Shares of Axsome Therapeutics (AXSM -1.44%) were sinking 6.8% lower as of 11:19 a.m. ET on Tuesday. The decline came after Culper Research announced a short position in the biotech stock before the market open.
Culper alleged that Axsome's commercialization of depression drug Auvelity "has been aided by undisclosed consignment deals with dodgy mail-order pharmacies that subvert prior authorizations." It also claimed that these deals are "inflating script counts and reported revenues."
How concerning are the allegations about Axsome?
Culper Research said that its report and corresponding short position in Axsome was based on interviews with former company sales representatives, pharmacies, prescribing physicians, and patients. The short-seller also stated that it obtained a prescription for Auvelity through Axsome's telehealth partner without providing any documentation of failure with other depression drugs -- an important requirement for the insurer it used.
A key concern about Culper's allegations is that some part of Axsome's recorded revenue might never be received. If pharmacies are filling prescriptions for Auvelity without obtaining prior authorizations, insurers won't pay for the drug. Culper noted that Axsome's receivables have jumped more than $81 million to $101.4 million since Auvelity was launched in October 2022.
If Culper's allegations prove to be correct, Axsome could have to restate its revenue at some point and write down its accounts receivables. This would almost certainly cause the stock to fall significantly.
What should investors do?
Axsome Therapeutics had not publicly responded to Culper Research's allegations at the time of this writing. Investors who own the stock will probably want to wait to hear the company's side of the story before making any decisions. Anyone who is considering buying Axsome shares will also likely be better off staying on the sidelines until there's more clarity.
