Botanix Pharma – ready for lift-off in 2020

Botanix Pharma – one of our strongest cannabis stock picks – had an issue with its Acne drug Phase 2 results. We speak exclusively to the company and hear – first hand – how they have addressed the issue and why the future looks brighter than ever.

Botanix Pharmaceuticals (ASX:BOT) is one of Australia's most exciting cannabis biotech stocks. The company is unique in that it is using synthetic cannabidiol (CBD) to target a range of dermatological conditions including acne, atopic dermatitis and rosacea (to name just a few), together with some exciting antimicrobial applications. There has been very little in the way of new topical drug developments in these areas this century that address patients' needs.

BTX 1503 – the acne blockbuster drug

Acne, one of the most common skin diseases on the planet, has not seen a new drug brought to the market in over 30 years. The disease is most prevalent among teenagers and is present in more than 85% of people between the ages of 12 and 18.  Dermatologists classify the severity of your acne based on the number of inflammatory (lesions that contain pus) pimples and non-inflammatory (white-heads and black-heads) pimples present.  A successful acne treatment aims to treat both types of pimples. 

Botanix is the only pharmaceutical player studying the effects of CBD on dermatological diseases through the FDA approval process, and this first-mover advantage creates an opportunity to really dominate the market, where the incumbents are largely generic drugs that have been reformulated, some of which produce significant side effects and safety issues when used as long term treatments.

In October last year, the company released the results of the Phase 2 study for BTX 1503, but the results were skewed based on the performance of the vehicle (or the "gel without the drug in it") in the US arm of the study. We have written previously on these results and you can read more about them here, but in summary, the vehicle gel delivered similar efficacy as the actual drug formulation for inflammatory pimples, but the drug formulation trumped the vehicle for non-inflammatory pimples. This resulted in a statistically insignificant difference between the drug and the vehicle in the primary endpoint which was focused on inflammatory pimples, and thus a "failure" to meet this overall primary endpoint.

Recently, the Green Fund sat down with the senior management team (including Executive Chairman and President Vince Ippolito, Matt Callahan and Dr Michael Thurn) for an exclusive interview surrounding the post-study review, and what this means for the pipeline moving forward.

So what actually happened?

"What we saw from the [BTX 1503] Phase 2 study was good efficacy and also good safety. The issue we had with the study was we didn't hit statistical significance on the primary endpoint because the vehicle response was so high in the US," said Matt Callahan, Botanix's founder.

BTX1503 Phase 2 Clinical Trial Results
Source: Company Presentation

The above diagram provides a summary of the Phase 2 study results. If you look at the far left hand "combined vehicle", you'll see that the vehicle response in the U.S. was 45.9% while the vehicle response in Australia was only 26.4%.  This very high US response skewed the overall vehicle response so that there was no sufficient separation between the drug and vehicle arms of the study.

If the overall study data reflected the successful Australian-generated data, we would have had no problems with meeting the primary endpoint.  We saw an excellent result with the non-inflammatory lesion reduction, but the inflammatory pimples endpoint was affected by an unusually high vehicle response in the US.-Matt Callahan, Botanix Pharmaceuticals Founder

As can clearly be seen, there is a significant difference in the performance of the vehicle in the US versus in Australia. Before getting to that difference, one of the questions we had is why one would see a noticeable effect with a vehicle in the first place. Surely, a vehicle (or gel without the drug in it) should have little effect?

"Whenever you do a clinical study, you're always going to see a placebo or vehicle response, and particularly in dermatology studies.  That vehicle response happens for two reasons. One, the patient is under the care of a dermatologist and is more likely to take care of their skin and may implement other positive lifestyle changes and as a result, are likely to see an improvement," said Callahan.

He continued, "the second aspect depends on what is in your gel or your cream (in dermatology, we call it the vehicle rather than the placebo). You will always see an effect on the skin because you're physically applying something to the area that has the disease. The gels and creams often comprise a range of different chemicals designed to either hold the drug in the formulation or help drive the drug into the skin, so you will always see some sort of a vehicle response in dermatology studies."

How come the vehicle response was so high in the US?

