On Tuesday 2ndof Feb 2021 BOT went into a much anticipated trading holt for the release of results of its BTX1801 Clinical Phase 2a study. Preceding weeks had seen BOT share price peak at 18c around the 25thof January in anticipation of results. This was a far cry from the 29c the company reached on 2ndof August 2019 on anticipation of a less mature stage of the company without the anti-microbial drug potential in the mix.
The share price leading into the anti-microbial BTX1801 announcement was also a much bigger discount to the Cowan investment of 20c per share made by the US company in 2019 in the lead up to BTX1503 acne results.
As investors are aware following mixed results of BTX1503 acne in 2019 the share price more than halved to 12c on October 25th. It continued its gradual decline to as low as 2c around March 2020 before a slow climb back to its recent 18c peak prior to the anti-microbial results.
Results released on the 3rdof February 2021 were excellent. Primary end points of the phase 2a study were met. The CBD BTX1801 gel and ointment formulations both successfully and safely reduced Staph infections in the nasal cavity of patients verse a vehicle control. A collective shareholder sigh of relief and anticipation was warranted.
Mr Market had a very odd response to this result.
Each clinical trial stage passage potentially de-risks the drug and improves chances of success and future commercialisation. This process is analogous to climbing each progressive rung of a ladder.Share-holders would then rightly anticipate share price rises accordingly as each rung is passed in Biotech companies. However despite this result trading saw a closing price of 17c on the 3rdfollowing the announcement and a gradual decline to 13c at close on the 8thof Feb, 2021. This price was near parody to the SP after the disappointing mixed results of the acne BTX1503 drug in 2019.
The share price does not currently appear to reflect a successful 2a BTX 1801 trial outcome.
Seemingly the market failed to acknowledge the passage up another rung of the ladder toward a potentially efficacious and safe new anti-biotic class with synthetic CBD BTX1801. This will be the first new class of antibiotics in 60 years. It was also the first human trial in the world to show that CBD can kill Staph aureus in 76% of patients after 5 days of treatment and that it has residual effects for up to 28 days.
This was a phase 2a study so optimal treatment dosages and comparisons to other drugs on market was not the study design. Safety and early efficacy and formulation methodology are being established. Nothing more nothing less. Was it safe, tick, was it effective, tick.
The meeting of the primary end points of this BTX1801 study can likely be extrapolated toprovide further supporting evidence for the other drugs in the pipeline using synthetic CBD. Acne successfully kills staph aureus. Staph is part of the natural flora of the skin and overgrowth of this bacterial gets into pores causing acne. Ergo reduce bacterial load reduce acne.
Hence the results are another rung or two up the ladder toward successful commercialisation of potentially 2 pipeline drugs.
Biotech investing is a complex game and one where opportunities can be found and advantages can be had for those with a scientific background. Scientific language seems to be the area of confusion where market price can be won or lost or confusion and games can ensue to the advantage of those who know how to play. What do the primary end points mean? What are p values? What sample sizes carry statistical significance. Market misreads are certainly not unique and hesitation of market responses can be used to traders and investors advantages. However it can also lead share-holders to sell when they should hold or buy more.
Add to the complexity that traditional value investing rules do not apply when assessing a Biotech. Firstly there is rarely a commercial product producing income in early start up companies. R and D tax refunds are often the only revenue these early stage businesses rely on. Otherwise outside investment from bigger pharmaceutical companies or entities with a vested interest may produce some capital.
So why would an investor take on the risk of investing in the Biotech? How does one even start to value or understand the market capitalisation of these kinds of companies when traditional metrics are out the window?
Each investor has their own reasons and motivations: some believe in the science or the potential life altering outcomes of the new therapeutic or diagnostic test being developed while others know that the biotech space is traditionally a high risk and high reward play.
Biotech companies rely on their shareholders to provide working capital to progress from pre-clinical through to often costly phase 3 trials.
I believe value comes from novelty, the problem being solved, the need and the potential addressable market and the number of products in the pipeline of the Biotech.
So rather than looking at balance sheet and revenue growth the incremental value increases occur with the rungs climbed up the ladder from the pre-clinical proof of concept through to the Phase 1 safety through to the Phase 3 results. All are significant milestones for these companies.
90% of drugs fail to reach commercial products due to safety issues. Botanix Pharmaceuticals has a SAFE synthetic CBD product across all its drug channels: acne, anti-microbial and rosacea.
In a study of 640 phase 3 novel therapeutics 54% failed in clinical development. So even if a drug makes it to phase 3 less than half will be approved to commercialisation. 57% of those drugs will fail due to inadequate efficacy (Hwang T.J., Carpenter D., Lauffenburger J.C., Wang B., Franklin J.M., Kesselheim A.S. Failure of investigational drugs in late-stage clinical development and publication of trial results. JAMA Intern. Med. 2016;176:1826–1833). BTX1801 reduced Staph infections and destroys the bacteria through destruction of the cell wall. This drug potentially can be used without Staph aureus building resistance to it (lab tests only so far).
BTX 1801 anti-microbial once again has shown to be safe, tick, effective in 2a trials, tick. Given its tolerability and safety profile there are low drop out rates in previous trials and likely to be compliance of participants in trials moving forward. The management team also has experience with following FDA study guidelines given their vast experience at previous companies. Failing to comply with FDA study regulations are another reason trials frequently fail.
I perceive the biggest likely hurdle for this company is not failure in trials due to efficacy, safety or not following FDA regulations. The biggest risk given COVID is recruitment and trial interruptions moving forward. Hopefully this can be mitigated or future trials can be continued in Australia and New Zealand as opposed to the US to ensure continued timely progression of the companies pipeline.
Botanix pharmaceuticals is now a company with diverse and maturing product pipeline with a 2b Rosacea trial about to begin Q1 2021. This addresses a unique market in its own right and simultaneously provides an FDA building block toward Phase 3 BTX1503 acne the final phase prior to commercialisation. Further anti-microbial BTX1801 advancement should be fast tracked and phase 2b trials should also begin this year.
Given this companies progression up the ladder I do believe it is currently significantly undervalued. Share-holders will stay and more will be added to the register to help fund future studies but reward is needed to incentivize new money into Biotech companies. That is the nature of the high risk high reward play. Opportunity costs can indeed be great if money remains parked in these companies without bouts of significant reward.
It is obviously up to the each individual shareholder to assess whether the progression of the drug pipeline of this company has merit.
(20min delay)