BioXcel: At A Turning Point After The Approval Of BXCL501 (NASDAQ:BTAI)

On April 6, BioXcel (NASDAQ:NASDAQ:BTAI) announced the FDA’s approval of BXCL501 to treat acute agitation in patients with schizophrenia and bipolar syndrome. In addition, the FDA approves it with very clean labeling: There is no BLACK BOX, and it is only recommended that the administration of the drug should be done under the supervision of a health care provider, which means that the drug can be administered anywhere (even at home) as long as there is a doctor, nurse, etc. that can control blood pressure after administration of the drug. This is very important because one of the bears’ thesis is completely nullified: the approval will come with a strong restriction due to the drug administration would have to be carried out in hospital settings, which would greatly limit the future revenue potential. In this regard, Goldman Sachs analyst Corinne Jenkins double downgraded BioXcel last November based on this argument. Should Corina upgrade her BTAI valuation?

The approval marks BioXcel’s move to a commercial-stage company for the first time in its history.

In addition, this approval is a very important milestone for the company, since it opens the door to future approvals of the same drug in other indications (Dementia & Alzheimer’s, Depression, etc.) that are currently being tested. In fact, these indications present the greatest revenue potential. For this reason, I consider that BioXcel currently presents an excellent investment opportunity in the medium/long term.

Following approval, the share price surprisingly fell from $24.5 on the day of approval to $17 today (April 8). This behavior is normal in the Biotech sector (sell the news). But in BioXcel’s case, and given that it’s about to report phase II results in Dementia and Alzheimer’s, and start phase III trials for this same indication, I don’t think this drop will last long.

With a market capitalization of approximately $575 million, with the recent approval of BXCL501 to treat agitation in patients with schizophrenia and bipolar syndrome, and other indications to treat acute agitation (Dementia, Alzheimer’s, Depression, etc.) are currently in the testing phase, and with cumulative revenue potential from all of these indications in the multi-billion dollar range, BioXcel presents an excellent entry opportunity at current price levels.

BXCL501: A drug with multi-million dollar future revenue potential

BXCL501 for acute agitation in patients with schizophrenia and bipolar syndrome

As we have already mentioned, BXCL501 has just been approved by the FDA to treat attacks of agitation in patients with schizophrenia and bipolar syndrome. Currently available drugs are limited to anxiolytics (benzodiazepines) which have some unpleasant side effects: high dependency rates, sedation, etc. On the other hand, there are antipsychotics, which also with many adverse effects. The only drug approved to specifically treat agitation in this type of patient is ADASUVE, from the Spanish company Ferrer. It was approved by the FDA in 2012, but has not had much commercial success due to hard labeling: it has a BLACK BOX with important safety warnings and it is specified that it can only be administered in hospital settings under the supervision of a doctor. This is due to the serious secondary effects that it presents in a high percentage of the population: Bronchospasms.

Therefore, IGALMI (trade name of BXCL501) does not present great competition in the agitation market for this type of patient.

As for the potential market, according to data reported by the company, it is estimated that some 25 million agitation episodes occur annually in the United States in patients of this group. Assuming a very conservative penetration rate of just 10%, IGALMI would be used 2.5 million times a year. The price at which the drug will be sold is not yet known, but there are some indications that the price of each IGALMI oral film could be around US$150 (competitor drug ADASUVE sells for US$150 per inhalation).

With these data, we can estimate a potential annual income of IGALMI of about $375 million.

The final price of IGALMI will probably be known in the next Q1 CC by next May.

The start of marketing will take place during this Q2, so we will have the first sales data during the second half of this year 2022. Because the first quarter of a drug’s life is usually weak in sales, we will have to wait until early 2023 to see if IGALMI will be commercially successful. In my opinion, and as I said before, I think it will be successful and could easily reach 300 million dollars a year in a few years.

BXCL501 for acute agitation in patients with Dementia and Alzheimer’s

The other indication for which BXCL501 is being tested is to treat acute agitation in patients with Dementia and Alzheimer’s. BioXcel wants to start phase III trials in the second half of this year. So far, the data obtained in the phase II trials are very promising: very good efficacy with few side effects.

The phase III trial is scheduled to last 12 weeks, so if it starts sometime in the second half of the current year, it is expected that we will have the results at the end of the current year or early next year 2023. These results will be a great catalyst for BioXcel’s stock price, and if they show good results in terms of efficacy and safety (which will most likely be the case), the approval of the drug by the FDA will be practically guaranteed (because the same drug has already been approved for another indication).

It is in this indication that the drug has the greatest revenue potential since it is estimated that in the United States some 100 million attacks of agitation occur annually in Dementia & Alzheimer patients. In addition, the profile of patients with this type of pathology is usually over 65 years of age. This type of patient is very vulnerable to drug side effects, so the drugs available are very limited. In general, antipsychotics are discouraged due to the risk of death, and long-term use of benzodiazepines is not recommended.

