On Tuesday, Citi maintained a Buy rating on shares of Axsome Therapeutics (NASDAQ:AXSM), with the price target being increased to $127.00 from the previous $125.00. The adjustment came after Axsome reported positive Phase 3 narcolepsy data, which, according to Citi, was followed by an undeserved sell-off. The stock experienced a 4% decline in Monday's trading.
The company's shares fell as the market reacted to a high placebo rate in the recent trial, which led to a smaller placebo-adjusted reduction in cataplexy when compared to competitors such as HRMY's Wakix or branded oxybates.
Although the Epworth Sleepiness Scale (ESS) did not show statistical significance, other measures such as the Clinical Global Impression of Severity (CGI-S) were successful. Citi emphasized that with primary and secondary endpoints being met, AXS-12 is seen as an approvable drug.
Axsome is expected to complete a 6-month open-label extension (OLE) in December 2024, as indicated on ClinicalTrials.gov, with plans to file a New Drug Application (NDA) within six months of completion. Citi believes that if AXS-12 is approved, Axsome could utilize its existing Sunosi sales force for commercialization.
The financial firm has increased the probability of success (POS) for AXS-12 to 80% from the previous 50%, due to the recent trial outcomes. This revision is based on the drug's potential U.S. peak sales, which are estimated at approximately $310 million. The new price target reflects this updated assessment and increased confidence in the drug's market prospects.
InvestingPro Insights
As Axsome Therapeutics (NASDAQ:AXSM) navigates through pivotal moments, real-time data from InvestingPro can offer additional context to Citi's optimistic outlook. With a market capitalization of $3.66 billion, Axsome's financial health and growth prospects are key to understanding its potential. Notably, the company's gross profit margin stands at an impressive 90.37% for the last twelve months as of Q1 2023, underscoring efficient operations despite the lack of profitability over the same period. This aligns with one of the InvestingPro Tips highlighting Axsome's impressive gross profit margins.
However, investors should be mindful of the challenges ahead. Analysts have revised their earnings downwards for the upcoming period, and they do not anticipate the company will be profitable this year, as reflected in the negative P/E ratio of -18.59. Axsome's high Price / Book multiple of 19.19 also suggests that the stock is trading at a premium relative to its book value. This is particularly relevant considering the stock's recent performance, with a 24.84% one-year price total return, yet trading at 78.61% of its 52-week high. These insights, including additional InvestingPro Tips, can help investors weigh the growth potential against the current valuation.
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