BioXcel BXCL701: Another Step Forward In mCRPC Treatment

BioXcel (NASDAQ:BTAI) has just published top line-data from the Phase IIa trial of BXCL701 in combination with Merck’s (MRK) Keytruda in patients with small cell neuroendocrine metastatic castration-resistant prostate cancer (SCNC). The results have been very promising, and based on these results, the company intends to continue Phase IIb trials during the second half of 2023 to verify the efficacy of BXCL701 alone and in combination with Keytruda.

BXCL701 is an investigational, oral innate immune activator designed to initiate inflammation in the tumor microenvironment. Approved and experimental immunotherapies often struggle to address cancers that appear “cold” or uninflamed. Therefore, BXCL701 may render “cold” tumors “hot,” making them more detectable by the adaptive immune system and thereby facilitating the development of a strong anti-cancer immune response.

Designed to stimulate both the innate and acquired immune systems, BXCL701 works by inhibiting dipeptidyl peptidase (DPP) 8/9 and blocking immune evasion by targeting Fibroblast Activation Protein (FAP).

DPP8/9 is involved in the occurrence and development of various tumors and plays different roles in different tumor types and tumor stages. Recent studies have further clarified this point of view. It has shown that the abnormal expression and enzymatic activity of DPP8/9 could participate in the occurrence and development of tumors by affecting cell proliferation and apoptosis, adhesion and migration, damaged DNA repair, and immune regulation.

BioXcel develops the immuno-oncology program through its 100%-owned subsidiary OnkosXcel. This is done to separate the two lines of research that its pipeline currently presents: neuropsychiatry and oncology.

These good results obtained by BXCL701 are of great importance since, until now, no solid results were available on the efficacy of the candidate drug. In fact, to date, no analyst has considered BXCL701 in BioXcel’s valuation models due to a lack of data on its efficacy and safety profile. I have been covering BioXcel for some time with various articles, and have not considered this candidate drug in my company valuations.

This situation has changed since the publication of the top-line results from phase IIa.

It is very likely that there will be many updates in the BTAI valuation by investment analysts in the near future, with consequent revaluations in their target prices.

Given the difficulty of finding an effective treatment for this rare type of cancer, these results are especially important. In fact, Merck has conducted many unsuccessful trials of its blockbuster drug Keytruda over the years, both as monotherapy and in combination with other drugs. Merck has successively canceled several trials (Keynote 199, 956, etc.) due to disappointing results.

It is really a challenge for Merck to find a drug that, in combination with Keytruda, shows some efficacy in this rare type of cancer.

It is very likely that Merck will closely follow the development of BXCL701 trials, and in the event that the upcoming phase IIb trial corroborates the promising results obtained now, it will not be strange to see some movement on the part of Merck in the form of collaboration in the following BXCL701 trials, or even, later, the purchase of BioXcel‘s OnkosXcel.

And the best part of all this is that if, after the upcoming phase IIb and next trials, BXCL701 finally turns out to be the drug that, in combination with Keytruda, is presented as the last and only alternative for patients with advanced-stage resistant prostate cancer, it would open up a wide range of possibilities for BXCL701 with a multitude of other target cancers for which it could be effective (pancreas, liver, brain, etc.).

The revenue potential of BXCL701, if the promising results obtained in the Phase IIa trial are confirmed in subsequent trials, is enormous. As an example, Keytruda (in its various oncology indications) generated close to $20 billion for Merck in 2021.

As a note of caution, the results are still in phase IIa, so while they are very promising, we would have to wait longer for phase IIb and then phase III trials to corroborate these data. And especially within the oncology space, where good results in phase II are often not substantiated in subsequent phase III trials.

Regarding the neuropsychiatric branch, with the leading drug BXCL501, data from 3 phase III trials (Serenity III, Tranquility II and III) are expected in the near future, where the efficacy in the treatment of acute agitation in patients is evaluated with schizophrenia and bipolar syndrome for at-home use and for Alzheimer’s patients.

