2023-08-15 09:51:56 ET
Summary
- BioXcel Therapeutics faces marketability concerns, FDA issues, and credibility problems from inspections.
- Financial challenges include significant losses, debt, and a short cash runway.
- Given unresolved issues and weak financials, a "Strong Sell" recommendation for BioXcel stock is maintained.
Introduction
BioXcel Therapeutics ( BTAI ), based in Connecticut, develops treatments for CNS and cancer disorders, including FDA-approved Igalmi (marketed sublingual dexmedetomidine) and BXCL701 for prostate cancer.
In my prior analysis of BioXcel Therapeutics, I expressed concerns about its marketability due to regulatory uncertainties and credibility issues arising from FDA inspections. These issues threaten both BXCL501's (clinical sublingual dexmedetomidine) future and the company's industry reputation. Even though BioXcel is trying to manage this crisis with investigations and audits, I remained skeptical about a full restoration of investor confidence. Hence, I changed my recommendation to "Strong Sell". Despite the stock value aligning with cash value, ongoing losses are anticipated, especially with potential FDA demands for more trials. I advised caution for investors.
BTAI Rating History (Seeking Alpha)
Recent developments: On Monday, BioXcel Therapeutics' shares dropped roughly 40% following their Q2 2023 announcement of workforce reductions due to a business operations shift.
The following article reviews BioXcel Therapeutics' financial and strategic challenges, questioning its marketability, FDA issues, and financial stability, leading to a "Strong Sell" recommendation. Risks include unexpected positive data and strategic partnerships.
Q2 2023 Earnings
Looking at BioXcel's most recent earnings report , net revenue for Igalmi was approximately $0.457M for the quarter. R&D expenses stood at $27M for the second quarter of 2023, up from $17.9M in the same period in 2022, with the rise mainly due to clinical trial expenses for SERENITY III and TRANQUILITY II . SG&A expenses reached $25.9M, up from $18.4M in 2022, with the increase largely due to personnel costs to support Igalmi commercialization. The company posted a net loss of $53.5M, which includes $6.1M in non-cash stock-based compensation, up from a $37.7M loss in 2022. As of June 30, 2023, cash on hand was $127.5M, projected to last till mid-2024. The company is also reevaluating its strategic financing agreements, which if modified, could extend its financial runway.
Liquidity & Cash Runway
Turning to BioXcel's balance sheet , the company held cash and cash equivalents of $127.5M as of June 30, 2023. Over the last six months, BioXcel reported an operating loss of $103.6M, which equates to an estimated annual cash burn of approximately $207.2M when extrapolated over a 12-month period. Dividing their total cash position by this annual burn rate provides an estimated cash runway of roughly 0.6 years, suggesting the company has just over half a year's worth of funds available before requiring additional financing, assuming no changes in revenue or expenses. However, as noted earlier, investors can anticipate large reductions in operating costs, extending the cash runway. Further review of the balance sheet reveals a relatively substantial long-term debt of $96.8M, which implies a significant obligation. Given the company's substantial annual cash burn, current cash reserves, and existing debt obligations, there may be a potential need for additional financing in the near future to sustain operations.
Valuation, Growth, & Momentum
According to Seeking Alpha data prior to Monday's developments: BioXcel's capital structure reveals a significant cash position relative to its market capitalization, while its debt is also substantial when compared to the market cap. The enterprise value stands at $146.35M. In terms of valuation, several metrics, including P/E, are not meaningful, though the company's EV/Sales is notably high. BioXcel's growth outlook is notable; while earnings estimates indicate a YoY decline in 2023, a robust rebound is projected for subsequent years, with sales forecasted to grow exponentially. However, the revenue projections may be dated and have not yet taken into account recent clinical and regulatory developments. Momentum paints a bleak picture, with the stock considerably underperforming the S&P 500 over various intervals, most notably dropping more than 70% in the past three months.