Callahan went on to explain that, "off the back of the data release, we undertook a post-study review. That review involved our internal team, but we also brought in a few outside experts in statistics, clinical trial management and trial design. Importantly, we also brought in experts to investigate our manufacturing process."

"This involved a detailed study and review of how we made the drug, how we distributed it, packaged it, all those things are involved in the process. And really the purpose of all of this was to try and understand why we saw this inflated vehicle response in the US."

When the BTX 1503 study was undertaken, synthetic CBD was still classified as a Schedule 1 drug by the US Drug Enforcement Agency (DEA), meaning it was illegal to transport it or use it in the US without DEA approvals and drug that was exported from the US, could not be reimported back into the US. So it was not possible to manufacture all of the study material in one place, and the scale of production of CBD at that time meant that multiple (total of 11) batches had to be made for the study. 

Given the Phase 1b studies were all conducted in Australia (where previous experience in developing and manufacturing the vehicle and drugs had been acquired), this meant that the US sites required new batches to be manufactured – in the US – by brand new contract manufacturers and several product suppliers. 

"We've turned over all the various stones that exist and have arrived at the conclusion that there were manufacturing process differences between how the vehicle was manufactured in the US, versus how it was manufactured in Australia. And we further narrowed that down to some differences in manufacturing processes and equipment that were used between Australia and the US." 

"And the way you manufacture the study materials becomes really important if you think about the vehicle that we use, which is the PermetrexTM delivery system."

Permatrex Delivery Mechanism for Botanix Pharma
Source: Green Fund Research Report

Solving VehicleGate

All products made by BOT utilise synthetic CBD in conjunction with its proprietary PermetrexTM skin delivery technology. PermetrexTM is a dermal delivery formulation technology that allows approximately three to five times more of the active ingredient to get through the skin to better treat the disease. 

PermetrexTM works by being volatile and quickly drives the drug into the skin, utilising what's called the 'concentration gradient effect'. This implies that we're not intending to leave a lot of material on the skin (as the large majority of the PermetrexTM vehicle is volatile, and therefore evaporates). We have worked with the formulation and designed the studies so as to make the best use of that performance.-Matt Callahan, Botanix Pharmaceuticals Founder

As a side note, we at The Green Fund have personally experienced the delivery system, and it is quite remarkable. As soon as it has been applied to the skin, it instantly evaporates leaving no residue or substance of any nature on the skin. And herein lies one of the clues to solving the vehicle-efficacy mystery.

"So, if the formulation is not evaporating the way that it should, then it's potentially leaving solvents or other formulation components on the skin, that we wouldn't normally want to leave there. In the gel formulation that we use in the BTX 1503 study to dissolve up the drug and to effectively deliver it into the skin, there are some solvents which can dissolve oils or "sebum" (which is the thing that sits at the top of the pimple).

And if you are leaving an excess of any solvent on the skin, it's much more likely to have an effect on the pimple itself, including by starting to dissolve that pimple. If that happens, then it may also have an effect ultimately on the disease and start to improve the acne of the person being treated." 

What steps have been undertaken to address this manufacturing issue?

Simply put, Botanix has already built its own equipment to handle the manufacturing and containment of the volatile vehicle. Callahan went on to state that they had already started preparing for the BTX 1503 Phase 3 study and as a part of that, are using the proprietary equipment, which has been specifically designed to contain the PermetrexTM formulation and to maintain its volatility.

"We've commissioned that equipment in the last month or so at our US contract manufacturing site. We will be manufacturing all of the future clinical supplies for Phase 3 and commercial uses in one place and at one time."

In addition, the recent legalisation of synthetic CBD in the US means that the company can now produce every batch for future trials from one place. "So rather than having to make 11 batches in the case of acne, we can now do it in even one batch and so you're less likely to see the batch to batch variability and the scrambling that we had to do to during the BTX 1503 Phase 2 study," said Callahan.

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BTX 1204 – the atopic dermatitis blockbuster drug

BTX 1204 was BOT's second product to commence clinical testing and is aimed at the atopic dermatitis (AD) market. AD affects between 10-15% of the Australian population and over 30 million Americans. Importantly, it impacts nearly 40% of children.