BioXcel is at a pivotal point in its short existence, with major trial results from BXCL501 about to be published, BXCL701 with promising results on the oncology side, and IGALMI in its post-launch phase with quarterly revenue data coming that will be reported in the next Q4 ER 2022 by early March.

This good moment that the company presents is reflected in the strong upward wave that the share price has experienced in the last three months, and which will most likely continue until it reaches much higher levels in the coming months.

With a market capitalization of approximately $900 million and BXCL501 revenue potential across its multiple indications of over $1 billion, and with the BXCL701 program more consolidated after the Phase IIa results, I believe BioXcel is seriously underrated today.

For all of these reasons, I rate BTAI at this point as a strong buy, as it has a long bullish trajectory.

Promising Phase II Results of BXCL701 in Resistant Prostate Cancer.

BioXcel has reported the following results from the Phase IIa trial:

KEY SCNC FINDINGS

• In the evaluable patient cohort (n = 28), 7 (25%) patients achieved a composite response, the primary endpoint of the trial.
• In patients with RECIST 1.1-defined measurable disease (n = 25), partial response (PR) was observed in 5 (20%) patients (4 confirmed PR, 1 unconfirmed PR). The disease control rate, defined as complete response + partial response + stable disease, was 48% (12 patients).
• The median duration of response for both composite responses and RECIST 1.1-defined partial responses was 6+ months as of the data cutoff on December 19, 2022.
• 6 out of 34 patients (18%) in the safety population experienced serious adverse events (SAEs) possibly related or related to BXCL701 or pembrolizumab, and 6 (18%) patients discontinued any drug due to a treatment-related AE.
• No evidence found that BXCL701 potentiates immune-related AEs related to immune checkpoint inhibitors.
• DPP9 overexpression was identified as a potential predictive biomarker for BXCL701 response; biomarker evaluation is ongoing and additional findings will be presented at an upcoming medical meeting.

Source: BioXcel

As can be seen, the composite response rate (defined as objective response rate by RECIST 1.1 criteria and/or PSA50 and/or CTC count conversion) has been 25%.

These data clearly demonstrate the good results obtained in terms of efficacy by the candidate drug. As can be seen, the composition of ratio is made up of 3 variables: objective response (ORR), PSA 50 and CTC conversion. These three parameters are perfectly valid for determining the degree of response of the tumor to the drug. It must be taken into account that none of the trials carried out so far by Merck with Keytruda (monotherapy and in combination) have managed to exceed the 16% objective response rate. The same goes for the partial response rate.

Below I show a table with the ORR data from the different trials carried out by Merck with Keytruda, and other trials from other companies, with promising results in recent years in the field of resistant advanced prostate cancer:

Click to enlarge

Source: Author

As can be seen, the CRR (ORR) obtained by BXCL701 (25%) is in the upper range of those obtained in different tests carried out to date.

Regarding proven safety, 18% presented serious adverse events. This percentage is in the normal range within oncological trials.

It should be remembered that the trial conducted by BioXcel is a phase IIa trial with a limited size (27 patients). For this reason, the proven efficacy rate cannot yet be taken as definitive. But it does mean, clearly, one more step in the approval process for the future drug candidate.

BXCL701: A multi-billion dollar opportunity

As we have previously commented, BXCL701 is an immune activator that turns a cold tumor into a hot one. Although it is currently being tested for only one type of cancer: “resistant advanced prostate cancer”, the potential to be effective in other types of cancer is very broad (pancreas, liver, kidney, lung, etc.), so The potential revenue, If effective, is immense (Merck’s blockbuster Keytruda, blockbuster drug used for multiple types of cancer) brought in nearly $20 billion across its multiple indications in 2021.

Currently, only two drugs (olaparib and rucaparib) have been approved by the FDA (May 2020) for the treatment of advanced metastatic prostate cancer. Both medicines belong to the so-called group of PARP inhibitors.

They block the activity of a protein known as PARP, which helps cells mend specific types of damage to DNA.

PARP inhibitors after studies suggested that alterations in BRCA1 and BRCA2, as well as other genes involved in a cell’s ability to respond to DNA damage, may be present.

