Axsome Therapeutics Rallies 40% On FDA Product Label Proposal, But Analyst Remains Skeptical

Axsome Therapeutics Inc AXSM shares rallied 40% on Monday morning after the company received some positive news from the U.S. Food and Drug Administration regarding its AXS-05 novel treatment for MDD (depression).

What Happened? Axsome filed an 8K on Monday morning reporting the FDA has proposed a product label for ASX-05. While the market's initial reaction to the news was extremely positive, Bank of America analyst Jason Gerberry remains skeptical about ASX-05's potential commercial success.

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Why It's Important: Gerberry has previously modeled a relatively high 70% probability of success for ASX-05. Following the latest update, Gerberry is now projecting FDA approval for the drug in the third quarter.

"We ultimately expect AXS-05 to be approved without a restrictive REMS and assume that any PMR safety study requirements could pertain to special populations or abuse liability. However, we maintain our Underperform rating, as we are more bearish on the AXS-05 commercial launch," Gerberry said.

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In addition to the Underperform rating, Gerberry reiterated his $29 price target for Axsome, suggesting about 12% downside from Monday morning's levels.

If AXS-05 is ultimately approved, Gerberry said investors should monitor two important factors related to the labeling and commercial approval. First, he said the nature and extent of post-market commitments will be critical. Second, Gerberry said investors should note whether or not a Risk Evaluation and Mitigation Strategy (REMS) will be required.

Benzinga's Take: At this point, it's looking good for AXS-05 to be approved sometime this year, but Gerberry points out that doesn't make Axsome stock a sure thing at current levels. If commercial uptake of AXS-05 disappoints or if a competing candidate generates significantly better data in treating depression, Axsome shares could have significant downside.