A quick reminder: Investing in microcaps, like BioXcel, carries inherent risks. These stocks can be highly volatile due to lower liquidity and sparse analyst coverage. Moreover, limited financial resources, reliance on narrow product lines, and susceptibility to market fluctuations can introduce additional uncertainties. Investors should exercise caution, conduct thorough due diligence, and consider the potential for higher risk alongside the prospect of higher returns.
BioXcel Refocuses on BXCL501 At-Home Use Amid Uncertainties
BioXcel's recent strategic shift seems to focus more on the at-home market for its drug BXCL501, however, there are areas of concern that might cast doubt on the overall strategy. The TRANQUILITY II trial has reported positive results for treating agitation in Alzheimer's patients in ALFs and residential settings, but the move towards an at-home approach is questionable. Notably, an independent third party is auditing a clinical site of TRANQUILITY II due to investigator misconduct. Additionally, BioXcel has yet to conduct a trial specifically evaluating at-home use of BXCL501 for Alzheimer's patients, creating uncertainty about its efficacy in such settings. The SERENITY program, meant to test BXCL501 for at-home use for bipolar disorders and schizophrenia, also raised eyebrows when its Part 1 did not meet the primary endpoint. Furthermore, I have doubts about the real-world applicability of at-home dexmedetomidine use for confused, agitated elderly individuals, even if there is positive data and subsequent regulatory approval. Meanwhile, strategic reprioritization has paused the exploration of BXCL501 as an adjunctive treatment in Major Depressive Disorder. Although the company is capitalizing on its Igalmi commercialization, with relative gains in Q2 revenues and formulary approvals, the decision to redirect efforts from clinical advancement to commercial emphasis could pose risks. Lastly, the fate of their immuno-oncology subsidiary, OnkosXcel Therapeutics, remains uncertain as they are still exploring its strategic direction.
My Analysis & Recommendation
In conclusion, Igalmi's lackluster performance in the market, in my view, suggests ongoing and persistent disinterest among healthcare providers in adopting it. The reasons might include availability constraints, potential safety concerns, and an array of established alternatives available for treating agitation. The endeavor to shift towards at-home use of BXCL501 is rife with potential pitfalls, particularly without specific trials addressing its efficacy in such contexts. This move, combined with unresolved issues around TRANQUILITY II and SERENITY program outcomes, raises red flags.
BioXcel's recent financials are concerning. Despite efforts to cut costs and reevaluate its operations, the numbers paint a bleak picture. Their significant operational losses, paired with their substantial long-term debt, underscore the urgency of their financial predicament. Given the limited cash runway and the impending need for additional financing, the company's future looks precarious.
BioXcel's strategic shift, especially its focus on the at-home market without substantial backing from trials, feels like a gamble. While Igalmi's commercialization did see a relative rise in Q2 revenues, the broader picture underscores my reservations regarding the company's direction and its ability to deliver substantial value to shareholders. Furthermore, BioXcel's ambiguous stance on its subsidiary, OnkosXcel Therapeutics, adds to these uncertainties.
Given the confluence of these factors, I maintain my "Strong Sell" recommendation for BioXcel. Until we see substantial positive developments that address the myriad concerns, I will be signing off on coverage of BioXcel.
Risks to Thesis
When the facts change, I change my mind.
Some risks to my "Strong Sell" recommendation include:
- Unanticipated Positive Data: BioXcel might release unexpected positive clinical trial results or data that boosts investor confidence.
- Strategic Partnerships: The company could enter beneficial alliances or partnerships that enhance its prospects.
- Regulatory Approvals: Faster-than-expected FDA approvals or greenlights from other regulatory bodies could enhance BioXcel's market position.
- M&A Activity: BioXcel might become an acquisition target, potentially at a premium to its current market value.
- Market Dynamics: Broader market or sector upswings could inadvertently uplift BioXcel's stock, irrespective of company-specific fundamentals.
For further details see:
BioXcel's Struggles: From FDA Issues To Financial Instability