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Last year was challenging for the stock market. Things have been better since 2023 started, but some equities have even performed pretty well throughout this ordeal. That’s the case with Exelixis (NASDAQ: EXEL) and Axsome Therapeutics (NASDAQ: AXSM), two mid-cap biotech stocks. There are good reasons these drugmakers crushed the market since early 2022 and could continue doing so moving forward. Let’s discuss why Exelixis and Axsome are solid picks for investors.

EXEL data by YCharts

1. Exelixis

Exelixis is an oncology specialist best known for its blockbuster cancer drug Cabometyx. This single medicine has been the drugmaker’s biggest growth driver since it was first approved in the U.S. in 2016. There is still a lot going on with Cabometyx on the clinical and legal fronts. For instance, Exelixis recently settled a patent litigation lawsuit with Teva Pharmaceuticals that will stop the generic drugmaker from launching Cabometyx’s generics before 2031.

Considering Cabometyx’s importance for Exelixis, the company needs to fend off cheaper generic competition for as long as possible. Meanwhile, the therapy is still acing it in some clinical trials. In August, Exelixis announced it was ending a phase 3 study for Cabometyx in treating advanced pancreatic neuroendocrine tumors and advanced extra-pancreatic neuroendocrine tumors early because an interim analysis of the data was so positive.

New indications for Cabometyx should allow Exelixis to continue growing its sales at a good clip. Second-quarter revenue came in at $469.8 million, 12% higher than the year-ago period. The company’s top line has been on an unstoppable northbound path since 2016.

EXEL Revenue (Quarterly) data by YCharts

But Exelixis can’t rely on Cabometyx forever. The company is casting a broader net to find its next crown jewel. Exelixis is counting on internally developed clinical compounds, and others acquired through collaboration agreements. From the former group, Exelixis’ most advanced non-Cabometyx candidate is called zanzalintinib. This therapy is undergoing phase 3 studies in treating metastatic colorectal cancer and advanced non-clear cell kidney cancer — two areas where there is an unmet need.

Further, Exelixis recently entered into an agreement with Insilico Medicine, a China-based biotech that uses artificial intelligence to help drug discovery. The agreement between these two companies concerns Insilico’s ISM3091, a potential oncology product Exelixis now has the right to develop. Exelixis paid $80 million up front and will have to pay more depending on certain milestones, as well as potential royalties.

Exelixis has struck several similarly structured deals over the past year. The company’s pipeline is getting larger and should yield one brand new approval within the next five years. Meanwhile, Cabometyx will likely continue doing what it has since its approval. Exelixis’ expertise in developing oncology products and its exciting pipeline make the stock worth serious consideration for biotech investors.

2. Axsome Therapeutics

Axsome Therapeutics has just two products on the market that generate little sales. In the second quarter, the company’s total revenue was just $46.7 million, although that was much better than the $8.8 million reported in the prior-year quarter. Still, Axsome Therapeutics’ lineup is young. It earned approval for Auvelity — a depression therapy — just about a year ago, while it acquired Sunosi, which treats narcolepsy (a sleep disorder), a year-and-a-half ago.

In the next few years, things will likely change substantially for Axsome. The company should markedly improve its portfolio of approved medicines. The most attractive part of Axsome’s business is its late-stage pipeline. Consider two examples: one potential label expansion and a hopeful new drug approval.

Starting with the former, Axsome is testing Auvelity in treating Alzheimer’s disease agitation (restless and aggressive symptoms) in a late-stage study. It expects results of this ongoing trial in the first half of next year. This represents a significant opportunity, as up to 70% of the more than six million Alzheimer’s disease patients in the U.S. experience symptoms of agitation.

Another of Axsome’s potential new therapies is AXS-07, an investigational treatment for migraines. This product failed to earn the green light last year due to manufacturing issues. There was no problem with safety or efficacy, so investors can feel confident of its being approved eventually.

Overall, Axsome Therapeutics expects that its late-stage pipeline and currently approved products could rack up peak annual sales of $11.5 billion (the company’s market is just $3.8 billion). That won’t happen overnight, but patient investors who buy the company’s shares today could reap the benefits of Axsome Therapeutics’ work down the road.

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Prosper Junior Bakiny has positions in Exelixis. The Motley Fool has positions in and recommends Axsome Therapeutics. The Motley Fool recommends Exelixis. The Motley Fool has a disclosure policy.

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