BioXcel Therapeutics: AI-Focused Biopharmaceutical Player For 2020 – BioXcel Therapeutics, Inc. (NASDAQ:BTAI)

Today, we will study why BioXcel Therapeutics (BTAI) is risky but attractive in 2020.

Company overview

BioXcel Therapeutics is a clinical-stage biopharmaceutical company focused on deploying AI (artificial intelligence) and machine learning to develop drugs across neurology and immuno-oncology. The company is leveraging AI to reduce cost and time for drug development. BioXcel Therapeutics is leveraging AI to identify new uses for previously approved drugs and clinically validated drug targets.

BioXcel Therapeutics

BioXcel Therapeutics’ most advanced R&D programs involve a selective α2a Adrenergic Receptor Agonist, BXCL501 for neurological and psychiatric disorders and DPP 8/9 & FAP inhibitor, BXCL701, for pancreatic cancer and neuroendocrine prostate cancer.

What is BioXcel Therapeutics’ AI-based approach for drug development?

BioXcel Therapeutics has been studying AI-based drug development for over a decade. The company is a spinoff of BioXcel Corporation, a company that had over 200 commercial partners. The parent company deployed algorithms, data analytics, big data, and artificial intelligence to support the clinical development of over 200 biopharmaceutical partners. Some of the company’s then prominent partners include Takeda (OTCPK:TKPHF), Alnylam Pharmaceuticals (NASDAQ:ALNY), and Alexion Pharmaceuticals (NASDAQ:ALXN). These biopharmaceutical partners have validated BioXcel Therapeutics’ AI platform. BioXcel Therapeutics’ two lead assets, BXCL501 and BXCL701, have been identified using the same AI platform.

AI-based clinical development

The company’s AI-based drug discovery platform is called EvolverAI. This uses machine learning and huge data sources to uncover potential relationships between pharmaceutical compounds and disease targets. BioXcel can screen a huge number of pharmaceutical compounds in a much shorter time frame with its EvolverAI platform.

BioXcel Therapeutics’ strategy involves studying drug candidates who have at least demonstrated clinical efficacy in Phase 2 trials. The company does not work with early-stage investigational candidates, thereby reducing the R&D failure risk. The company is thus targeting drug candidates which have not passed ahead of Phase 2 in the clinical development process or the already approved drugs for which full potential is yet to be explored.

How BXCL501 is targeting an underserved market opportunity?

It is estimated that 1.7 million medical emergency room visits in the US annually involve patients suffering from agitation.

Agitation market opportunity

BioXcel Therapeutics estimates that 9.4 million people in the U.S. suffer from agitation, with many undergoing multiple episodes every year. The company has also estimated the at-risk patient population for agitation in the U.S. to be an additional 18.9 million people. These patients are suffering from a range of psychiatric disorders such as schizophrenia, bipolar disorder, dementia, delirium, and opioid withdrawal. The addressable market opportunity for BXCL-501 is over $1.0 billion.

Currently, intramuscular antipsychotic agents such as lorazepam, haloperidol, droperidol, Olanzapine, and Ziprasidone are administered to agitated patients in an emergency setting. All these anti-psychotics carry black-box warnings. These drugs are administered either alone or in combination with benzodiazepines.

Benzodiazepines mainly work to sedate the patient. However, intravenously administered benzodiazepines are associated with a range of serious side-effects such as cardiac and/or respiratory arrest, hypotension, cardiac arrhythmias, respiratory depression, apnea, and blurred vision or double vision. Benzodiazepines can even cause physical dependence, which, in turn, can result in withdrawal effects. Some studies have also unraveled the possible association between heavy doses of benzodiazepine and increased risk of dementia or even Alzheimer’s disease.

How BXCL501 differ from other sedative agents?

BXCL501 is a sublingual thin film of Dex (dexmedetomidine), an injectable drug previously approved in 1999 under the brand name of Precedex. This was indicated for sedative purposes in the intensive care setting. Currently, BioXcel Therapeutics is evaluating BXCL501 for treating agitation in patients suffering from schizophrenia, bipolar disorder, and dementia. BXCL501’s unique sublingual formulation results in a rapid onset of action and a non-invasive mode of administration. The real-world safety profile of dexmedetomidine has also been found to be significantly better than those of existing antipsychotics and benzodiazepine.

BXCL501 Mechanism of Action

According to Dexmedetomidine: its use in intensive care medicine and anesthesia report, “Dexmedetomidine provides a unique quality of conscious sedation which resembles natural sleep. Its administration does not result in respiratory depression.” Sublingual formulations are usually preferred over invasive treatment options. Zacks has estimated peak sales opportunity for BXCL-501 to be $200 million in schizophrenia, $350 million in dementia, $200 million in opioid withdrawal, and $220 million in delirium.

BXCL501 has reported positive results in the Phase 1b trial.

On July 22, BioXcel Therapeutics announced positive results from the Phase1b trial evaluating multiple doses of BXCL501 for acute treatment of agitation in 135 patients with schizophrenia.

Phase1b trial of BXCL501

All three doses, 80 mcg, 120 mcg, and 180 mcg, of BXCL501, showed statistically significant improvement in the PEC score (PANSS or the Positive and Negative Syndrome Scale, Excitatory Component) for agitation as compared to placebo after two hours. The drug demonstrated a calming effect without excessive sedation at two hours and at earlier time-points. The trial demonstrated robust safety and tolerability of BXCL501.

There are many BXCL501 related milestones in 2020.

