We are initiating coverage of BioXcel Therapeutics, Inc. (NASDAQ:BTAI) with a valuation of $21.00. BioXcel Therapeutics is a biopharmaceutical company utilizing an artificial-intelligence (AI) based approach to drug development. In combination with large datasets, the company uses a proprietary machine learning algorithm to identify new treatment paradigms for clinically validated and/or approved drugs. The company has two lead development programs: BXCL501 – a sublingual formulation of the a2a adrenergic receptor agonist dexmedetomidine (Dex) for the treatment of neurological and psychiatric disorders; and BXCL701 – an immuno-oncology agent for treatment of a rare form of prostate cancer and pancreatic cancer.
Novel Drug Re-Innovation Approach
BioXcel uses an artificial intelligence (AI)-based drug discovery engine, EvolverAI, to identify drugs for re-innovation. The system is designed to utilize vast data sources to discover novel connections between pharmaceutical compounds and disease targets. The use of AI allows BioXcel to screen thousands of compounds in a systematic fashion in order to select those most likely to benefit patients with a shortened development timeline. While EvolverAI is novel, the re-innovation of drugs is a validated approach to drug development as shown through the success of such drugs as Tecfidera®, Thalomid®, and Viagra®.
Targeting Large and Growing Agitation Market
BXCL501, a sublingual formulation of dexmedetomidine, was identified as a potential treatment for agitation in neurological and psychiatric disorders. Currently, agitated patients are treated with antipsychotics and/or benzodiazepines, both of which are associated with a number of adverse side effects. BXCL501 targets the underlying mechanism of agitation and allows for the treatment of patients in a non-invasive fashion without sedation, thus allowing physicians to better understand the origin of the agitation.
Oral Immuno-Oncology Agent Targeting Rare Prostate Cancer and Pancreatic Cancer
BXCL701 is an oral immuno-oncology agent designed to activate the innate immune system through inhibition of dipeptidyl peptidase (DPP) 8/9 and fibroblast activation protein (FAP). The drug has previously been tested in >700 patients in various clinical trials where it was unsuccessful in combination with chemotherapy in NSCLC. However, EvolverAI predicts that the drug’s activity could be increased when used as a combination therapy with checkpoint inhibitors (e.g., anti-PD-1 antibodies) and other immune stimulators in indications where DPP8/9 and FAP are overexpressed or upregulated. The company has initiated two clinical proof-of-concept trials: in treatment-emergent neuroendocrine prostate cancer (tNEPC) in combination with Keytruda® (pembrolizumab) and in pancreatic cancer in combination with NKTR-214 (bempegaldesleukin) and avelumab (anti-PD-L1 mAb).
Near-Term Milestones Include Phase 3 Data in 2020
We anticipate BioXcel initiating two Phase 3 clinical trials of BXCL501 for the treatment of agitation in schizophrenia and bipolar disorder in the fourth quarter of 2019 and topline data being reported in the first half of 2020. If successful, this could lead to a new drug application (NDA) for BXCL501 in the second half of 2020. In addition, we anticipate data readouts from the two clinical trials for BXCL701 over the next six months.
We value BioXcel Therapeutics using a probability adjusted discounted cash flow model that takes into account potential future revenues for BXCL501 and BXCL701.
For BXCL501, we model for Phase 3 data in schizophrenia and bipolar disorder to be reported in the first half of 2020, with an NDA filing in the second half of 2020 and approval in the first half of 2020. We estimate that the company will receive approval for treatment of agitation in dementia is 2023 and in opioid withdrawal and delirium in 2024. We model for each treatment to cost $130 and we forecast for peak sales of $200 million in schizophrenia, $350 million in dementia, $200 million in opioid withdrawal, and $220 million in delirium. We estimate for a 75% probability of approval in schizophrenia and a 40% probability of approval in each of the other indications. Using a 15% discount rate leads to a net present value for BXCL501 of $274 million.
For BXCL701, we model for BioXcel to partner and to receive a 15% royalty on net sales. Assuming positive results in the Phase 1/2 clinical trials, we model for pivotal trials in both tNEPC and pancreatic cancer to initiate in 2021 with potential approval in 2024. Given the limited treatment options for each of those indications, we believe $1 billion in peak sales is possible for each indication. We estimate for a 33% probability of approval for each indication and using a 15% discount rate leads to a net present value for BXCL701 in tNEPC of $54 million and in pancreatic cancer of $63 million.
Combining the net present values for each of the company’s assets along with the current cash balance and potential money from exercised warrants leads to a net present value for the company of $446 million. Dividing by the fully diluted share count of approximately 21.1 million shares leads to a valuation of $21.00 per share.
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