Company Overview: Botanix Pharmaceuticals Ltd (ASX: BOT), formerly known as Bone Medical Limited, is an Australian-based pharmaceutical company, engaged in developing next-generation therapeutics for the treatment of serious skin diseases. The company is headquartered in Northbridge, Australia, and the group is being currently headed by Dr. Michael Thurn Ph.D. - Chief Operating Officer. The Company's products and pipeline products are all based on drug delivery technology known as Permetrex, which helps solve the challenge of delivering active pharmaceutical ingredients across the skin. The Company's products, which are under development, are focused on modulating the body's endocannabinoid system of receptors which regulates skin function, growth, and renewal. Its product pipeline includes BTX1503, BTX1308, and BTX1204. Its BTX1503 is a transdermal gel formulation used for the treatment of serious acne in adults and teenagers. Its BTX1308 is a transdermal gel formulation used for the treatment of plaque psoriasis. Its BTX1204 is a transdermal gel formation used for the treatment of atopic dermatitis. As of now, Botanix is preparing for the first human trials utilizing synthetic cannabidiol in a proprietary drug delivery system (Permetrex) for direct skin delivery of the therapy.
 

BOT Details

BTX 1503 Product – A Key Growth Driver: The lead product (BTX 1503) of Botanix Pharmaceuticals Ltd (ASX: BOT) is a topically applied gel for the treatment of serious acne, based on a new pharmaceutical ingredient that is understood to work in four unique ways like, it reduces excessive production of oils, obstructs over-proliferation of oil producing cells, obstructs bacteria and provides a new anti-inflammatory effect. Recently, the company announced that it has completed its first acne patient studies with BTX 1503 in January 2018 and started a Phase 2 clinical trial in June 2018 and this is expected to get completed by mid of 2019. The BTX 1503 Phase 2 clinical trial has been designed to deliver data that allows Botanix to explore potential licensing and other corporate opportunities upon successful completion of the study around mid-2019. The BTX 1503 acne Phase 2 clinical trial is underway across the US and Australia, and currently has 10 sites actively recruiting in Australia. The targeted enrolment for the BTX 1503 phase 2 trial is 360 patients with moderate to severe acne. The company believes that BTX 1503 has a potential to generate similar or greater revenue of its two leading topical acne products i.e., Aczone generated revenue of US$ 456 Mn in FY16 and Epiduo recorded revenue of US$ 494 Mn. As per the study, there is a significant unmet patient need for effective therapies in the global acne market, given the relatively few new products being developed and the recent withdrawal of products from the market due to their significant side effect problems. Hence, we believe that there is a large opportunity for its flagship product BTX 1503 in years ahead after execution on its ongoing development which is expected to be completed by mid-2019.


BTX 1503: Global Acne Market (Source: Company Reports)

Focusing on BTX 1204 Phase 2 clinical development: The phase 1b BTX 1204 atopic dermatitis patient study has successfully been completed in June 2018 and the group currently focuses on progressing BTX 1204 into Phase 2 clinical development. The group is well advanced in preparing the US Food and Drug Administration’s (FDA) regulatory package to support the planned Phase 2 clinical trial. For that matter, the group planned BTX 1204 Phase 2 clinical trial that will be a 10 to 12 week randomized, double-blind, vehicle-controlled study that includes patients with moderate AD therapies. This study will involve both US and Australian clinical sites and enrolment will be completed shortly after the completion of the current BTX 1503 acne Phase 2 trial, due to the efficiencies that Botanix can derive from running two Phase 2 studies in parallel. BTX1204 has a potential for development as a first-in-class therapy that may control inflammation and improve the skin barrier function in the patients while avoiding the side effects associated with existing treatments. From a global market standpoint, atopic dermatitis (AD) market is estimated to grow at CAGR of 12.8% from circa US$7 Bn in 2017 to about US$24 Bn in 2027. Hence, we expect that BTX 1204 has significant potential to address this market opportunity in years to come.


