After delays and missteps, Axsome Therapeutics (AXSM) finally earned its first regulatory approval.
The U.S. Food and Drug Administration (FDA) approved Auvelity as a treatment for major depressive disorder (MDD). The medication has several potential advantages in the market, including being available as an oral pill and using a different mechanism of action from commonly-used treatments. That bodes well for the drug product's commercial potential.
Although investors typically celebrate FDA approvals as the final bookend in a drug candidate's journey, that's only partially true. Regulatory approvals mark the end of drug development, but also mark the beginning of commercial development. Many drug products fail to live up to expectations after reaching this milestone.
Auvelity appears relatively well-positioned for success in the competitive landscape, but investors must acknowledge that commercial success isn't a slam dunk. Let's review the challenges Axsome Therapeutics must navigate.
Here's What Comes After FDA Approval
Investors can reduce the complexity of (and increase their success in) biotech by thinking of risks and opportunities in different categories. Following the progression of an asset's journey from drug design to commercial launch provides a rough framework:
- Development risks include trial delays due to a lack of resources, failures due to safety or efficacy, discontinuation due to competitive positioning, and the like. Drug development activities include drug design, preclinical studies, and clinical studies spanning multiple years.
- Regulatory risks include requests for additional data during preclinical or clinical development, which can result in costly delays measured in both time and money. It's important to remember that the FDA can rein in individual drug products or entire drug classes after they're approved when new safety or efficacy signals arise in real-world use. Recent examples include new warning labels for JAK inhibitors (due to increased cancer risks) and stern warnings for immuno-oncology drugs (due to lack of efficacy evidence).
- Commercial risks include failing to compete in the competitive landscape, failing to earn reimbursement, manufacturing hiccups, and lack of traction with prescribing physicians.
Axsome Therapeutics has encountered an above-average amount of regulatory friction. Submissions for multiple drug candidates were delayed, increasing the uncertainty of approval decisions. That included Auvelity, although FDA approval means investors can shift their focus to the risks and opportunities of the commercial landscape.
Auvelity boasts several advantages in the competitive landscape.
- New mechanism of action: Whereas the most commonly used depression drugs are selective serotonin reuptake inhibitors (SSRIs), Auvelity acts on NMDA+ receptors in the brain. That could provide a treatment option for individuals who fail to respond to existing medicines.
- No weight gain: The majority of individuals fail to achieve durable remission from existing treatments. As if that wasn't frustrating enough, one of the symptoms of SSRI drugs is weight gain. Auvelity wasn't associated with weight gain in clinical development, which could provide a tailwind for prescriptions.
- Fast acting: Many depression drugs don't begin measurably helping individuals until the sixth week of treatment. Auvelity begins improving symptoms for many individuals after the first week.
Unfortunately, things are never quite so simple. Auvelity also faces several notable headwinds in the commercial landscape.
The FDA approved the medication based on a clinical trial showing it proved superior to a placebo, not another depression treatment. Although the new drug product claims to be fast acting compared to existing treatments, the placebo group in the pivotal clinical trial that led to approval achieved improving symptoms at every timepoint measured through six weeks, too. It's impossible to say Auvelity outperforms SSRIs – and physicians may not overlook that detail.
Pricing is another potential obstacle. Axsome Therapeutics hasn't set a price for its first approved drug, but analysts expect the cost to exceed $1,000 per year. Many SSRIs are available as generic prescriptions costing significantly less. The difference could relegate Auvelity to a later-stage treatment option after others have failed, potentially limiting the commercial velocity after launch or the market opportunity altogether.
Pricing is a delicate game that could also impact reimbursement. Johnson & Johnson (JNJ) earned FDA approval for Spravato, a nasal spray for treating depressive disorders that also acts on NMDA+ receptors in the brain, but the annual price of over $10,000 caused many providers to balk at coverage. It was rejected for reimbursement in the United Kingdom when regulators determined the price was unjustified, especially considering there was no proof it outperformed existing treatments. Auvelity should avoid that controversy as an oral drug that can be priced much lower, but Axsome Therapeutics can still screw this up.
Investors should keep an eye on other risks, including:
- Licensed patents: Several patents for Auvelity are owned by Antecip Bioventures, which is owned by Dr. Herriot Tabuteau. That name might sound familiar because he's the CEO of Axsome Therapeutics. Axsome Therapeutics must pay a 3% royalty on Auvelity sales to Anticep – enriching the CEO at the expense of shareholders.
- Patent protected?: The beauty of Auvelity is its simplicity. The drug product comprises two active ingredients: a common cough suppressant and a common smoking cessation drug. The simplicity could also cause problems down the road. Axsome Therapeutics discontinued development of another drug candidate, AXS-02, after German drug developer Grünenthal challenged the formulation. AXS-02 was a simple combination of two generic drug compounds, similar to AXS-05.
Patience Required Beyond This Point
Investors should be excited about FDA approval for Auvelity. It marks the end of clinical development and the associated regulatory risks that come with it. However, regulatory approval only marks the beginning of commercial activities – and there are plenty of obstacles to navigate.
Axsome Therapeutics is relatively well positioned to navigate the commercial landscape financially. A combination of cash on hand, recent stock sales, and an available credit facility means the business has roughly $343 million in cash and cash equivalents on hand at the end of August. The company believes that can support operations into 2025, although that may be slightly optimistic. Launching multiple drug products will be expensive.
That said, the commercial success of Auvelity isn't a slam dunk. A slow launch wouldn't be unsurprising for the inexperienced drug developer. Similarly, failing to navigate headwinds could throw peak sales projections -- many of which exceed $1 billion in annual revenue -- out the window.
Simply put, investors need to remain patient and acknowledge the potential challenges ahead.
