Last week BioXcel Therapeutics (NASDAQ: BTAI) went public at $11. It looks like a typical biotechnology company with two drugs (BXCL501 and BXCL701) in Phase 1/2 trials for mental disorders and cancer respectively. Both drugs look fairly promising based on the data presented and we'll get to that.
But BioXcel is taking a different approach to drug development by taking the large inventory of known molecules and coming up with new and different ways to apply them alone or in different combinations to identify opportunities that can be commercialized rapidly.
Using AI in Drug Discovery
At the heart of the process is software, developed by the BioXcel Therapeutics parent company. The software, called "EvolverAI" analyzes a large database of existing molecules and disease types to identify relationships and identify new therapies and "re-innovate" existing drugs. Although they don't talk about in the BTAI roadshow presentation, there is another software product called PharmGPS which helps to prioritize drug candidates and identify steps to enhance the chances for ultimate approval. These two platforms, when used together also go by the trade name "InveniAI" and can be licensed for use by other pharma companies and the current list of users, includes Takeda, Centrexion Therapeutics, Alnylam Pharmaceuticals, and Axcella.
But only the parent company, BioXcel, owns the AI platform, not BTAI. Instead, BTAI has an agreement to use and leverage the technology in the fields of neurological diseases and immuno-oncology. Post-IPO, BioXcel will still own 60% or so of BTAI. The right of first refusal for BioXcel Therapeutics to negotiate rights to new discoveries in these two areas extends for five years.
This level of indirect access and the fact that BioXcel licenses the AI platform to other pharmaceutical companies gives investors some extra uncertainty to consider in looking at BTAI. They have rights to these existing candidates which is all we can really base our investment decision on.
The Drugs Look Promising
Investing in companies subject to the vagaries of the FDA clinical approval process is fraught with risk and suffers from an opacity not common with other types of fields. In the case of BTAI, the data presented is quite convincing compared to many other biotechnology companies we've seen. First of all, there is BXCL501 or "501" which is based on a molecule (Dexmedetomidine or Dex) which has been around for a long time and used broadly as a sedative/anesthetic. By reducing the dosage and packaging it as a sublingual film BTAI has created a new potential treatment for dementia, schizophrenia and bipolar disease. With known effectiveness, a good safety profile and prior FDA knowledge of the compound, "501" has a high chance of commercial success.
BXCL701 for cancer (Neuroendocrine Prostate and Pancreatic) shows effectiveness in combination with other drugs. The chart below showing "701" in combination with two other drugs (one from NKTR who is a partner) is dramatic.
701 is scheduled to start Phase 2 trials in the second half of this year so it still has a way to go before it's on the market. However, the two markets it's going after are both unmet medical needs with a combined annual treatment population of 50,000 patients. That makes it *at least* a $1B market and it could be $5B depending on pricing.
The company raised $55M with the IPO and has about 16.5M shares outstanding. At the current $11 that makes a market cap of just over $180M. The current burn rate is very low but will ramp up as clinical trials expand.
In late 2018 and early 2019 there will be several data points regarding the potential of both 501 and 701. If things go well the company will raise more capital prior to filing for their first NDA in 2020.
We'd like to see them partner with a large pharma for one of the 501 targets and one of the 701 targets in exchange for milestone payments. It would be less dilutive than selling more stock and help validate the potential of both molecules and the approach in general.
The IPO Candy portfolio will probably add a small (3%) position before official stock coverage from the investment banks. (Sign up for our IPO Stock alerts if you want to know when those things happen.)
BTAI IPO Roadshow Slides (members only)
BioXcel Therapeutics Site