BioXcel Therapeutics Inc (BTAI)

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BioXcel's Igalmi: Potential Market For Acute Agitation In Esquizofrenia And Bipolar Patients

https://seekingalpha.com/article/4512819-bioxcels-igalmi-potential-acute-agitation-esquizofrenia-bipolar

May 18, 2022 9:20 AM ETBioXcel Therapeutics, Inc. (BTAI)1 Comment3 Likes
Summary

BioXcel begins a new stage with IGALMI in the commercialization process.
With a current market cap of just $300 million, I think BioXcel offers an excellent investment opportunity right now.
I believe that BioXcel could reach a capitalization of between $1 billion and $1.5 billion without much trouble in the coming months.

BioXcel's Igalmi (dexmedetomidine oral film) was approved by the FDA on April 5 to treat acute agitation in patients with Schizophrenia and Bipolar syndrome. It is the first drug that BioXcel (NASDAQ:BTAI) manages to bring to market in its history. And most likely it will not be the only one, since the Company is currently conducting phase III trials with the same molecule (BXCL501) for another indication: Acute agitation in patients with Dementia and Alzheimer's, and the expectations are very good thanks to the very good results archived so far. As it is the first drug that BioXcel brings to the market, and there is no other similar drug to treat acute agitation in patients with Schizophrenia and Bipolar syndrome (there is only ADASUVE, but due to restrictive labeling, its sale potential is very limited), it is difficult to make a first estimate of the sales potential that IGALMI presents for this indication. In any case, we have some key data (number of annual attacks of agitation in this type of patient, the selling price of IGALMI, etc) thanks to which we can make a rough estimate of the revenue potential that IGALMI could have in the next years. What is interesting here is that, as I have already mentioned, the same drug is currently being tested for another indication (acute agitation in patients with Dementia and Alzheimer's), with exceptional results so far in terms of efficacy and safety profile, so if everything continues as planned (phase III top-line data are expected at the end of this year 2022), it would be expected to be approved for the first half of 2023. And the potential revenue for this last indication is between 4 and 6 times higher than the indication recently approved by the FDA.

What does this mean? Well, the initial sales of IGALMI in the coming quarters can give us an idea of the possible future revenue it will have once it is approved for the other indication (Dementia and Alzheimer's). In that sense, I think the first few quarters of sales growth will be slow, which is normal for any drug approved in its first few quarters, and within a few quarters is when I expect big sales growth.

BioXcel's share price has not stopped falling in recent weeks, practically at the same level as the entire Biotech sector. The inflation scenario and the latest rate hike by the Fed have made the markets nervous, reacting in a very exaggerated and bearish way. Many biotech companies are currently trading very undervalued. And it is precisely in this type of situation when you have to remain calm and take the opportunity to buy at really cheap prices knowing how to choose good companies with good fundamentals and a good cash position, because sooner or later purchases will return to the market, and these companies will be the ones that rise the most. BioXcel belongs to this group of companies.

The Company currently has a market capitalization of approximately $300 million. As we will see later, this capitalization implies a great undervaluation of BioXcel concerning IGALMI's revenue potential for the two indications that I have commented on previously. And all this without taking into account the other branch of its Pipeline: Oncology, with the candidate drug BXCL701, which is showing very promising efficacy in early phase trials to treat cancer resistant to first-line treatments. Therefore, I believe that BioXcel presents an unbeatable medium/long-term investment opportunity at current prices.
The potential market of IGALMI in Schizophrenia and bipolar Syndrome indication

BXCL501 will be marketed under the brand name IGALMI to treat acute agitation in patients with Schizophrenia and Bipolar syndrome. The initial date planned to start its commercialization is next May 24. The target will be patients who come to the hospital with agitation attacks. Subsequently, the Company plans to expand the use of IGALMI to other non-hospital settings. According to data provided by the Company, it is estimated that some 25 million attacks of agitation occur annually in patients of this type. Of all of them, about two-thirds are treated in hospitals. This gives us an initial patient target of around 16.5 million annually in the US.

What percentage of market penetration will IGALMI be able to take in the next 5 years?

