Reported Company:

Axsome Therapeutics

Researcher Company:

Culper Research

Price at Report Date:

Close Price Day after report date:

97.83

% Decline Day after Report Date:

% Decline vs Yesterdays Date:

-0.4702

Summary

Culper Research has released a short report on Axsome Therapeutics, Inc. (NASDAQ: AXSM), accusing the company of inflating its revenue and prescription counts for its flagship drug, Auvelity. The report claims that Axsome has been involved in undisclosed consignment deals with questionable mail-order pharmacies, allowing the company to overstate its financial performance

Who is Axsome Therapeutics?

Axsome Therapeutics is a biopharmaceutical company focused on developing novel therapies for central nervous system (CNS) disorders. The company’s flagship product, Auvelity, is marketed for the treatment of major depressive disorder (MDD). Founded in 2012 by Dr. Herriot Tabuteau, Axsome has positioned itself as an innovator in the CNS space, although its approach has raised questions about the ethics and sustainability of its business practices.

Key Points from Report

Auvelity: “A Revenue Mirage?

• Inflated Revenues: Since its launch in October 2022, Axsome reported $188.6 million in Auvelity revenues, yet its receivables have ballooned to $101.4 million, indicating that 43% of reported revenues haven’t been paid.
• Undisclosed Consignment Deals: Axsome allegedly engaged in undisclosed consignment deals with mail-order pharmacies that inflate script counts and revenues without reflecting actual cash flows.
• Revenue Recognition Issues: The company faces significant audit concerns related to its revenue recognition practices, which may lead to restatements and write-downs of receivables.

Questionable Pharmacy Partnerships

• Shady Pharmacy Network: Axsome has been accused of steering prescriptions to a network of mail-order pharmacies that bypass prior authorization (PA) processes, raising concerns about anti-kickback violations and potential insurance fraud.
• Direct Supply from Axsome: Pharmacies like Columbia Pharmacy and MyScripts Pharmacy reportedly receive Auvelity directly from Axsome and fill prescriptions without proper PA, often using Axsome’s copay cards to cover costs.

Red Flags in Leadership and Operations

• Insider Sales: Axsome insiders, including top executives, have started selling shares for the first time since the company went public, raising concerns about their confidence in the company’s future.
• Auditor Switch: In mid-2023, Axsome dismissed its longtime auditor, Ernst & Young, and appointed Deloitte & Touche. The change followed two consecutive years of critical audit matters related to revenue recognition.

Activ8 Finance Analysis

Culper Research’s report raises serious concerns about Axsome Therapeutics’ business practices and financial reporting. The allegations suggest that the company’s revenue growth may be artificially inflated through undisclosed consignment deals and partnerships with questionable pharmacies. Investors should exercise caution and closely monitor any developments, particularly around potential legal and regulatory challenges Axsome may face. While the company’s strategy to launch Auvelity has garnered attention, the long-term viability of this approach is questionable given the significant ethical and operational red flags highlighted in the report.