Thesis revisit, still maintaining a hold rating
FDA Investigation and Stock Implications
Recently, BioXcel Therapeutics (NASDAQ:BTAI) has faced regulatory scrutiny with the FDA’s ongoing investigation related to the conduct of one of the TRANQUILITY II study’s primary investigators. An alarming revelation was the issuance of a Form 483 highlighting issues related to the investigator’s failure to adhere to various research protocols. Further, in May 2023, there were allegations that the Principal Investigator (PI) attempted to falsify an email concerning a study subject. This is especially concerning since the implicated PI was responsible for 40% of the study’s patient enrollment. While BTAI insists that this does not impact the efficacy data, since the PI was not involved in the PEC score ratings, the integrity of the study data is in question. The revelation has not only cast a shadow over the TRANQUILITY II data but has also raised concerns about the overall management of the trial, leading to stock uncertainties.
It’s quite clear that the situation with BTAI’s BXCL501 drug is intricate, with both positive clinical results and concerns related to trial conduct and data integrity. To guide our readers, here are a few instances from the past 20 years that bear similarities in various aspects:
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Genzyme and Myozyme (2009): The FDA raised concerns about the way Genzyme was producing its drug Myozyme, which led to delays in the approval of a larger-scale version of the treatment. This situation highlights the importance of manufacturing consistency and the regulatory challenges that can arise from changes in production.
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Ariad Pharmaceuticals and Iclusig (2013): The FDA temporarily halted sales of the leukemia drug Iclusig due to concerns about blood clots. This halt was eventually lifted but with a narrower patient indication and stronger label warnings.
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Amgen and Omecamtiv Mecarbil (2021): Despite positive results from its GALACTIC-HF study, concerns regarding a secondary endpoint and subgroup performance led to mixed reactions about the drug’s regulatory and commercial future.
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Gilead and Filgotinib (2020): The FDA rejected Gilead’s arthritis drug Filgotinib, citing concerns about the drug’s safety profile and asking for more data. This highlighted the importance of ensuring a drug’s safety profile meets regulatory standards, even if efficacy endpoints are met.
It’s worth noting that in many cases, while regulatory and clinical setbacks can have immediate negative impacts on a company’s stock and investor confidence, they don’t always spell the end for the drug in question. Many drugs that face regulatory hurdles eventually make it to market after addressing the FDA’s concerns, although sometimes with more restricted indications or stronger safety warnings.
For BTAI and BXCL501, the situation is a mix of promising clinical results with concerns about trial conduct. The outcome of the upcoming FDA meetings and the results of the internal audit will be crucial in determining the path forward for the drug. If historical analogs are any indication, it’s possible for the company to address the FDA’s concerns and bring the drug to market, though possibly with some changes or additional requirements.
In our view, in any case, it’s essential for investors to monitor the situation closely, considering both the potential risks and rewards, and to stay updated on any new developments or announcements from the company and the FDA.
The implication of FDA’s Type C Meeting on BTAI
According to the company’s statement published last month, the FDA has scheduled a significant Type C meeting on November 8, 2023, to discuss the BXCL501 SERENITY III clinical development program. This program, focused on the acute treatment of agitation in patients with schizophrenia and bipolar disorders in at-home settings, represents a potential value driver for BTAI. The outcome of this meeting will dictate whether BTAI can pursue regulatory approval based on the existing SERENITY III clinical data or if they must engage in further clinical work. Such determinations are crucial as they can significantly affect the time and resources required for BTAI’s products to reach the market, thereby influencing stock valuation and investor sentiment.
Financials: limited cash runway until mid-2024
The company’s recent financials showed a net loss of $53.5MM for 2Q23, with a cash reserve of approximately $127.5MM. The projected cash runway is now expected to last till mid-2024, looking at the recent cash burn and the company’s guidance. We find less than one year of cash runway concerning, especially for cashflow-negative biotech like BTAI. During the Q2 2023 earnings call, the management noted that strategic financing negotiations are underway with Oaktree and the Qatar Investment Authority. Amidst these transitions, BTAI intends to reduce its workforce by over 50% and cut cash burn by more than 50%, aiming for an annual cash burn rate of around $80M. This decision was influenced by the slow uptake of Igalmi, even with 185 formulary wins. Of note, the company’s strategy is to lessen in-hospital commercialization costs and enhance BXCL501’s development for at-home use.
Risks
BTAI presents several risks for potential investors:
- Data Integrity Concerns: The FDA’s ongoing investigation into the TRANQUILITY II study’s primary investigator has cast doubt on the data’s reliability.
- Regulatory Delays: The TRANQUILITY III study, a similar project but in a nursing home setting, might be deemed necessary for BTAI’s filing, potentially pushing approval to 2025 or later.
- Underwhelming Results: The TRANQUILITY II study’s data, particularly concerning the 40mcg dose, was less robust than anticipated. This might influence overall product usage, even if approval is secured.
- Market Penetration: Given the recent data and the failure of the 40mg dose, market penetration forecasts have been adjusted downwards, potentially affecting long-term revenues.
Conclusion
Despite its potential and interesting asset, the company currently stands at a crossroads due to ongoing FDA investigations, data integrity concerns, and regulatory uncertainty, coupled with underwhelming sales print (Q2 23 earnings: BTAI reported Igalmi sales of $457K, with the product launch advancing slowly). With the crucial FDA Type C meeting and potential determinations about BTAI’s SERENITY III clinical program, the company’s future direction remains uncertain. However, it is essential to acknowledge that if BTAI can successfully navigate these challenges, especially in clarifying the path forward for BXCL501 in treating agitation linked to Alzheimer’s disease, there remains a considerable market opportunity. Balancing the potential gains against the inherent risks, we maintain a hold rating for BTAI, urging cautious optimism and a close eye on future developments.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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