BioXcel Therapeutics(US:BTAI)2023-08-13 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company's June 30, 2023 financial statements show a deteriorating position with decreased cash, increased deficit, and a significant decline in equity, raising going concern doubts Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $127,545 | $193,725 | | Total assets | $140,097 | $205,853 | | Liabilities & Equity | | | | Total liabilities | $134,233 | $129,078 | | Accumulated deficit | $(517,856) | $(411,545) | | Total stockholders' equity | $5,864 | $76,775 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $457 | $— | $663 | $— | | Total operating expenses | $52,871 | $36,288 | $104,274 | $67,768 | | Net loss | $(53,515) | $(37,670) | $(106,311) | $(69,142) | | Basic and diluted net loss per share | $(1.83) | $(1.35) | $(3.68) | $(2.47) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(90,559) | $(65,516) | | Net cash used in investing activities | $(20) | $(139) | | Net cash provided by financing activities | $24,399 | $66,139 | - Management has concluded there is substantial doubt about the company's ability to continue as a going concern due to significant losses, negative cash flows, potential debt payments, and reliance on future financing385412277 Debt and Credit Facilities The company secured $260 million in Oaktree financing, drawing $100 million by June 2023, but anticipates failing Q4 2023 revenue covenants, potentially incurring significant cure payments - The company entered into two financing agreements (OFA Facilities) with Oaktree and Qatar Investment Authority affiliates for up to $260 million to support IGALMI commercialization and BXCL501 clinical development12 - The Credit Agreement provides for up to $135 million in loans, with an initial $70 million funded and the remaining $65 million available subject to milestones the company does not expect to meet13490 - The RIFA provides up to $120 million in financing, with an initial $30 million funded and the remaining $90 million available subject to milestones the company does not expect to satisfy17519490 - The Credit Agreement includes a minimum revenue covenant starting Q4 2023, which the company expects to fail, potentially requiring cure payments of up to $7.7M, $10.6M, and $14.3M for the testing dates ending Dec 2023, Mar 2024, and Jun 2024, respectively515285272 Stock-Based Compensation Stock-based compensation expense increased to $11.0 million in H1 2023, with 1,072 thousand options granted and 309 thousand exercised under equity plans Stock Option Activity (in thousands of shares) - Six Months Ended June 30, 2023 | Activity | Number of shares | Weighted average price per share | | :--- | :--- | :--- | | Outstanding as of January 1, 2023 | 4,882 | $17.23 | | Granted | 1,072 | $19.62 | | Forfeited | (34) | $17.13 | | Exercised | (309) | $1.65 | | Outstanding as of June 30, 2023 | 5,604 | $18.54 | Stock-Based Compensation Expense (in thousands) | Period | Research and development | Selling, general and administrative | Total | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, 2023 | $1,898 | $4,226 | $6,124 | | Six Months Ended June 30, 2023 | $3,195 | $7,806 | $11,001 | Subsequent Events (Strategic Reprioritization) A strategic reprioritization in August 2023, including a 50% workforce reduction, aims to extend cash runway into mid-2024 and reduce annual operating expenses by $80 million - On August 8, 2023, the company initiated a strategic reprioritization to extend its cash runway into mid-2024, including a ~50% workforce reduction and a shift in focus to at-home development for BXCL50154879 - The reprioritization is expected to reduce annual operating expenses by approximately $80 million7379 - The company estimates it will incur approximately $7-8 million in cash costs for severance, benefits, and related expenses as a result of the restructuring48111 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details the company's biopharmaceutical focus, a strategic reprioritization to extend cash runway, increased spending, significant net loss, and critical liquidity concerns, including debt restructuring negotiations Clinical Program Development Clinical development focuses on at-home BXCL501, with SERENITY III Part 1 missing its endpoint and TRANQUILITY II data integrity compromised by misconduct, while other programs are paused - The SERENITY III trial (at-home use for schizophrenia/bipolar) did not meet its primary endpoint in Part 1 (p=0.077 at 2 hours), but the company sees promising signals and plans to discuss an 80 mcg dose with the FDA for Part 211989120 - The TRANQUILITY II trial (Alzheimer's agitation) met its primary endpoint for the 60 mcg dose; however, the trial is under investigation for misconduct by an investigator who enrolled approximately 40% of the patients, raising concerns about data integrity93124125 - Enrollment in the TRANQUILITY III trial (moderate-to-severe dementia) was halted because agitation in this population appeared more chronic than episodic, requiring