Axsome Therapeutics (AXSM) is conducting Phase III trials of AXS-05 to treat chronic agitation in Alzheimer’s patients. This candidate drug treats agitation from a different aspect than BXCL501: AXS-05 is given as a daily oral drug to prevent attacks, and BXCL501 is an oral drug used alone to reduce agitation after an attack. Furthermore, AXS-05 is only being tested in Alzheimer’s patients, while BXCL501 is being tested in both Alzheimer’s and Dementia patients. Personally, I believe that BXCL501 will be more commercially successful, once both are approved, than AXS-05, as it will only need to be administered a few times a month (depending on the patient’s number of attacks), whereas AXS-05 will be administered every day. For an elderly patient who is likely to take many medications daily, it will be preferable to minimize the use of medication, so BXCL501 will be more attractive than AXS-05.

Therefore, BXCL501 can take a market niche with almost no competition in this group of patients.

Assuming a very conservative market penetration rate of 10%, BXCL501 could treat around 10 million cases of agitation annually for this group of patients in the United States. And assuming that the price is the same as AGALMI (we have estimated it at $150), we would have a potential annual revenue of around $1.5 billion.

Assuming that the phase III trials begin during the second half of this year, we would have the results at the end of this year 2022, or at the beginning of the next year 2023, and therefore, we could estimate that it would be approved in early 2024. The important thing here is that given the good results of efficacy and safety profile that have been shown in the last phase II trial, and after the recent approval of the same drug for the other indication, we can affirm that the approval of the drug for acute agitation in Dementia and Alzheimer’s is practically guaranteed.

Another phase II trial is currently underway for this indication with two arms: (40 mcg and 60 mcg).

It is intended to report the results of this trial this summer. A good result (very likely) could be a good catalyst to cause a bullish momentum in the share price.

BXCL501 to treat agitation in Depression

The third indication for which BXCL501 is also being tested, in combination with antidepressant drugs, is depression. Here it is still in a very initial phase (it is intended to start phase II trials in the second half of this year). And here, as I have commented for the Dementia & Alzheimer’s indication, the efficacy and safety of BXCL501 are almost guaranteed. This is because BXCL501 has already been tested in patients with the bipolar syndrome (it has just been approved for this indication). This type of patient presents depressive moments alternated with manic. And its efficacy and safety have already been demonstrated in both depressive and manic moments. Therefore, BXCL501 is likely to be effective in treating acute agitation in depressed patients.

Here the earning potential is huge, given the high prevalence of depression in most developed countries. Current therapies are based on the combination of new-generation antidepressants (serotonin reuptake inhibitors) in combination with anxiolytics (benzodiazepines). BXCL501 could be a good substitute for benzodiazepines for this type of patient.

Therefore, we can affirm that the potential revenue, estimated with caution, could be above $2 billion for the two indications:

(Schizophrenia&bipolar+Dementia&Alzheimer’s).

At a P/E ratio of 5, it would justify a BTAI´s market cap of $10 billion.

BTAI currently only capitalizes $550 million. The enormous potential that BTAI currently has in the medium and long term is clearly appreciated.

Risks

Like all biotech, when investing in this type of company, several possible risks must be taken into account:

1- IGALMI’s initial sales growth (for the first 3 quarters) may be slower than desired. This is normal at the beginning of the life of any drug, and above all, in the case of a Biotech with its first commercialized drug.

2- Possible offering risk. With a recently approved drug and several ongoing clinical trials, BioXcel will need a lot of funding in the coming months.

Regardless, as of September 30, 2021, cash and cash equivalents totaled approximately $252.9 million. This would be enough to finance the company’s operations for at least another year.

Conclusion

On April 5, the FDA approved BXCL501 for the treatment of acute agitation in patients with schizophrenia and bipolar syndrome. In addition, the final labeling has been very favorable, since the administration of the drug is only recommended under the supervision of a healthcare professional, so it can be administered, even by oneself at home, under the supervision of a nurse. I believe that this approval is a very important milestone for BioXcel since it is not only the first drug that the company can sell, but it practically means that the approval of BXCL501 for the other indication (Dementia & Alzheimer’s) is assured (Phase II results for this indication has been very good in terms of efficacy and safety).

The bearish reaction of the stock price after the approval is typical in the biotech sector (sell the news) and investors can take advantage by buying now at very cheap prices.

Phase II results are expected next summer to treat agitation in patients with Dementia and Alzheimer’s. Two arms (40 mcg and 60 mcg) will be evaluated. A positive result (very likely) will be a good catalyst for the share price.

And it is expected that phase III trials for this last indication will begin in the second half of this year.

With potential revenues for these two indications exceeding $2 billion and with a small current market capitalization of $500 million, BTAI’s medium and long-term growth potential is immense.

To all this, we must add the other candidate drug BXCL701 (immuno-oncology), currently in phase II trials in patients with prostate cancer resistant to castration treatments.

My target price for the second half of this year or the beginning of the following year, 2023, is in the range of $60/$80.

All told, I think BTAI offers an excellent entry opportunity at current price levels.