BTX 1204: Global atopic dermatitis market (Source: Company Reports)

BTX 1801 – Growth Catalyst: BTX 1801 data exhibits potential for a new antimicrobial to treat unmet needs in skin infections together with additional benefits seen in earlier Botanix studies like reduction in inflammation. The study results exhibit that the delivery of cannabidiol with Permetrex can reduce the concentration of the active drug required to achieve the highest levels of bacterial killing. As of now, the company is focused on completing a market review and commercial assessment, in conjunction with key opinion leaders, to identify the preferred type of skin infection to target initially for BTX 1801, preceding setting out on clinical improvement. Most recently, the Australian government provided the funding to BOT to study the effectiveness of Cannabidiol (CBD) based compound, BTX 1801, as an antimicrobial agent with a focus on drug-resistant bacteria. This research will be in collaboration with the University of Queensland Institute for Molecular Bioscience. We expect that the research collaboration will help to facilitate the identification of the skin infection type to target for initial clinical studies with BTX 1801. Clinical development is planned for 4Q CY2018.


Clinical Programs with near term milestones (Source: Company Reports)

Highly Experienced Team: The company is loaded with the highly experienced management team and is being currently headed by Dr. Michael Thurn Ph.D. - Chief Operating Officer. He has a rich exposure in senior management and drug regulation related positions with a span of over 15 years of experience in the biopharmaceutical industry. Moreover, he has worked extensively with life science start-ups across a range of technology platforms and has experience in drug discovery, preclinical and clinical development. Hence, we believe that he will continue to lead a talented team and provide guidance to employees and grow the business by providing valuable strategic advice, along with industry insights and contacts to the Company during its intended commercialization and growth phase.

Financial Highlights: FY18 was another progressive year wherein the Group executed its strategic and tactical plans efficiently. The company for FY18 reported a 401.3% growth in total net revenues to $ 233,177 over the prior year. However, a loss for the Group after tax attributable to members increased by 130.7% and amounted to $ 11,011,813 in FY 18 over the prior year. It was mainly impacted by the rise in research and development cost, higher administrative and corporate expenses, and share-based payment during the same period. As a result, basic loss per share from continuing operation also came in at 2.26 cents per share, a fall of 109.3% from the previous year basic loss per share which was at 1.08 cents per share. As on 30 June 2018, the Group had consolidated net assets of $ 16,284,891 (2017: $5,436,823) which included the cash balance of $ 17,263,408 (2016: $ 5,720,514). The current ratio stood at 12.42x in FY18, representing adequate liquidity to fulfill any shortcoming liability in near future. No dividends were proposed or paid during the period.


FY18- Preliminary P&L Statement (Source: Company Reports)

Positive Outlook: We are optimistic on the company as the group is pursuing a rapid clinical development strategy to accelerate product commercialization and timing to initially produce incomes. Besides this, the group is working collaboratively with multiple partners to utilize the Permetrex delivery technology to formulate new drugs in development. We believe that this work will counterbalance the Company's operational expenses and may also translate into future licensing opportunities for the Permetrex platform, which may give prompt income and the potential for considerable incomes from milestone payments and royalties, at no extra cost to Botanix. The Company considers that it is uniquely positioned and will be benefitted from the rapid product development, strict development timeline along with targeting large markets.

Other key Updates: More recently, the company was awarded the Innovation Connections Grant and appointed Dr. Stephane Levy as Chief Medical Officer and Ms. Jillian Chapas-Reed as Senior Director of Clinical Operations. The group at the 27^th European Academy of Dermatology and Venerology expects to have an exposure to potential prospective partners and market leading companies.

Stock Recommendation: Meanwhile, BOT stock has fallen 26.67% in three months as on September 13, 2018. BOT is looking forward to work on significant clinical and operational milestones across multiple programs expected over the next 12 months. From the analysis front, the company has maintained a decent current ratio at 12.42x in FY18 compared to 12.55x in FY17. However, ROE has been concerning with FY18 figure coming in at -101.4% and it was -110.5% in FY17. From a technical analysis standpoint, the stock has generated positive YTD return of 45.59% and is in a consolidation phase over past few months. Volumes have also been muted; however, 14-days’ relative strength indicator looks positive and bound to move upward from the current juncture suggesting that the stock has room to grow from here. Ongoing operational improvements and steps taken by the company towards growth might act as a catalyst, driving the shares higher. We, therefore, recommend ‘Speculative Buy’ in the stock at the current market price of $ 0.100.
 

 
BOT Daily Chart (Source: Thomson Reuters)

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