Studies have shown that 20%–30% of men with metastatic prostate cancer have genetic alterations that impair cells’ DNA repair mechanisms.

These two drugs have very limited use to only 20% of patients with resistant prostate cancer since they only work in those patients who, after a blood test, show that these two genes are altered.

Therefore, there is still no approved therapy to treat the entire patient population of resistant advanced prostate cancer.

Market Opportunity

To estimate revenue potential for the resistant prostate cancer indication, we have the following data:

In 2022, there were an estimated 268,500 new prostate cancer patients, with approximately 10,740 patients progressing to SCNC.

It is currently estimated that there are about 42,970 patients with advanced prostate cancer in the United States.

Price of treatment per patient and year: Being this type of cancer a very rare type of cancer, the cost of treatment will probably be high. We are going to take as a reference the cost of other types of immunotherapy treatments in the field of oncology:

Costs and Types of Immunotherapy

Click to enlarge

Source: Author

As can be seen in the table, the cost of immunotherapy treatment is usually high, between $100,000 and $500,000 per patient per year.

Considering that there are currently no effective treatments for this rare type of cancer, if BXCl701 is finally approved, it could reach a high % of patients.

Assuming a prudent %penetration of 25%:

25%X42,970=10,742

Annual cost per patient and year: We estimate a prudent figure of $100,000

Annual peak sales: 10,742X $100,000 = $1.07B

Therefore, we can estimate that BXCL701, if ultimately approved for this rare type of cancer, could generate a peak annual revenue of $1B.

This figure is only an estimate with the data we currently have, but it clearly serves to see the great revenue potential that BXCl701 has.

In addition, like Keytruda, its use could be extended to other types of cancer since, as we have seen previously, DPP8/9 (BXCL701 inhibits its activity) has been studied to be present in many different types of cancer: Breast cancer, ovary, brain, liver, lungs, etc.

Therefore, although the phase IIb trial has yet to be developed, and the next pivotal phase III, the recently published data makes me very optimistic about the future of BXCL701.

Neuro-psychiatric Program (BXCL501)

Although in this article I have focused on BXCL701, I am going to review the current situation regarding the BXCL501 program.

As is well known, the FDA approved BXCL501 last April to treat acute agitation in patients with schizophrenia and bipolar syndrome types I and II, with the only requirement that patients have to be supervised by a healthcare professional after its application.

Under the trade name IGALMI, it has been marketed since last July only in hospital settings.

The first revenue was reported in the Q3 ER with a figure of $137,000.

Now the revenues for the last quarter of the last year, 2022 are expected for the next Q4 ER, which probably will be reported in the first half of March.

Since BioXcel markets IGALMI only in the hospital settings, revenue growth is expected to be slow, as the sales process is a very slow and cumbersome process: Formularies approval by the Purchasing Department of the Hospital, drug purchase amount approval, purchase, etc. This whole process can take between 6 and 9 months.

That is why IGALMI’s quarterly sales growth will be slower than that of other drugs sold outside of Hospitals settings.

In this sense, some articles have been written lately in SA, “BioXcel Therapeutics: IGALMI Is Like A Dud In The Real-World“, where BioXcel is analyzed exclusively taking into account the revenue potential of IGALMI, issuing a skeptical opinion regarding the potential investment opportunity in BioXcel.

This view falls into serious error because it totally omits the other 3 phase III trials in which BXCL501 is currently being tested: Serenity II (phase III trial for acute agitation in patients with schizophrenia and bipolar syndrome in at-home use), Tranquility II (phase III trial in acute agitation for patients with moderate Alzheimer’s) and Tranquility III (Phase III trial in acute agitation for patients with advanced Alzheimer’s).

In fact, it is in these indications that the BXCL501 has the greatest revenue potential. I estimate that of the total revenue that BXCL501 could generate, the weighting would be:

Total income of BXCL501:

Click to enlarge

Source: Author

So while IGALMI’s upcoming Q4 earnings data will be important, I don’t think it will be the main factor driving the stock price in the coming months. Rather, the results of the Serenity III, Tranquility II and II trials will be really important in terms of BioXcel’s future stock price.

