2023-05-22 03:50:58 ET
Summary
- BioXcel Therapeutics' stock rose 47% despite challenges in drug adoption and a prior "Sell" recommendation.
- In Q1 2023, the financials revealed a net loss of $52.8 million, attributable to higher R&D and SG&A costs, with only $206,000 in revenue.
- Upcoming clinical milestones, such as pivotal trial results, are driving BioXcel's stock surge, but real-world applicability remains uncertain.
- Igalmi faces significant adoption issues in a market dominated by established antipsychotics. Overcoming this hurdle requires substantial educational and post-marketing efforts.
- Despite potential short-term gains from positive trial results, the company's stock is recommended as a long-term "Sell" due to lingering uncertainties.
Introduction
BioXcel Therapeutics ( BTAI ) is a biopharmaceutical company headquartered in Connecticut, United States. Focused on addressing central nervous system and immuno-oncology disorders, the company aims to develop and market innovative therapies. Established in 2017, BioXcel Therapeutics claims to leverage cutting-edge technologies like artificial intelligence and machine learning to identify new drug candidates and optimize the drug development process, with the ultimate goal of improving patient outcomes.
The company's portfolio comprises two main products. One of them is Igalmi, a sublingual thin film formulation of dexmedetomidine that received FDA approval last year. Igalmi is currently indicated for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. The second product is BXCL701, an oral small molecule inhibitor of dipeptidyl peptidases designed for the treatment of small cell neuroendocrine metastatic castration-resistant prostate cancer.
In my earlier evaluation , I observed that BioXcel Therapeutics encountered substantial hurdles with Igalmi, primarily stemming from its underwhelming performance following FDA approval, as well as concerns related to its effectiveness, safety, and acceptance in the market. These obstacles encompassed difficulties in garnering widespread adoption, challenges in launching in emergency departments, and a lack of comparative studies. Despite the company maintaining financial stability until 2025, I continued to recommend a "Sell" stance due to the uncertainty surrounding the future of Igalmi. Since my recent "Sell" recommendation, BioXcel's stock price has risen 47%.
Recent developments: In Q1 2023, BioXcel announced net revenue of $206,000 along with a net loss of $52.8 million.
This article aims to provide investors with an update on the company's Q1 earnings and also shed light on anticipated clinical milestones in the near future.
BioXcel's Financials
BioXcel Therapeutics reported a net revenue of $206,000 for Q1 2023, consistent with Q4 2022, and anticipates a revenue increase in the second half of the year due to additional formulary approvals. R&D expenses rose to $27.8 million, up from $18.6 million in Q1 2022, mainly due to clinical trials and CMC costs for upcoming data readouts. SG&A expenses also rose to $23.6 million, compared to $12.9 million in Q1 2022, primarily due to costs related to the commercialization of Igalmi. The company incurred a net loss of $52.8 million, an increase from the $31.5 million net loss in Q1 2022. As of March 31, 2023, BioXcel had $165.5 million in cash and cash equivalents and expects a cash runway into 2025, factoring in strategic financing and anticipated Igalmi revenues.
Earnings Analysis
The reported revenue of $206,000 fell considerably short of Seeking Alpha analyst Francisco Javier Garcia's projection of $622,000, primarily, in my view, due to the disappointing market performance of Igalmi. Despite obtaining FDA approval, the drug has encountered significant obstacles in terms of market adoption, particularly in emergency departments. Concerns regarding its efficacy, safety, and lack of comparative studies with other treatments have also emerged, casting doubts on its effectiveness and value proposition in a competitive landscape. These factors likely contributed to the lower-than-expected revenues.
Additionally, the company's net loss increased to $52.8 million in Q1 2023, up from $31.5 million in the same period last year. This can be attributed to escalated spending on research and development, as well as sales, general, and administrative expenses. BioXcel is heavily investing in clinical trials and incurring costs related to upcoming data readouts, illustrating their commitment to advancing their pipeline. Furthermore, there has been a significant rise in expenses related to personnel, sales, market access, and marketing, as the company strives to enhance the commercialization of Igalmi in the United States. While these expenses seem to be part of a larger strategy to address Igalmi's poor market performance, their impact on short-term financials is evident.
Although the company has sufficient cash reserves to sustain operations until 2025, thanks to strategic financing and anticipated Igalmi revenues, the recent financial results highlight the substantial challenges that BioXcel needs to overcome. The company's dedication to addressing these challenges is evident, but the effectiveness of their efforts will be assessed in the coming quarters. Given these financial results and the ongoing struggles with Igalmi, the company faces a steep path to profitability that may necessitate a shift in strategic direction.
BioXcel Therapeutics' Clinical Trial Milestones Driving Stock Price Surge
BioXcel Therapeutics' upcoming clinical trial milestones, including key data readouts and trial initiations, seem to be driving the company's stock price up. Such milestones often attract investors as they indicate potential progress and future success.
In May 2023, we expect top-line data from both the pivotal SERENITY III Phase 3 trial (Part 1) and the Phase 1b MAD trial for the MDD program. Further, the pivotal TRANQUILITY II Phase 3 trial results are due in June 2023.
Looking ahead, the launch of critical clinical trials also contributes to the stock's positive trend. The second part of the pivotal SERENITY III Phase 3 trial is set to kick off in Q2 2023, and the Phase 2b potential pivotal study of BXCL701 in SCNC is slated for the latter half of 2023.
