What happened

Shares of BioXcel (BTAI -3.63%), a pre-commercial stage biopharmaceutical company, are under pressure this week. A double downgrade from Goldman Sachs analyst Corinne Jenkins from buy to sell has investors thinking twice about a potential new drug launch that could begin in early 2022. From the market's close last Friday through 9:32 a.m. ET today, the stock is down 27.3%. 

So what 

The Food and Drug Administration (FDA) is currently reviewing a new drug application for BioXcel's lead candidate, BXCL501 for acute treatment associated with schizophrenia and bipolar disorders. The agency is expected to announce an approval decision on or before Jan. 5, 2022.

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BXCL501 is a new sublingual formulation of an anesthetic drug called dexmedetomidine. Approval is widely expected because during clinical trials treatment with BXCL501 rapidly reduced agitation for patients with bipolar disorders and schizophrenia without causing any serious side effects.

On Nov. 15, Jenkins downgraded BioXcel over concerns that BXCL501 will only be available in the hospital setting. Small, independent drugmakers that launch new drugs without help from a big pharma partner have a strong tendency to underperform expectations. Pricy new drugs that are only administered to hospitalized patients are especially difficult to sell.

Now what

Because BXL501 is a powerful sedative and analgesic, the FDA is likely to require the presence of trained professionals to administer it. Jenkins didn't state why she didn't realize BXCL501 would become a hospital drug until recently. For over 20 years we've known that overdosage with dexmedetomidine slows down heartbeats and can even cause cardiac arrest.

While BXCL501 probably can't generate enough sales to drive profitability for BioXcel, investors can look forward to a growing pipeline. The company's next candidate, BCLX502, is intended for long-term use by patients with chronic agitation due to dementia.