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Artificial intelligence-focused companies are garnering significant attention on Wall Street. That makes sense. Some of the leaders in this industry are posting excellent financial results and could make their shareholders much richer in the long run. However, there are also exciting investment opportunities in other industries, such as biotech. Two biotech stocks I think look fairly attractive right now -- despite not being particularly popular, at least compared to top AI players -- are Axsome Therapeutics (NASDAQ:AXSM) and Exelixis (NASDAQ:EXEL). Here's why.
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Axsome Therapeutics focuses on developing medicines for central nervous system conditions. The company's most important drug is Auvelity, which is indicated to treat major depressive disorder and Alzheimer's disease agitation. In the second quarter, Auvelity's sales grew by 51% year over year to $180.3 million. Axsome's total revenue was $218.4 million, up 46% compared to the year-ago period. So, Auvelity alone accounted for about 82.6% of the company's revenue. And the medicine's sales should get a significant boost in the next few quarters. The AD agitation indication is still new -- Auvelity won that approval in April.
This represents a large market with limited treatment options. Further, Axsome Therapeutics could target other indications with Auvelity. The biotech company recently initiated a Phase 3 study of Auvelity for smoking cessation. That's another potential indication that could materially improve Auvelity's sales. This medicine might be the most important in Axsome Therapeutics' portfolio, but the company has several other promising assets worth highlighting.
For instance, Axsome markets Sunosi, a medicine for daytime sleepiness associated with narcolepsy. Sunosi contributed only $35.8 million in revenue during the second quarter, up 20% year over year. But this drug is undergoing several Phase 3 studies across various indications, including ADHD.
Provided Sunosi earns approval in some of the additional markets it is targeting, it may meaningfully improve its sales. Axsome Therapeutics has several other candidates in Phase 2 or Phase 3 studies. Meanwhile, the company has submitted a regulatory application in the U.S. for AXS-12 as a potential treatment for cataplexy in narcolepsy patients. It could earn approval by May of 2027.
Axsome Therapeutics' deep late-stage pipeline could give it a much-improved approved portfolio within a few years, allowing the company to continue posting consistent revenue growth. The biotech has outperformed broader equities in the past five years, and it might not be done yet.
Exelixis is a cancer-focused biotech. The company markets a drug called Cabometyx, which is approved for some forms of liver and kidney cancer. Cabometyx has been Exelixis' main growth driver for years. The company's revenue in the second quarter was $628.7 million, up almost 11% year over year.
Will reliance on this single product be a significant problem for Exelixis in the future? Probably not. Here are two reasons why. First, Exelixis has done a good job of defending its U.S. patent exclusivity.
Thanks to recent court victories, the company shouldn't see generics of its crown jewel in the U.S. market until at least 2030 -- and perhaps even later if it can win another patent litigation trial that will start in November.
That gives Exelixis ample time to develop and market newer medicines to reduce its reliance on Cabometyx. That brings us to our second point: Exelixis has made meaningful clinical progress recently.
The company's zanzalintinib posted somewhat mixed but encouraging results in a Phase 3 clinical trial targeting certain patients with metastatic colorectal cancer when administered with Roche's (OTC:RHHBY) Tecentriq. Colorectal cancer is the second-leading cause of cancer death worldwide, despite being highly treatable in the early stages.
So, there is a need for newer, better treatment options for metastatic CRC, and zanzalintinib could be one such option. The U.S. Food and Drug Administration recently extended the review period for zanzalintinib's application.
The agency should now make a decision by March 3, 2027 (it was previously supposed to make one by Dec. 3, 2026). But there is a good chance that zanzalintinib will still earn approval.
And it could target many other indications in the coming years. Further, Exelixis boasts several other pipeline candidates that should also make progress. Exelixis' prospects remain bright despite the recent regulatory setback. It's worth holding onto the healthcare company's shares for the long haul.
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Prosper Junior Bakiny has positions in Exelixis. The Motley Fool has positions in and recommends Axsome Therapeutics and Exelixis. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.
2 Under-the-Radar Stocks to Buy and Hold was originally published by The Motley Fool