These forthcoming milestones represent significant strides in BioXcel's product development journey. Positive trial results could pave the way for new product approvals, wider market reach, and, ultimately, increased revenues, thus validating the recent stock price surge. However, the success of BXCL501 (Igalmi) in its clinical trials always raises questions about how well trial data will translate to real-world settings. For instance, the TRANQUILITY II Phase 3 trial for BXCL501, aimed at agitation episodes in dementia patients, has specific inclusion criteria that could restrict the broader applicability of the trial data.
Participants must score between 15 and 23 on the Mini-Mental State Exam (MMSE), which measures cognitive function. This criterion may inadvertently leave out patients with more pronounced or milder cognitive impairment who also struggle with agitation, potentially skewing the drug's perceived performance in the larger dementia demographic.
Additionally, the requirement for subjects to read, understand, and provide written informed consent, or to have a LAR do so, could exclude those without a LAR or those unable to comprehend the consent process due to cognitive impairment or literacy barriers. This could potentially introduce a bias favoring participants from certain socioeconomic backgrounds, further limiting the trial findings' real-world relevance.
While the trial design adheres to ethical and safety guidelines, it may not accurately capture the diverse dementia population in everyday clinical practice, which could restrict the generalizability of the findings.
Navigating the Challenge of Adoption: BioXcel's Igalmi versus Established Antipsychotics
BioXcel may indeed face challenges in achieving widespread adoption of its therapies for agitation, especially considering the longstanding trust healthcare professionals (HCPs) have in existing antipsychotic treatments. Antipsychotics have been used for many years in the management of agitation, and physicians have built up significant familiarity and comfort with their efficacy and safety profiles.
This familiarity often results in a form of inertia that can be hard to overcome. Many HCPs may prefer to stick with what they know, particularly when they have seen positive results in their patients over time. Moreover, existing antipsychotics have undergone numerous clinical trials and have a wealth of real-world evidence supporting their use, which new treatments like those from BioXcel must compete with.
Overcoming this hurdle will likely require significant efforts in education and awareness-building about BioXcel's treatments, their unique benefits, and how they compare to existing antipsychotics in terms of efficacy, safety, and tolerability. Rigorous post-marketing studies demonstrating real-world effectiveness and safety could also help build trust among HCPs and increase the likelihood of adoption.
However, even with these efforts, change in medical practice often takes time, and BioXcel should anticipate a potentially gradual uptake for its new treatments in the face of entrenched habits and trust in established antipsychotics.
My Analysis & Recommendation
In closing, a balanced perspective is essential when evaluating BioXcel Therapeutics. The company's fiscal metrics and the stymied commercial acceptance of Igalmi highlight the often intricate challenges that permeate the biopharmaceutical sector. Nonetheless, one cannot discount potential windfalls. The comprehensive clinical pipeline of BioXcel holds encouraging prospects for the future. Forthcoming clinical trial readouts could indeed kindle a rise in the stock value, considering the market's propensity to react optimistically to such advancements.
However, it's essential to remember that these future outcomes are inherently uncertain, and clinical trial success doesn't ensure equivalent real-world effectiveness. The drug, whether referred to as BXCL501 in its investigational phase or as Igalmi post-approval, is confronting the need to secure substantial market penetration. Its trajectory in the medical industry will require robust post-marketing studies to illustrate real-world efficacy and safety, a potentially long and formidable endeavor.
The course of BioXcel isn't predetermined. Investors should counterbalance the potential for expansion, emphasized by impending clinical trials, with the risk posed by the company's present difficulties. Therefore, despite the potential for short-term gains from positive clinical trial outcomes, I retain my long-term "Sell" recommendation for BioXcel Therapeutics based on my prudent outlook. This narrative is one that deserves careful monitoring as BioXcel persists in navigating its path towards profitability, market validation, and potentially transformational breakthroughs.
Risks to Thesis
When the facts change, I change my mind.
Here are some key risks that could undermine my "Sell" recommendation for BioXcel Therapeutics:
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Clinical Trial Successes: My recommendation is based on the current struggle the company has faced in establishing market acceptance for its product, Igalmi. However, the ongoing and upcoming clinical trials for their other drug candidate BXCL701 could turn out successful, leading to FDA approval and potential commercial success.
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Positive Financials in Future Quarters: While BioXcel's recent financial performance shows increased losses and modest revenues, the company's financial situation could improve in future quarters. This may happen due to additional formulary approvals, reduction in R&D costs post-clinical trials, or successful cost management strategies.
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Strong Cash Position: As of Q1 2023, BioXcel had a strong cash position, which could support the company's operations until 2025. This financial stability could provide the company with sufficient time to overcome current challenges and position itself for profitability.
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Increased Adoption of Igalmi: Despite the initial hurdles, BioXcel could succeed in increasing the adoption of Igalmi. This could be achieved through strategic marketing efforts, further research supporting its efficacy and safety, or gaining recognition among healthcare professionals over time.
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Strategic Partnerships or Acquisitions: BioXcel could also enter into strategic partnerships or be acquired by larger pharmaceutical companies.
For further details see:
BioXcel Therapeutics: Clinical Trial Milestones Drive Stock But Slow Market Adoption Persists