This is a big question and difficult to answer. Currently, and as we have mentioned before, there is no drug specifically approved to treat this indication, except for ADASUVE, which, due to its restrictive labeling (many side effects), I practically do not consider to be a competitor for IGALMI. Until now, injectable or oral antipsychotics have been used to treat agitation in these patients, with many unpleasant side effects. There are also benzodiazepines (sedatives), which also have many side effects. Therefore, IGALMI is presented as a novel drug in this type of indication, highly effective and very safe, since it has practically no side effects. The FDA only recommends that its administration should be done under the supervision of a "health care provider", that is, any person in the health sector (doctors, nurses, caregivers, etc.), who can control blood pressure after administration. This is because a small percentage of patients in trials have experienced mild hypotension. The important thing here is that the FDA does not require the administration of IGALMI in a health facility, but rather that it can be administered even at home with the supervision of any health personnel, nurse, etc. This allows BioXcel to expand potential sales in the future. As it is the first drug to be commercialized by BioXcel, and as a small biotech company, without the commercial muscle of the big biopharmaceuticals, market penetration is expected to be slow and peak in the coming years. In my previous article, I estimated a maximum market penetration rate of 10%. I did this with a sale price of $150 per IGALMI film. We now know that BioXcel has lowered the selling price to $105 per film. Practically 33% lower than my first estimate. The Company argues in favor of this lower price that, after carrying out market studies, it is the best price to optimize sales. It is clear that the lower the price, the greater the demand. In fact, some analysts skeptical about IGALMI's commercial future argued that $150 was too expensive, since the alternative (antipsychotics and benzodiazepines can be found much cheaper). That's why I think the decision to lower the price is correct. In my estimation model of IGALMI's potential future revenues for this indication, I am going to increase the % of market penetration after the price reduction, up to 13%. I raise it by 30% (I calculated 10% initially) to compensate for the 33% reduction in the initial price of IGALMI.

So we have a peak annual potential revenue in the United States of:

16.6 millionX13%X$105=$226.59 million (This figure is based on very conservative numbers). Using a P/S ratio of 4 (before the interest rate increase I used to use a P/S ratio of 5, but I have now lowered it to 4 to reflect the greater future revenue discount due to higher rates), we get a value of $906.36 million.

This last figure would be an estimate only of the IGALMI value for the newly approved indication. As can be seen, a much higher value than BioXcel's current market capitalization (approximately $300 million). We will have to be attentive to the initial sales figures that will be reported from IGALMI during the second half of this year 2022. I expect slow (barring surprise) initial growth for later quarters this year 2022, and further sales growth for the next year 2023 once the commercial teams are up and running and Igalmi is better known.

For the other indication, Acute Agitation in Dementia and Alzheimer's patients, the expected revenue potential would be at least 4-5 times higher. This is because it is estimated that in the United States there are around 100 million attacks on this type of patient each year. And the figure continues to grow due to the high prevalence of Dementia and Alzheimer's in the most developed countries. Therefore, we would be talking about a peak potential annual revenue of approximately $1 billion. All this helps us to highlight the great potential for revaluation that BioXcel currently presents.
Risks

As with any biotech company, investors should consider some risks that could cause the share price to decline:

1- The Company intends to publish in the coming weeks the results of phase II of 40mg and 60mg to treat agitation in patients with Dementia and Alzheimer's. Although the expectations are very promising, there is always the risk that the results will not be as expected.

2- IGALMI's initial sales figures are lower than expected. This is the main risk I currently see. In any case, and as I have already mentioned, my very cautious estimate of maximum potential revenue is $226 million. And I have already commented that it would not be strange to see slow initial growth in sales, to then grow progressively at a higher rate once Igalmi will be best known.

3- Regarding a possible offering, I see it as very unlikely, after the agreement that the Company has recently signed with Qatar Investments under which BioXcel can use up to $260 million in the financing, which is added to the almost $200 million in cash that was reported in the last Q4 ER, allow the Company to finance its operations until at least 2024.
Conclusion

BioXcel begins a new stage with IGALMI in the commercialization process. My very conservative estimate of peak revenue for the indication of acute agitation in patients with Schizophrenia and Bipolar Syndrome is about 225 million dollars per year. For the other indication (Dementia and Alzheimer's) that figure should be 4 or 5 times higher due to the high prevalence of these diseases in more developed countries. For both indications, the annual peak revenue potential would be above $1.2 billion, which after applying a P/S ratio of 4x, would justify a long-term market capitalization of $4.8 billion. I believe that BioXcel could reach a capitalization of between $1 billion and $1.5 billion without much trouble in the coming months given the huge revenue potential of BXCL501 for both indications (acute agitation in patients with Schizophrenia+Bipolar disorder and Dementia+ Alzheimer's disease). With a current market cap of just $300 million, BioXcel offers an excellent investment opp