In December 2019, BioXcel Therapeutics announced the commencement of the SERENITY program, comprising of two Phase 3 studies. Here, BXCL501 is evaluated for the treatment of agitation in patients with schizophrenia and bipolar disorder. The company expects top-line data in mid-2020. BioXcel Therapeutics is anticipating the commercial launch of BXCL501 in 2021.

In January 2020, the company also announced the enrolment of the first patient in Phase 1b/2 study of BXCL501 as a treatment option for acute agitation in dementia patients. The company expects data readouts from this trial in mid-2020.

Dementia-related agitation market opportunity

Agitation associated with dementia is a huge underserved market opportunity for BXCL501. The company is working to position BXCL501 has a treatment option across the entire spectrum of agitation in dementia patients.

BXCL501 life cycle strategy

BioXcel Therapeutics is currently evaluating the clinical feasibility of a drug-device combination comprising of BXCL501 for prophylaxis or prevention of agitation in dementia patients. The company is also assessing this drug-device combination in the post-agitation stage for dementia patients. Besides, the company is also developing an intramuscular formulation comprising of BXCL501 for chronic agitation in dementia. BioXcel Therapeutics is also developing a formulation of a single-use intramuscular agent, KalmPen for treating severe agitation.

The company also expects several milestones from its immune-oncology pipeline in 2020.

In my article on Oncolytics Biotech, I explained how immunotherapies work. I have also explained the innate and adaptive immune systems and their role in killing tumor cells. BioXcel Therapeutics’ BXCL701 (talabostat) is a small-molecule therapy that works to activate the body’s innate immune system. This mechanism of action can help improve response rates for immunotherapies.

BXCL701 clinical development programs

BioXcel Therapeutics expects the trial evaluating triple combination including BXCL701 in pancreatic cancer indication, to commence in the first half of 2020. The company expects initial mechanistic data readouts from this trial in the second half of 2020. The company also expects initiation of Phase 2 BASKET trial for BXCL701 in combination with Keytruda for solid tumors to commence in the first half of 2020. Initial data readout from this trial is expected in the second half of 2020.

Investors should pay attention to these risks.

BioXcel Therapeutics short-term growth prospects are heavily dependent on the clinical and commercial prospects of its investigational asset, BXCL501. This exposes the company to a high degree of business concentration risk.

The probability of final regulatory approval for an asset currently in Phase 1 in oncology indication is only 5.1%. The probability of final regulatory approval for an asset currently in Phase 3 in neurology indication is only 47.8%. BioXcel Therapeutics is subjected to a significant degree of R&D failure risk, considering that all of its assets are in clinical development.

The clinical-stage biotech stocks in the psychiatric space are inherently volatile. This was seen for Karuna Therapeutics (KRTX) when the company reported positive results from the Phase 2 trial for its investigational asset, KarXT as a treatment option for acute psychosis in schizophrenia patients. Thereafter, the stock had almost 500%. However, the stock started tumbling after it announced the pricing of a stock offering. Recently, I wrote about another promising clinical-stage biopharmaceutical company focused on psychiatric indications, called Intra-Cellular Therapies (ITCI). This company also fell by around 18% after it announced pricing for previously underwritten public offering. In a similar vein, BioXcel Therapeutics is also exposed to the event risk causing dramatic fluctuations in share prices.

In September 2019, BioXcel Therapeutics raised around $19.0 million from a public offering. At the end of September, the company had cash worth $40.25 million on its balance sheet. Although the company anticipates increased cash burn in future quarters, the company claims to have sufficient funds to advance Phase 3 and Phase 1b/2 Studies of BXCL501.

BioXcel Therapeutics spent $23.7 million cash on operations in the last twelve months ending September 2019. Assuming an increase in cash spending in the coming quarters, the company may manage to sustain its operations without external financing until the end of December 2020. Subsequently, the company may require to opt for dilutive or non-dilutive funding, for commercialization of BXCL501 and development of BXCL701.

Post commercialization of BXCL501, BioXcel Therapeutics may face competition from existing and new classes of drugs targeting psychiatric indications. The drug also needs to be adopted by physicians, patients, and payers.

Finally, BioXcel Therapeutics is still a loss-making company and continue to be so for many more years. This may result in depressed valuations.

What price is right for this stock?

According to finviz, the 12-month consensus target price for the stock is $25.60. On January 16, BMO Capital analyst Do Kim reiterated the “Outperform” rating and increased target price from $21 to $26. The analyst believes that the BXCL501 opportunity is underappreciated. He also believes that the company’s R&D pipeline is relatively low risk owing to robust clinical data. On January 8, H.C. Wainwright analyst Raghuram Selvaraju reiterated the “Buy” rating and increased target price from $25 to $30.

On December 31, Canaccord analyst Sumant Kulkarni maintained a “Buy” rating for the stock but increased the target price from $24 to $27. On November 12, SunTrust analyst Robyn Karnauskas initiated coverage of BioXcel Therapeutics with a Buy rating and set a target price of $24.He expects positive Phase 3 trial data for BXCL501 as a treatment option for acute agitation in neuropsychiatric diseases. The analyst has projected uptake of 30%-35% and initial sales of $1.7 billion for this therapy.

BioXcel Therapeutics

The above table highlights the change in analyst recommendations and target price for the stock since December 2018.

BioXcel therapeutics

Analysts expect an increase in losses for the company in 2020, due to increased expenses associated with the Phase 3 trial of BXCL501.

In this backdrop, I believe the target price of $26 is a likely estimate of the company’s share price after 12 months. The stock is risky, yet very promising pick considering high expectations of positive data from Phase 3 trials of BXCL501 for treating acute agitation in schizophrenia and bipolar disorder. Hence, I recommend investors with above-average risk appetite to consider this stock in 2020.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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