In fact, Goldman Sachs analyst Corinne Jetkins, in her latest BioXcel upgrade, commented that it will be the trials results of Serenity and Tranquility that will drive the share price, not IGALMI’s initial sales: “…will have a limited downside on (IGALMI) revenue estimates over the next year, with minimal share price impact during initial launch.”

Regarding the phase III trials: Serenity III, Tranquility II and III, results are expected during this 1H (for the first two) and the 2H (for the last one).

The chances of good results are very high since BXCL501 has already been tested in phase III trials with excellent results for acute agitation in patients with schizophrenia and BS in the Hospital setting; therefore, in the “at-home” setting it is very likely that it will obtain very good results. And as for the Tranquility (Alzheimer’s) program, it has already been tested in a phase II trial with equally excellent results (Tranquility I).

The results of these 3 phase III trials will be very important catalysts that should produce a strong impact on the share price during the year 2023.

Risks

As in any biotech company, there are risks that any investor should take into account before taking position in the company:

• IGALMI’s revenues in the first quarter after its launch may be slower than expected. This could create a negative reaction in the market. In this sense, this should not be a big problem because, as I have already commented, IGALMI will generate a very small % of the revenue of the total revenue that BXCL501 could potentially generate in all indications.
• The results of the Phase III trials (Serenity III, Tranquility II and III), although with a high probability of being very good, there is always the possibility that they will be surprisingly worse than expected.
• Cash status: In 04/2022 BioXcel completed a $260 million financing which it pegged as providing it a cash runway into 2025. Assuming that its cash burn continues at $31.5 million a quarter, its ~$232 million cash at the close of Q3, 2022 will drop by $157.5 at the close of Q4 2024. This would leave it cash of ~$74.5 million at the start of 2025. Here, I think it could be an offering at the end of this year 2023 or the beginning of 2024 because the company is developing multiple trials (Serenity, Tranquility, Depression, etc.) and is undertaking the first phases of the IGALMI launch process. All of this requires high cash rates, which would lead to an increase in the quarterly gross cash rate.

Conclusion

BioXcel has just published top-line data from the Phase IIa trial of BXCL701 for mSCNC with very promising results. These results position BXCL701 as a valuable asset for the first time, as analysts have not previously considered it in BioXcel’s valuations. Although these are still the results of a phase IIa trial, the data is good enough to be very optimistic about the upcoming phase IIb trial.

It should be noted here that Merck has been testing its blockbuster Keytruda for years, both as monotherapy and in combination with other drugs, to find a treatment that offers minimally effective results in this rare type of cancer with less than optimal results. In fact, it has had to halt almost all the trials carried out so far. Therefore, it would not be strange to see some movement from Merck in terms of some type of collaboration with BioXcel in the following trials.

With a peak revenue potential of over $1 billion for this indication alone, BXCL701 is set to be an exciting asset within the BioXcel pipeline.

Regarding the other branch of the pipeline (neuro-psychiatric), BioXcel‘s BXCL501 continues to be tested in 3 different phase III trials, from which results are expected in the current semester. This is where BioXcel has a good part of its future at stake, and the outlook is very good. BXCL501 was already approved last April to treat agitation in patients with Schizophrenia and bipolar syndrome (IGALMI), so it is very likely that the results will be very good for the 3 phase III trials.

In the next Q4 ER, IGALMI revenue data will be reported, where it will be possible to observe the evolution of the IGALMI launch. Due to the fact that IGALMI is marketed exclusively in the hospital setting, it is foreseeable that growth in the first quarter will be slow due to the complex purchasing process in the Hospital Centers (formularies, purchasing committee, etc.). For BioXcel this should not be a problem because, as I have already explained, the revenue potential of IGALMI will be a minimum percentage of the total revenue potential that BXCL501 will be able to generate once approved in all the indications.

With a market cap of around $900 million and revenue potential for BXCL501 of over $1 billion across all indications (excluding BXCL701), the company is frankly undervalued and is on a bull run for the next months/years.