Is This Soaring Growth Stock a Buy? – The Motley Fool


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The stock market has recovered some of its losses over the past month, rising by nearly 11% in this period. Some companies are tagging along, including BioXcel Therapeutics (BTAI -2.31%), a small-cap biotech stock. BioXcel remains deep in the red for the year, but ongoing developments have helped fuel the company’s recent run. And at a market capitalization of $430 million, its shares might be worth buying if there is more fuel left in its growth tank. Is this drugmaker worth investing in today?

BTAI data by YCharts.
BioXcel Therapeutics focuses on developing therapies in neuroscience and immuno-oncology. It has just one product on the market, Igalmi, a sublingual film that treats acute agitation (intense anxiety often accompanied by excessive or aggressive activity) in patients with schizophrenia and bipolar disorder 1 or 2.
Igalmi earned approval from the U.S. Food and Drug Administration in April. This therapy isn’t generating much money for BioXcel Therapeutics yet. In the third quarter, the company reported revenue of just $137,000. The biotech did not record any sales in the comparable period of the previous fiscal year.
On the other hand, Igalmi hasn’t been on the market for long, so it isn’t surprising that its sales aren’t that impressive yet. BioXcel expects revenue to grow significantly in 2023 as it expands its sales force across the U.S. Also, the therapy could earn key label expansions. Igalmi is undergoing a phase 3 clinical trial as a potential treatment for agitation associated with Alzheimer’s disease (AD), among others.
BioXcel Therapeutics expects top-line data from this study in the first half of 2023. The market opportunity here is substantially larger than what Igalmi’s current indication boasts. BioXcel estimates that there are roughly 100 million agitation episodes yearly related to AD in the U.S. That compares favorably to the 16 million episodes for the patient population that Igalmi’s current indication targets.
The company sees a total market opportunity worth $15 billion for Igalmi. That’s a substantial amount for a small-cap biotech.
The market doesn’t seem convinced that Igalmi will achieve the success BioXcel hopes for right now. Otherwise, the company would be worth a lot more than just $430 million. What are the risks associated with this biotech? The most immediate one is that Igalmi could fail to prove effective in treating AD-associated agitation.
We will know soon enough whether that’s the case, and if things turn out that way, BioXcel Therapeutics will lose a substantial percentage of its value. Also, the company’s ongoing launch of Igalmi in its current indication could come short of expectations. Larger biotech companies have deep sales and marketing teams ready when they launch new drugs, making the rollout of their products faster.
Smaller drugmakers like BioXcel Therapeutics often don’t have that luxury. That’s one reason many of them partner with some of their more established peers for a price, usually to share the rights to some of their products. BioXcel Therapeutics did not enter any such agreement for Igalmi, and it won’t have to share its profits.
On the downside, it might take longer for Igalmi to achieve its full potential than it would have if BioXcel had a larger partner by its side. Also, the company remains unprofitable. It recorded a net loss of $41.8 million in the third quarter, compared to the $26.8 million net loss reported during the year-ago period.
The biotech will likely ramp up expenses related to Igalmi’s launch and the progress of some of its clinical programs. Even with Igalmi generating more and more revenue, BioXcel Therapeutics could remain unprofitable for some time. What does all of this mean for investors? BioXcel’s shares could skyrocket if the company perfectly executes its master plan, including the approval of Igalmi in treating AD agitation.
But biotech companies rarely win every clinical or regulatory battle they face, and if the company fails in even one important aspect, its shares will likely plunge. That makes BioXcel Therapeutics a risky stock despite a massive potential upside. Only those investors comfortable with that should even consider initiating a position. For everyone else, there are other excellent biotech stocks to consider buying today

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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