2 Soaring Stocks Wth More Upside Potential

Although fundamental investing wisdom tells us to "buy low," it may still be worthwhile to purchase shares of top companies following significant runs. Any point can be considered low -- even after massive gains -- provided there is plenty of upside left. That brings us to Summit Therapeutics (NASDAQ: SMMT) and Axsome Therapeutics (NASDAQ: AXSM), two biotechs that have been on fire over the past few years. Still, it's not too late to invest in these drugmakers. Here's the rundown.

1. Summit Therapeutics

Summit Therapeutics' shares are up more than 1,000% over the past three years. The company owes that performance to its progress with ivonescimab, an investigational cancer medicine it is developing. Summit Therapeutics licensed ivonescimab from Akeso Biopharma. The medicine has produced positive results in several phase 2 and phase 3 studies in China, where it is already approved. That's why Summit Therapeutics, which owns the rights to ivonescimab in most regions outside of China, has a market cap of $13.6 billion despite not generating any revenue.

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Large-cap clinical-stage biotech companies are rare. However, Summit's ivonescimab has produced Phase 3 results on par, indeed arguably better, than Keytruda in patients with non-small cell lung cancer (NSCLC) and a PD-L1 protein overexpression. Keytruda is the world's top-selling medicine; NSCLC is one of its most important markets. It's not hard to see the potential for ivonescimab here.

Further, the medicine is being tested for many other types of cancer, including colorectal, head and neck, breast, ovarian, and more. Ivonescimab seems to have the makings of a pipeline in a drug. Smaller companies have been successful thanks to a compound of this caliber. That's the case with Exelixis, an oncology specialist whose Cabometyx, which treats kidney and liver cancer, has been grinding out new indications and growing its sales at a good clip for years. In my view, that's what awaits Summit Therapeutics' ivonescimab.

The medicine should earn its first approval in the U.S. within three years and go on to get many more. Summit Therapeutics could ride this wave for the next decade. True, it could encounter clinical setbacks, just like it recently did, which is why its shares have been on the decline in the past few weeks. However, given the breadth of the indications it is targeting and the data it has already generated in China, this risk appears manageable. That's why there might be plenty of upside for this rising biotech star.

2. Axsome Therapeutics

Axsome Therapeutics has achieved significant clinical and regulatory milestones over the past three years, resulting in stock market gains of nearly 350%. The company's current lineup features Auvelity, a medicine for major depressive disorder, which earned approval in 2022. It also acquired Sunosi, a therapy for narcolepsy, from Jazz Pharmaceuticals in 2022. These two medicines, especially the first, are helping drive significant top-line growth.

In the first quarter, Axsome Therapeutics' revenue increased by 62% year over year to $121.5 million. The biotech remains unprofitable, but Axsome Therapeutics still has plenty of catalysts ahead that could jolt its stock price and, eventually, lead to even better financial results.

In the next three years, the company could transform its lineup thanks to brand-new approvals and label expansions. In February, it earned approval for Symbravo, a migraine treatment. It has produced positive clinical trial results for AXS-05 (the generic name for Auvelity) in Alzheimer's disease, AXS-14 in fibromyalgia, and AXS-12 in narcolepsy. Axsome Therapeutics should soon seek approval for these medicines in these indications if it hasn't already.

Elsewhere, the company is conducting several other clinical studies that could also eventually lead to positive data readouts and regulatory submissions. Axsome Therapeutics also runs the risk of clinical setbacks, but the company's track record in recent years and its deep late-stage pipeline (for a midcap biotech) suggest it should at least hit the mark on several of its candidates. And as it does, the stock should continue moving in the right direction.

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