What happened

Shares of Axsome Therapeutics (NASDAQ:AXSM) lost 9.75% of their value through Thursday's closing bell this week, according to data from S&P Global Market Intelligence. The good news -- if you can call it that -- is that the biotech's step backwards this week appears to be the result of marketwide headwinds, and not a company-specific event. 

After all, Axsome hasn't released a material update since its third-quarter earnings report roughly three weeks ago. And the biotech equity market experienced a broad-based sell-off this week, thanks to fears over the omicron variant, travel restrictions, and inflationary pressures. 

A white backward-curving arrow painted on a red brick wall.

Image source: Getty Images.

So what

This nearly double-digit drop in Axsome's share price could turn out to be a gift for investors. The biotech's shares are currently well off of their 52-week highs due to a regulatory delay for its experimental major depressive disorder drug AXS-05.

What's important to understand is that this regulatory hiccup reportedly centers around two issues with the company's analytical methods in the Chemistry, Manufacturing, and Controls section of the New Drug Application submitted to the Food and Drug Administration (FDA).

As the FDA hasn't flatly rejected the NDA over these minor issues and Axsome seems confident that they can be addressed, the biotech's stock seems primed to land a major catalyst before year's end (i.e., an approval for AXS-05). Keeping with this theme, one of the biotech's directors recently bought shares, a potential sign that an approval may indeed be on the way.

Now what

Is Axsome stock a buy after this week's dip? While it is a risky equity, aggressive investors might be wise to pull the trigger on this stock soon. Axsome's shares, after all, could quite possibly double or even triple in value following a green light from the FDA for AXS-05. That said, investors should never underestimate the enormous risk associated with regulatory reviews for new drugs. Investors, therefore, may want to keep any position on the small side until this risk factor is favorably resolved. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.