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These 3 Small-Cap Healthcare Stocks Reported Big Updates This Month

Maxx Chatsko, The Motley Fool

Investing in pre-clinical pharmaceutical companies requires lots of patience and the ability to tolerate a high degree of risk. Clinical trials routinely fail. Cash is almost always an issue. Even for companies fortunate enough to earn marketing approval from regional regulators, delivering a smooth market launch and commercial ramp-up is far from guaranteed.

But investing in winners can provide a significant boost to your portfolio, even if the holdings are only a small part of the overall pie (as they should be). While it's too soon to say this trio of promising companies are long-term winners, they each reported important updates this month. Here's the latest from Axsome Therapeutics (NASDAQ: AXSM), Flexion Therapeutics (NASDAQ: FLXN), and UroGen Pharma (NASDAQ: URGN).

A stethoscope sitting on a laptop.

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1. Axsome Therapeutics 

Axsome Therapeutics announced in March that the U.S. Food and Drug Administration awarded AXS-05 the coveted Breakthrough Therapy Designation in major depressive disorder (MDD). The designation provides expedited regulatory review and market launch opportunities for experimental treatments that demonstrate significant potential to improve the current standard of care -- and the business didn't waste any time putting the label to good use.

After meeting with the FDA in early May, Axsome Therapeutics announced a previously completed phase 2 trial will be considered by regulators as if it were a phase 3 trial when a new drug application (NDA) is submitted. That saves the time and cost of running an additional trial of the same design and provides two unique paths to market.

The first path allows an NDA for AXS-05 in MDD to be submitted along with data from an ongoing phase 3 trial testing the drug candidate in treatment-resistant depression. The second path allows the same NDA to be filed with data collected from a separate, placebo-controlled phase 3 trial in MDD.

Despite being granted flexibility from regulators, Axsome Therapeutics will play it safe and conduct both phase 3 clinical trials. (It would have previously needed three separate trials.) Both studies are expected to deliver top-line results before the end of 2019, which means the company could be on the cusp of earning marketing approval for treating two severe types of depression with an oral medication. A third approval decision could follow.

The company has also accelerated the development of its second-most-advanced drug candidate, AXS-07, in migraine. Top-line results from a phase 3 trial are now expected before the end of 2019. If observations from earlier studies hold up, Axsome Therapeutics could be sitting on multiple lucrative market opportunities.

A doctor examining a patient's knee.

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2. Flexion Therapeutics

After struggling to ramp up sales of its first commercial drug product in 2018, Flexion Therapeutics started 2019 on a much more promising trajectory. Zilretta, an injection for osteoarthritis knee pain with extended-release benefits, grabbed $10.6 million in net product sales in the first quarter -- lower than Wall Street's projection -- management reported preliminary revenue of $5.1 million for April -- on pace to handily top Q2 expectations.

Flexion maintained full-year product revenue guidance of $65 million to $80 million. Achieving that level of sales should get the business close to generating operating profits, which would significantly de-risk development activities in 2020 and beyond.

What followed was more good news adding confidence in the drug's ability to accelerate sales growth. The company reported new data demonstrating that individuals taking Zilretta turned to rescue medication (other pain-management drugs) significantly less in a 24-week period compared to those taking placebo or a non-extended release formulation of Zilretta. That suggests the drug can improve quality of life and help some patients avoid using opioids, but will it be enough to spur prescription growth?

An outpatient surgery center.

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3. UroGen Pharma

UroGen Pharma shared a slew of updates starting with an April announcement about an early-stage agreement with Janssen (Johnson & Johnson's pharmaceutical business) to explore drug development for a therapeutic area of "mutual interest," which is most likely urology -- and it could prove crucial to long-term development plans.

The Israeli-based UroGen Pharma is developing drugs based on its reverse thermal hydrogel technology called RTGel. The material is in a liquid-like state at room temperature and becomes a viscous gel when heated up by the body. That feature allows cancer drugs to be formulated into the gel, administered via catheter, and deliver therapeutic benefit over an extended time. It could change urologic cancers from deadly, recurrent diseases which are difficult to reach and can require kidney removal, into manageable diseases treated with an outpatient procedure.

Its lead drug candidate, UGN-101, impressed in a phase 3 trial for low-grade upper tract urothelial cancer (LG UTUC). A complete response was observed in 59% of patients, and 89% of them remained disease-free at six months. Considering there are currently no approved drugs for LG UTUC, and UGN-101 swept all available FDA designations -- orphan drug, fast track, and breakthrough therapy -- it's widely expected to earn marketing approval in early 2020.

The company also has drugs in development for treating low-grade and high-grade non-muscle invasive bladder cancers for which there are no approved drugs. UroGen Pharma is also keen to open RTGel to outside companies.

In addition to Janssen, Allergan is investigating an RTGel-formulation of Botox as a treatment for overactive bladder. Simply put, this business remains well-positioned to capture multiple untapped market opportunities and deliver tremendous value to patients.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.