Axsome rides the bull case

Axsome is heading to regulators in the wake of a second successful depression study, and investors are predicting huge success. What could possibly go wrong?

Trial Results

Axsome was already on the way to being one of biopharma’s best performing biopharma stocks this year, and yesterday’s 71% share price surge surely confirms this. The company, which was worth less than $200m at the start of 2019, now sports a $2.8bn market value, implying that investors see blockbuster potential for its depression candidate AXS-05.

It is certainly rare to get two similarly positive outcomes in major depressive disorder, a disease that has foiled numerous projects; enthusiastic sellsiders are describing AXS-05 as a “potentially new standard of care” in MDD. However there are certain aspects to the Axsome story worth remembering as the company’s valuation climbs ever higher.

Perhaps most alarming to the investors concerned about corporate governance issues is that Axsome’s chief executive, Herriot Tabuteau, owns the patents to AXS-05, which he invented. Mr Tabuteau assigned these patents to an entity he owns called Antecip Bioventures II, which in turn licensed these on to Axsome for a 3% royalty.

This arrangement is fairly unusual; the company’s SEC filings state that it could cause a conflict of interest should any future dispute arise.

Other concerns exist around the nature of AXS-05, which is a proprietary formulation of two generically available medicines: buproprion, the active ingredient in Glaxosmithkline’s depression blockbuster Wellbutrin, and the cough medicine dextromethorphan.

Axsome is essentially pursuing the old speciality pharma model that has largely been eschewed for high innovation: combine two old, well-characterised generic drugs and try to get to market fast. Payers will presumably have an opinion on this formulation, and whether blockbuster sales forecasts can really be achieved with this sort of this product in today’s aggressive reimbursement environment is an important question.

Throw in an inevitably weaker patent position – the company’s protestations notwithstanding – and it is not inconceivable that AXS-05 will disappoint commercially.

Twin success

Regulatory risks are seemingly minimal nowadays, so at least Axsome can count on a friendly FDA. Unless the US agency digs out hidden concerns AXS-05 looks to have a reasonable chance of reaching the market. Yesterday the company said the placebo-controlled Gemini study succeeded, significantly improving patients' depressive symptoms versus placebo, and hitting several secondary endpoints.

Results were remarkably similar to the phase II Ascend trial, which lit a fire under the company’s stock in January.

AXS-05 in major depressive disorder 
  Ascend (N=80, vs buproprion)  Gemini (N=327, vs placebo)
Total MADRS score at week 6 17.2 12.1 16.6 11.9
  p=0.013 p=0.002
Source: Company presentations.

Dextromethorphan is a “ketamine-like” agent; as well as hitting several targets implicated in neurological conditions it also blocks NMDA, a more novel mechanism in depression. However, also like ketamine the compound has a very quick onset of action, which is where buproprion comes in. This drug is thought to maintain dextromethorphan concentrations, while also providing complementary mechanisms.

Still, it is notable that Axsome succeeded with NMDA targeting where others have failed. This year has seen setbacks from Allergan’s rapastinel and Vistagen’s AV-101 alone. AXS-05 is also very similar mechanistically to Nuedexta or AVP-786, two other dextromethorphan combinations developed by Avanir; these were bought by Otsuka in 2014 for a staggering $3.5bn.

Neither of these projects managed to show effectiveness in MDD. The argument for AXS-05 is presumably based on a belief that dextromethorphan has particular synergies with buproprion; the Avanir projects are combined with quinidine, which also acts to increase the bioavailability of dextromethorphan.

The next big readout for Axsome is a trial called Stride-1, which tests AXS-05 in treatment-resistant depression, versus bupropion. The extent to which this is a real test is a matter of some debate: the company has used a questionable definition of treatment resistance, and other issues concern the design of the study, which weeds out patients non-responsive to buproprion, which will presumably flatter the active cohort.

Investors have bought the bull case so far. But Axsome has a long way to go to prove that it really is worth nearly $3bn. 

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