Axsome Therapeutics Stock Is Up 16% Year to Date. Why Wall Street Thinks It Has Even More Room to Run

Axsome Therapeutics (NASDAQ: AXSM), a biotech company, has performed fairly well this year. The company's shares are up 16% versus the S&P 500's 11%. Could the stock rise even higher? Wall Street certainly thinks so. Axsome Therapeutics' average price target (according to Yahoo! Finance) of $285.42 implies about a 37% upside from its current level. Let's find out why Wall Street is bullish on the stock and whether it's time to buy it.

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Axsome Therapeutics' recent financial results

Axsome Therapeutics has made significant clinical and regulatory progress over the past few years. The company earned approval for Auvelity as a treatment for depression, and more recently won a label expansion for the medicine in treating Alzheimer's disease (AD) agitation. Axsome Therapeutics' approved portfolio also includes Symbravo, a migraine therapy, and Sunosi, which treats daytime sleepiness due to narcolepsy. Axsome Therapeutics' sales are growing rapidly. In the second quarter, the company's revenue increased by 46% year over year to $218.4 million. Auvelity is the main growth driver.

It contributed $180.3 million in net product sales, up 51% compared to the year-ago period. The good news is that Auvelity's indication in AD agitation is still brand-new. The U.S. Food and Drug Administration granted it in April. So, as the medicine gains significant traction in this market, it will help boost its sales. And there is a large addressable opportunity here. AD agitation affects more than five million patients in the U.S., and treatment options are limited.

So, Auvelity could fill an unmet need. Eventually, it could also earn another label expansion in smoking cessation, since Axsome is gearing up to start a phase 2/3 study in that indication. Axsome Therapeutics' Sunosi could also receive label expansions. It is currently being investigated in phase 3 studies as a potential treatment for depression, ADHD, and binge eating disorder. If it can land these additional approvals, it would become more successful and help improve Axsome Therapeutics' financial results.

Why the future looks bright

Axsome Therapeutics' pipeline doesn't end with Auvelity and Sunosi. In fact, the company boasts a rich lineup of mid and late-stage candidates that could transform its approved portfolio over the next few years. Here are some of these products. One of them is AXS-12, an investigational medicine for cataplexy in narcolepsy. This candidate has already cleared phase 3 studies and is currently under review by U.S. regulators.

Axsome Therapeutics estimates peak sales for AXS-12 between $500 million and $1 billion in narcolepsy. Then there is AXS-14, an investigational therapy for fibromyalgia. It is currently undergoing late-stage studies, as is the biotech's AXS-20, which is being developed to treat schizophrenia. Between these and other products in development, Axsome Therapeutics estimates that it could generate peak sales above $16 billion.

The company won't get there in a year or two. But considering its current market cap of roughly $11 billion, Axsome Therapeutics may be an attractive stock to buy even if it can land $16 billion in annual revenue by 2040. Here is why. Assuming a price-to-sales ratio of 3 by 2040 -- which is a reasonable assumption in the biotech industry -- if Axsome Therapeutics generates $16 billion in revenue by then, the company's market cap will be $48 billion. From its current level of $11 billion, it would grow at a compound annual rate of 11.1% over the next 14 years, which is a pretty strong return.

Of course, there are risks. Axsome Therapeutics could fail to launch one or more of its current pipeline projects due to clinical or regulatory setbacks. It could also face stronger competition in markets where it currently performs well, such as depression treatments, where several pharmaceutical giants dominate. However, the $16 billion projection only takes into account the company's more advanced programs, not several earlier projects that may also contribute to the top-line down the road.

So, even with the risk of clinical setbacks, Axsome Therapeutics has a large enough pipeline to generate competitive returns over the long run. Wall Street is right to be bullish, and investors should seriously consider buying this healthcare stock.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axsome Therapeutics. The Motley Fool has a disclosure policy.