pharmaceutical puzzle. Both AXS-05 and AXS-02 are protected by multiple layers of patents that go out to 2034. AXS-02 also has orphan designation in the U.S. and EU.

If there's a knock on Axsome it is that the company really has not run big, pivotal clinical trials yet. The ongoing Phase 3's with both AXS-05 and AXS-02 are the company's first attempts.

Cash = 4 (Solid)

Axsome exited 2016 with $36.6 million in cash and investments, not bad for a company with a market value of only $74 million. However, in late March 2017, the company raised $16.1 million (gross) through a public offering. The offering was fully exercised (4.3 million shares at $3.74 per). Ladenburg was the sole book-runner. Burn is around $5-6 million per quarter, so the current cash position is likely $45+ million. In early April 2017 (at the Needham conference), the CEO noted that the current cash position was sufficient to fund operations into the Q1-2019.

Capital Structure = 4 (Solid)

As of March 29, 2017:
Basic = 23.5 million
Options = 1.8 million (ave: $5.75 per)
Warrants = 0.3 million (0.2 million at $1.30 + 0.04 at $5.94 + 0.06 at $7.41)

Institutional ownership is strong, with Antecip Capital (the investment group controlled by the CEO, Herriot Tabuteau, owning 7.3 million shares, or about 31% of the company. In April 2017, Laurence W. Lytton reported a 1.3 million share (5.5% stake) in the company. Other major holders include Fidelity, JP Morgan, Stifel, Blackrock, Vanguard, and Lombard.

Final Thoughts

Axsome is very interesting to me. The company has four active Phase 3 clinical trials with two drug candidates. AXS-05 targets a host of mechanisms in the CNS that are clinically and commercially proven to be effective for the treatment of depression and agitation. The concept with AXS-05 is that dextromethorphan is pretty darn effective in treating depression, but has such poor bioavailability that it is hardly used. Bupropion synergistically improves the uptake of BM while providing baseline antidepressant effects. AXS-02 is an oral formulation of a well know bisphosphonate known to improve pain in CRPS and knee OA.

I like the fact that Axsome has good insider ownership, plenty of cash, drugs with proven mechanisms of action, strong IP, and plenty of catalysts. Data from COAST-1 is expected in the Q3-2017. That's the first catalyst up for the company.  CREATE-1 and STRIDE-1 are up in the Q4-2017 and Q1-2018, respectively. If the company goes 3-for-3, this stock will be north of $15.

Disclosure: BioPsi is long AXSM.

Disclaimer: BioNap is NOT an Investment Advisor. We are an investor intelligence and strategic advisory firm. Most of the companies mentioned on this ...

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Delmer Viramontes 2 years ago Member's comment

Any updates on this?