Zealand Pharma & Axsome Therapeutics
Two different biotech companies both with compelling bull cases
Hello everyone, as I’m sure many subscribers have noticed I am a fan of the Biotech industry. Why you might ask? Well the Biotech industry is not only fun to write and research, it also is an industry that has some of the best R:R out there. IF you do the leg work and due diligence.
Today I will be covering two different Biotech stocks, first I will talk about Axsome Therapeutics (AXSM 0.00%↑) an extremely promising company in working on treatments for Central Nervous System (CNS) disorders. Then I will cross the Atlantic for a visit to Zealand Pharma in Denmark. Zealand Pharma (ZEAL 0.00%↑) is a biotech company which designs and develops peptide-based medicines that focus on metabolic diseases like diabetes and obesity. ZEAL 0.00%↑ currently has a GLP-1 treatment in their pipeline, more on that later.
Axsome Therapeutics is the price right?
Axsome Therapeutics or AXSM 0.00%↑ as I will refer to the company going forward. AXSM 0.00%↑ is a Biotech company which focuses on the development of novel treatments for Central Nervous System (CNS) disorders. The company has already successfully brought two treatments to the market in the United States. AXSM 0.00%↑’s two treatments are Auvelity (comprising dextromethorphan-bupropion), an N-methyl-D-aspartate receptor antagonist, tailored for addressing major depressive disorder; alongside Sunosi (solriamfetol), a treatment for mitigating excessive daytime sleepiness in individuals grappling with narcolepsy or obstructive sleep apnea.
Now onto the current pipeline of AXSM 0.00%↑. Figure 1 shows the strength of the companies pipeline. The next data points we will be getting from AXSM 0.00%↑ is the phase 3 data points for AXS-12. (Figure 1) This phase 3 data is expected sometime in Q1 of 2024. (Figure 2)
In AXSM 0.00%↑’s most recent quarterly report we received more data timelines for some more of the companies pipeline. (Figure 3) I’d also like to highlight the strong sells for Auvelity which hasn’t even been on the market for a whole year yet. (Figure 3)
As Figure 4 below shows this has helped AXSM 0.00%↑ reach a new high for yearly revenue. The question in my mind is can AXSM 0.00%↑build off this promising start and keep growing. I believe they can.
As for the technical outlook I have for AXSM 0.00%↑, I expect a pullback with a re-test of the support around $69. (Figure 5) With some more selling pressure into the end of the year likely driving the price towards the strong support between $67-$65. (Figure 5) If that support is lost I would not be surprised to see the price retest the high $50 range, along the way I will be adding common shares of AXSM 0.00%↑ to the Ora portfolio. (Figure 5) More on the Ora portfolio positions at the end of this month with or monthly review. Assuming a successful AXS-12 data read out I have a price target of $150 by the end of 2024.
The final thing I’d like to add about AXSM 0.00%↑ is that the company could be a great acquisitions target for a big pharma company looking to expand their CNS treatment options. Figure 6 below shows a list of biotech companies that according to the research conducted by Wells Fargo Securities, the sixth row highlights AXSM 0.00%↑. Their summary of strategic rationale is the following
“AXSM 0.00%↑’s commercial portfolio and late-stage pipeline in MDD, sleep, and migraine could be complementary to ABBV 0.00%↑ and PFE 0.00%↑’s CNS businesses and could help MRK 0.00%↑ expand in neuro. Narcolepsy and neuropsych diverge from AMGN 0.00%↑ and GILD 0.00%↑’s current business.”
Is it too late to join the GLP-1 party? An analysis of Zealand Pharma.
ZEAL is a Danish biotech company with a robust pipeline, a strong GLP-1 candidate with a data read out in H1 of 2024. If you have been following market tends this past year GLP-1 drugs have been all the rage in biotech. The two leaders in the GLP-1 field are LLY 0.00%↑ & NVO 0.00%↑ both of which hit new all time highs this year. (Figure 7)
The two figures below show ZEAL 0.00%↑’s drug pipeline. While LLY 0.00%↑ & NVO 0.00%↑ certainly will enjoy the first mover advantage however I believe that they will have to work extremely to keep this market a duopoly.
Why do I think this? Well according to Bloomberg Intelligence Obesity treatments could become an $80 billion dollar market by the year 2030.
“Our scenario analysis sees Novo and Lilly's franchises dominating branded obesity drugs, with shares of 43% and 49%, respectively, and each could carry mid-teen sales upside vs. 2030 consensus. Sales could reach $80 billion (risk-adjusted) in 2030 from $2.5 billion in 2022, with 70% from the US and more than 80% from injectables. Drugs by Amgen, Altimmune, Boehringer- Zealand and Innovent, make up the remainder.”- Bloomberg Intelligence
While I believe Bloomberg is overestimating how much market share LLY 0.00%↑ & NVO 0.00%↑ will be able to keep in the GLP-1 space. With a market that large, competition will likely come. Even if we do use Bloomberg’s rather conservative estimate, Zealand’s survodutide treatment could bring in $2 billion dollars in sales. (Figure 10)
Zealand's survodutide exhibited a placebo-adjusted weight loss of up to 16.7% in a Phase 2 obesity trial, as disclosed during ADA 2023. The trajectory of the curves implies potential additional benefits extending beyond the reported 46 weeks. This outcome, derived from the "actual treatment" analysis, surpasses Novo Nordisk's Wegovy and aligns closely with Eli Lilly's tirzepatide. Looking ahead, the landscape may witness heightened efficacy benchmarks from Lilly and Novo before survodutide reaches the market, a prospect unlikely before 2027. This underscores the potential necessity for competitive pricing unless distinct advantages are demonstrated across other metrics.
Another important note is that Zealand Pharma listed on the Nasdaq Copenhagen exchange under the ticker symbol ZEAL 0.00%↑. While that is where the majority of the shares are trade, Zealand Pharma is also listed on the US OTC market with the ticker symbol $ZLDPF. To illustrate the difference in liquidity between the two markets on Nasdaq Copenhagen Zealand Pharma’s 30 day average volume is around 1.2 million shares traded with the US OTC listing 30 day average volume is less than 5,000 shares traded.
My Views
First off thank you if you made it this far into the article! To quickly summarize I am long common shares of both AXSM 0.00%↑ and ZEAL 0.00%↑ in the Ora portfolio (you can read about the Ora portfolio by clicking the post below and I will also do a review of the trades at the end of this month) both are small starting positions. In the short term I also like AXSM 0.00%↑ more, due to the fact they have several near term catalysts along with the possibility of an acquisition. Both companies are very promising and I am sure I will cover them both in future.
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DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.