What makes the opportunity for BOT so big here, is the fact that the current non-steroidal treatment methods for AD all have long term safety or tolerability concerns. Given the potential safety profile of the BOT product range, BTX 1204 could well be the biggest breakthrough in the topical AD treatment market in the last 20 years.

But with results of the Phase 2 study due out in late Q1 this year, the question remains…

Will the manufacturing and solvent residue effect – affect the Phase 2 AD results?

"We think there are several factors that give us optimism.  First, atopic dermatitis is a different disease that doesn't have that aspect we encountered in the acne study of potentially solubilising oil, having an impact on the acne pimples and the broader acne disease.  Secondly, we used a different formulation in the atopic dermatitis study than the formulation we used in the acne study; and thirdly, we manufactured only 2 batches for each of the US and Australia, as opposed to 11 batches we manufactured for the acne study," said Callahan.

The company could not have been more emphatic in their belief that the issues experienced with the vehicle in the Phase 2 study for BTX 1503 around the potential solubilisation of oils are not relevant to the Phase 2 studies for BTX 1204.  Going forward with a single manufacturing facility, bespoke manufacturing equipment, a single source of synthetic-CBD supply from one of the world's most experienced producers, and the ability to move the batches across State lines and in and out of the US in the future, the company's leaders are firm in their belief that the manufacturing issues that bedevilled the acne study are now behind them. 

So what should investors expect from BOT in 2020?

Atopic dermatitis BTX 1204 Phase 2 results Q1

Callahan gave us a detailed update on the Phase 2 study. "It's fully recruited (200 patients), and about 100 patients will get the drug, and about 100 will get the vehicle. We will finish that study early in the new year, and we're on track to have that data ready to be announced before the end of Q1."

Callahan stated that the company is very excited about this study, given the large market opportunity. "CBD uniquely addresses the inflammation, bacterial infection and the immune-modulation that we believe are important for atopic dermatitis and they are the three things that we'll be looking for in the study."

Rosacea Study

Late last year, Botanix announced it had received ethics approval for a Rosacea study

Callahan stated that "it's going to be run with about 120 patients across six Australian sites over a six-week treatment period. This is a program that makes a lot of sense given that, just like acne, there has been no new mechanism of action products approved in this space for a good 20 years or so."

The company expects study completion in Q3 this year.

The antimicrobial properties of CBD

The company also has plans to publish a comprehensive publication on its anti-microbial platform in the new year, which will basically layout for the first time what they've found, why it's so interesting and why it's potentially so powerful.

"We think the global interest in this anti-microbial resistance is very strong.  We think it's a really efficient development pathway and there are lots of collaboration opportunities.  Globally,  there's a lot of non-dilutive funding opportunities associated with antimicrobial resistance too which we want to explore. 

So we hope to tap into some non-dilutive sources of funding to assist in the clinical development and hopefully, we can move this program very quickly into the clinic in Q1 and have it coming out just after Rosacea," said Mr Callahan.

According to the company (quoting from World Health Organization data), the financial and economic impact of antimicrobial resistance in the next decade or so could cost the global economy around $50 billion a year. So products that have an effect on killing bacteria dead, busting biofilms, reducing anti-microbial resistance and addressing these really intractable problems, could be valuable.

Disclaimer: Past performance is not an indicator of future performance.

The Bottom Line

This is still our number one pick for 2020. Botanix Pharma has a very strong management team, a deep and valuable pipeline of products, over $40 million in the bank (inclusive of expected R&D refund), and is targeting markets that are multi-billion in value and that have not seen new drugs (in some cases) in over 20 years. 

"Botanix is uniquely positioned and poised for success with its pipeline of novel therapies that have the potential to meet many unmet patient needs. The company is also way ahead of the curve with its delivery technology, PermetrexTM, a highly elegant formulation with considerable potential across the broader dermatology space."   – Vince Ippolito, President and Executive Chairman, Botanix Pharmaceuticals

They have identified some of the reasons behind the issues with the BTX 1503 vehicle and have taken steps not only to address this issue but to make certain that nothing of this nature will occur again, by controlling the entire manufacturing process.

We remain firm in our belief that this stock offers investors massive upside from current levels and have been aggressively adding to our portfolio under AUD$0.20.

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Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.

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