1 Under-the-Radar Biotech Stock to Buy and Hold

Companies with exciting prospects aren't always of the popular, headline-grabbing variety. Some little-known stocks are worth serious consideration, too.

Take Axsome Therapeutics (NASDAQ: AXSM), a mid-cap biotech company not involved in the rapidly growing area of GLP-1 weight loss drugs. Though it's doing so quietly, this drugmaker has performed more or less in line with the broader market this year, and there are good reasons to believe it could produce strong returns over the long run. Let's dig in.

Revenue is ramping up

Axsome Therapeutics focuses on developing diseases that affect the central nervous system. The company currently has two products on the market. One is Auvelity, a therapy for depression that earned approval in the U.S. in 2022. The other is Sunosi, which treats excessive sleepiness linked to narcolepsy. Axsome acquired Sunosi from Jazz Pharmaceuticals, also in 2022.

Though Axsome's top line isn't too impressive yet, it's growing rapidly. In the second quarter, revenue increased by 87% year over year to $87.2 million. Auvelity's sales of $65 million soared 135% year over year, while Sunosi's $22.1 million in sales were up 16% compared to the year-ago period.

True, Axsome remains unprofitable. Its net loss per share of $1.67 was worse than the loss per share of $1.54 reported in the prior-year quarter. Why is the company's bottom line getting worse? Likely because of commercialization efforts related to its two medicines, coupled with the late-stage clinical trials it's running.

Phase 3 studies can cost a lot of money. But Axsome's pipeline is one of the best reasons to invest in the stock.

An exciting late-stage pipeline

Axsome Therapeutics has a market cap of just $4.3 billion. It's not unusual for a biotech of this size, even one with a couple of commercialized products, to be unprofitable. The company looks attractive, though, because it's in the process of transforming its lineup. Some of its products could be approved or receive important label expansions within three to five years.

First, there's AXS-07, a potential medicine for migraines. Axsome had already submitted an application to the U.S. Food and Drug Administration (FDA) for AXS-07, but the agency declined to give it the nod because of manufacturing issues. That was in 2022. The company recently resubmitted its application for this therapy, and an approval almost seems guaranteed this time considering there were no issues with safety or efficacy.

Next, Auvelity is being studied in a phase 3 trial in treating agitation (aggressive and restless symptoms) associated with Alzheimer's disease, with the data expected before the end of the year. Auvelity has already completed one late-stage clinical trial along those lines. If all goes well, Axsome could go after this indication soon.

Meanwhile, Sunosi is also undergoing a phase 3 study for attention-deficit/hyperactivity disorder (ADHD), with top-line results expected by year-end.

Axsome started another late-stage study for Sunosi in shift work disorder (a sleeping disorder that can affect people who work at night). AXS-12, a potential treatment for narcolepsy, is also in phase 3 studies.

Lastly, Axsome reported positive results for AXS-14 in treating fibromyalgia; it expects to complete a regulatory submission to the FDA by the end of the third quarter.

So, Axsome Therapeutics' late-stage pipeline could yield three brand-new products and three label expansions. With all that going on, it's not surprising that its net losses are worsening, but it's for a good cause. As Axsome Therapeutics' portfolio of approved products strengthens, its revenue will keep moving in the right direction, eventually pulling the bottom line along.

The multiple clinical and regulatory catalysts ahead could help jolt the stock price. In the long run, Axsome is poised to provide strong returns to loyal and patient investors.

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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.