Pouality is not a guarantee of success in the stock market. Some well-known companies may be poor investment choices while lesser-known ones may boast much brighter prospects. That’s why it’s worth looking beyond the hype to dig deeper and find stocks that may not be household names but are worth investing in.
With that as a backdrop, consider two biotech stocks that don’t make much headlines but deserve special attention: Incyte (NASDAQ:INCY) and Axsome therapeutics (NASDAQ: AXSM).
Incyte is a drugmaker with a particular focus on the field of oncology. Its best-selling product is called Jakafi, which treats, among other things, certain types of bone marrow cancer. Jakafi generates the bulk of Incyte’s revenue.
In the first quarter, the company’s revenue increased 21% year over year to $733.2 million. Jakafi’s sales increased 17% year-over-year to $544.5 million, or about 74% of the company’s revenue.
But that still doesn’t tell the whole story. Novartis markets Jakafi (as Jakavi) outside the United States and Incyte collects royalties from the Swiss-based drugmaker. In the first quarter, Incyte accrued $70.9 million in royalty revenue from Novartis as part of Jakafi, representing an increase of 8% over the same period a year earlier.
Incyte’s heavy reliance on this single product is one of the reasons the company has lately fallen behind in the market. Fortunately, there are reasons for optimism.
First, Jakafi will not lose patent protection until 2027 at the earliest. This gives the drug enough time to continue to increase sales and contribute significantly to Incyte’s revenue.
Second, the company seeks to diversify its revenue base. Cancer drugs Pemazyre, Monjuvi and Opzelura – the topical formulation of Jakafi, which treats atopic dermatitis – all received regulatory approval in 2020 or later.
Patent cliffs are inevitable for drugmakers. But this is not necessarily a death sentence. By the time Incyte loses patent protection for its top-selling drug, it will have significantly reduced its exposure to it thanks to these new products and others that will almost certainly join its lineup in the years to come.
The company is currently conducting 10 pivotal clinical trials and many other preliminary studies. Even a handful of approvals, which seems more than likely, will help the company prepare for life after Jakafi. That’s why it’s worth sticking with biotech stocks.
2. Axsome Therapeutics
Axsome Therapeutics has been facing regulatory headwinds for about nine months. The review process for the company’s lead pipeline candidate — AXS-05, a potential therapy for major depressive disorder — has been delayed due to flaws regulators found in Axsome’s application. Although AXS-05 could have gotten the green light as early as August last year, the US Food and Drug Administration (FDA) has yet to approve or deny the drug. More recently, the agency refused to approve AXS-07 as a potential therapy for migraines.
Despite these problems, it is worth considering buying shares of Axsome Therapeutics. First, the FDA has not raised any concerns regarding the safety or effectiveness of AXS-05 and AXS-07; nor does it appear that biotech will need to conduct additional clinical trials for either candidate.
While regulatory hurdles are never a good thing for a drugmaker, things could be much worse for Axsome Therapeutics right now. The company still has an excellent chance of getting approval for AXS-05 and AXS-07. The potential patient population for these drugs in these two indications is 56 million people, according to Axsome estimates.
Second, Axsome Therapeutics recently acquired the narcolepsy treatment Sunosi from Jazz Pharmaceutical. The transaction cost Axsome $53 million upfront and future royalty payments to Jazz Pharmaceuticals. Axsome expects Sunosi to generate peak sales of more than $1 billion in its current and potential future indications (it racked up $57.9 million in revenue last year).
Finally, Axsome Therapeutics has other candidates, including potential narcolepsy treatment AXS-12 as well as AXS-14, an experimental treatment for fibromyalgia. Additionally, he is looking to develop AXS-05 in the treatment of Alzheimer’s disease agitation.
With a product on the market that boasts blockbuster potential and several promising pipeline candidates, Axsome Therapeutics looks like a buy, especially given how difficult its stock has been recently.
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