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ALLISON GATLIN

Relmada Tanks After 'Paradoxical Results' Undermine Depression Drug; Axsome Surges

Relmada Therapeutics stock crashed Thursday after its depression treatment failed a final-phase test, helping bolster rival Axsome Therapeutics. In response, AXSM stock surged.

On today's stock market, Relmada stock plummeted 79.6% to 6.47, dropping more than $25 a share. Meanwhile, AXSM stock jumped 11.5% to 46.21.

Relmada tested its drug, known as REL-1017, in patients with major depressive disorder. But the drug failed to improve depression symptoms compared with a placebo after 28 days of treatment.

Patients who received REL-1017 showed a 14.8-point improvement on a 60-point scale. In comparison, placebo recipients improved by 13.9 points. Relmada noted "paradoxical results." At some study sites, the placebo "dramatically outperformed REL-1017."

"While these Reliance III (study) results are disappointing for patients, the need for new, safe and effective treatments for major depressive disorder continues to exist," said study investigator Maurizio Fava. Fava is a psychiatrist with Massachusetts General Hospital.

How Relmada's Failure Boosted AXSM Stock

The news bolstered AXSM stock after Axsome gained Food and Drug Administration approval for a depression treatment, Auvelity, in August. Auvelity acts on the NMDA receptor, similar to REL-1017. The receptor has ties to depression, according to the companies.

But Relmada isn't throwing in the towel. Fava noted studies called Reliance I and Reliance II are still underway, examining the drug as a potential adjunctive treatment for depression. Adjunctive therapies are added onto primary drugs to help improve their effect.

Mizuho Securities analyst Uy Ear says investors are now likely bearish on those studies.

"Investors will likely lose confidence in the adjunctive Reliance I and II studies," he said in a report to clients. He has a buy rating and 50 price target on Relmada stock.

SVB Securities analyst Marc Goodman said the upcoming studies won't enroll previously untreated patients. This should help limit any unexpected placebo impact.

Significant Placebo Effect At Some Sites

Overall, Relmada tested REL-1017 in 232 patients for 28 days. The experimental depression treatment continued to appear tolerable and safe. Further, patients didn't experience opioidlike effects, withdrawal effects or altered states of consciousness.

In response, Relmada stock tanked well below its key moving lines, according to MarketSmith.com. AXSM stock has closed below its 50-day moving average since mid-September.

Relmada is now investigating the sites where the placebo significantly outperformed the test medicine. Excluding those sites, REL-1017 showed a "meaningful difference" over the placebo, the company said.

Goodman, the SVB analyst, noted the drug acted as expected, while the placebo impact was unusual. He also noted roughly half of late-stage major depressive disorder studies fail.

"This was a (study) problem and not a drug activity problem," he said in a report. "Major depressive disorder is a challenging space for development, so this should not be unexpected."

Still, investors hammered highly rated Relmada stock. Shares have a strong Relative Strength Rating of 98 out of a best-possible 99, according to IBD Digital. AXSM stock has a lower RS Rating of 90. This puts shares in the top 2% and 10%, respectively, in terms of 12-month performance.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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