Why Axsome Therapeutics Stock Jumped Over 20% in April

Axsome Therapeutics (NASDAQ: AXSM) has been growing sales rapidly with its Auvelity antidepressant. The biopharmaceutical company focuses on developing therapies for central nervous system (CNS) disorders.

Auvelity, launched in late 2022, has been approved to treat major depressive disorder (MDD) in adults, and sales have been growing quickly. That's only part of the reason Axsome stock soared last month. Shares jumped 22.9%, according to data provided by S&P Global Market Intelligence.

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5 million new reasons to buy

Auvelity helped Axsome grow sales by 66% last year. Auvelity sales grew even faster, accounting for nearly 80% of the company's revenue. Its other drugs, Sunosi (to improve wakefulness in adults who experience excessive daytime sleepiness associated with narcolepsy) and Symbravo (for migraine relief), make up the balance.

But the stock's big move in April came for a different reason. Auvelity received approval from the U.S. Food and Drug Administration (FDA) for the treatment of agitation associated with dementia that can come with Alzheimer's disease.

It's one of the big problems associated with Alzheimer's. According to the company, of the over 7 million Americans living with Alzheimer's disease, more than 5 million are dealing with agitation from Alzheimer's, with only one previously approved treatment. With its existing network of sales representatives and insurance-sector relationships in place, Axsome will be ready to launch the drug for the new application in about one month.

Price target boosts

The new approval has analysts raising price targets for Axsome stock. Needham & Company already recommended investors buy the stock, but has now raised the price target from $225 to $255 per share. Similarly, TD Cowen boosted its target share price to $255 from $215, according to reports. That price level represents a 23.5% gain from last week's closing price.

One big reason for the optimism surrounding the new approval is that Auvelity will be the first medication approved for the condition that is not an antipsychotic. Rexulti, discovered by Otsuka Pharmaceutical and co-developed by biopharmaceutical company Lundbeck, is the only other treatment FDA-approved for Alzheimer's agitation. But it carries a black box warning as an antipsychotic. Auvelity won't carry that warning of an increased risk of death in elderly patients with dementia-related psychosis.

Caring for Alzheimer's patients can be especially difficult. Given the burden Alzheimer-induced agitation places on caregivers and the healthcare system, adoption of Auvelity should be large. Estimates range from $1 billion to $2 billion for the market opportunity, especially given its clean-label status for the application.

Investors will hear more directly from the company when it reports first-quarter earnings this Monday, May 4.

Howard Smith has positions in Axsome Therapeutics. The Motley Fool has positions in and recommends Axsome Therapeutics. The Motley Fool has a disclosure policy.