a different development strategy9578 - As part of the reprioritization, the company has paused development of BXCL501 as an adjunctive treatment for Major Depressive Disorder (MDD) and has generally suspended its immuno-oncology programs (BXCL701)99140 Results of Operations Net loss increased to $106.3 million in H1 2023, driven by a 50% rise in R&D expenses to $54.8 million and a 59% increase in SG&A to $49.5 million, with minimal product revenue Research & Development Expenses (in thousands) | Period | BXCL501 | BXCL701 | Other | Total Direct | Total R&D | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2023 | $15,010 | $2,095 | $1,390 | $18,495 | $26,973 | | Q2 2022 | $9,054 | $1,785 | $671 | $11,510 | $17,906 | | H1 2023 | $31,478 | $4,763 | $2,281 | $38,522 | $54,773 | | H1 2022 | $17,570 | $4,701 | $1,223 | $23,494 | $36,593 | - The increase in R&D expenses was primarily driven by higher clinical trial costs for the SERENITY III and TRANQUILITY II studies, along with increased personnel costs to support the expanded trials222254255 - The increase in SG&A expenses was mainly due to higher personnel, marketing, and travel costs to support the U.S. commercialization of IGALMI, as well as professional fees related to the TRANQUILITY II investigation and the formation of OnkosXcel224233259 Liquidity and Capital Resources The company faces critical liquidity issues and going concern doubts, with $127.5 million cash as of June 30, 2023, and is negotiating debt restructuring due to anticipated covenant breaches - Management has substantial doubt about the company's ability to continue as a going concern, citing significant losses, negative cash flows, and dependence on future financing277385 - With $127.5 million in cash as of June 30, 2023, and after implementing the Reprioritization, management believes it can fund operations into mid-2024239277 - The company is in active negotiations to restructure its OFA Facilities due to the expectation that it will not meet the Revenue Covenant in 2024, which could require cure payments of up to an aggregate of approximately $34.1 million over the next twelve months272598 PART II - OTHER INFORMATION Item 1A. Risk Factors The company faces significant financial risks, including going concern doubts and debt, operational risks from clinical trial misconduct, and high dependency on BXCL501 and third-party services Financial and Operational Risks The company faces high financial risk, including going concern doubts, significant debt with potential $34.1 million cure payments, and risks from its strategic reprioritization and workforce reduction - The company has identified conditions that raise substantial doubt about its ability to continue as a going concern and will need to raise substantial additional funding to continue operations579572326 - The company has significant indebtedness ($101.6M principal as of June 30, 2023) and expects to be required to make cure payments for failing to meet its Revenue Covenant in 2024, which could total approximately $34.1 million over the next 12 months597598306 - The strategic reprioritization and workforce reduction may result in unintended consequences, such as loss of institutional knowledge, and may not achieve the anticipated benefits or cost savings984570325 Clinical Development and Regulatory Risks Critical risks include investigator misconduct in TRANQUILITY II, potentially invalidating data, and the risky strategic focus on at-home BXCL501 due to limited data and SERENITY III's missed endpoint - A principal investigator in the TRANQUILITY II trial, who enrolled ~40% of patients, engaged in misconduct, including fabricating email correspondence regarding an SAE, creating a risk that the FDA will not accept the data to support a marketing application601603604 - The company has limited clinical data supporting the safety and efficacy of BXCL501 for at-home use, which is now a strategic priority, and the SERENITY III Part 1 trial for this setting did not meet its primary efficacy endpoint607587 - The company faces the risk that the FDA may not approve its product candidates, may disagree with clinical trial design, or that trial results may not meet the required level of statistical significance613616595 Reliance on Third Parties and Related Parties The company is highly dependent on third-party manufacturers for supply and BioXcel LLC for R&D services, with the expiration of exclusivity creating competitive risks - The company is substantially dependent on third-party manufacturers like ARx for clinical and commercial supplies of its products and must adhere to cGMP standards837838334 - The company continues to depend on BioXcel LLC for services, including access to its EvolverAI platform, to identify and develop product candidates, and the exclusivity agreement expired in March 2023817818333 - BioXcel LLC's significant ownership (~29%) and the roles of affiliated individuals on the Board create potential conflicts of interest that could influence business decisions811819364