BioLineRx Ltd (BLRX)

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BioLineRx - Undervalued With Significant Pipeline, Large Pharma Collaborations, And Strong Balance Sheet

http://seekingalpha.com/article/4046411-biolinerx-undervalued-significant-pipeline-large-pharma-collaborations-strong-balance-sheet?auth_param=3ofmh:1ca9ggq:93de756452a18954a3dbb52de400a464&uprof=45

Feb. 15, 2017 4:03 PM ET| About: BioLineRx Ltd. (BLRX), Includes: MRK, NVS, RHHBY
Leny Hettmansperger

Medium-term horizon, long only, tech, biotech

Summary

The company is an "off-the-radar" biotech with a significant and growing drug pipeline.

BioLineRx has important collaborations with Novartis, Merck, and Genentech. Novartis owns 9% of BLRX common stock while Merck and Genentech look to leverage their drugs with BioLineRX's lead drug BL-8040.

BioLineRx is funded through the end of 2019 with $39M cash and funds from its collaborators as well as growing revenues from an OTC drug licensed to Perrigo.

Two analysts initiated coverage this week both with a Buy rating and a $3/share target price.

Founded in 2003 by Teva Pharmaceuticals, and a number of leaders in Israeli life sciences, BioLineRx (NASDAQ:BLRX) is a clinical-stage biopharmaceutical company based in Israel. The company's core competency is to identify, in-license, and develop the most promising drug candidates generated by Israel's and global research organizations, universities, and small biotech start-ups. These drug candidates are put through a comprehensive screening process to ensure their technical and clinical feasibility as well as their commercial potential. Once identified, a team of experts in science and drug development, pharmacy and regulation, and IP work, select the best candidates to advance them usually through at least a Phase 2 proof of concept in humans before seeking medium to large pharma

Through this process the company has developed a broad and rich pipeline in different therapeutic areas, primarily in oncology and immunology, as will be seen later in this article.

For a company with a market cap of about $70M, BioLineRX has major collaborations with leading pharma companies like Novartis (NYSE:NVS), Merck (NYSE:MRK), and Genentech/Roche (OTCQX:RHHBY). The strategic collaboration with Novartis is for the co-development of selected Israeli-sourced novel drug candidates. With Merck, the company is running a Phase 2a study in pancreatic cancer using the combination of BioLineRx's lead compound BL-8040 and Merck's KEYTRUDA. Through the collaboration agreement with Genentech, the company is investigating the combination of BL-8040 and Genentech's atezolizumab in several Phase 1b studies for multiple solid tumor indications and AML.

The Novartis collaboration was announced on December 16, 2014, whereby Swiss drug- maker Novartis AG bought a 12.8% stake in BioLineRX Ltd as part of a multi-year collaboration deal. Novartis invested an initial $10 by acquiring an initial 5M BLRX shares in a private transaction at $2.00 a share. Through the partnership Novartis gets access to the best drug candidates generated by Israeli research institutions and universities as well as biotech start-ups.

Once a project is selected, Novartis agreed to pay BioLineRx an option fee of $5 million and fund half the remaining development costs in the form of an additional equity investment in BioLineRx.

I will provide more color on the Novartis, Genentech, and Merck collaborations later in this article.

A Eureka Moment For BioLineRX

In my opinion, the visibility achieved in the last three years when the major collaborations with large pharma were inked, was because the clinical successes and multi-indication potential of the company's lead drug BL-8040. This, in addition the company's well-regarded core competencies as reflected by the strategic collaboration with Novartis. On September 4, 2012, the company announced that it had in-licensed, BL-1040, a novel drug for the treatment of several types of cancer, leukemia, and other hematological disorders. BL-8040 is a short peptide that functions as a high-affinity antagonist for CXCR4. BL-8040 is a game-changing and potentially blockbuster oncology and hematology drug, alone or in combination, as will be seen in this article.

Per the National Center for Biotechnology Information (NCBI), CXCR4 is a chemokine receptor, which is overexpressed in more than 23 human cancers. Cancer cell CXCR4 overexpression contributes to tumor growth, invasion, angiogenesis, metastasis, relapse, and therapeutic resistance.

CXCR4 antagonism has been shown to disrupt tumor-stromal interactions, sensitize cancer cells to cytotoxic drugs, and reduce liquid and solid tumors including leukemia, breast, lung, colon, and prostate cancer or growth and metastatic burden. As such, CXCR4 is a target not only for therapeutic intervention but also for noninvasive monitoring of disease progression and therapeutic guidance.

BL-8040, as a powerful CXCR4 antagonist, has the potential to target and kill various solid-tumor cancer cells as well as hematological cancer cells. BL-8040 has shown to induce mobilization of malignant cells into the peripheral blood from their hiding places like the bone marrow, which provides protection from chemotherapeutic agents. Pre-clinical studies has shown that BL-8040 is efficient, both alone and in combination with the anti-cancer drugs, in reducing bone marrow metastasis of lymphoma cells and stimulating lymphoma cell death (apoptosis).

In a research report this month, Roth Capital analyst Bert Hazlett stated:

"The company's lead asset is BL-8040, and its program is running on multiple pistons with focus on oncology and stem cell mobilization (transplant). As a CXCR4 (cell adhesion, "glue") antagonist, BL-8040 has the ability to impact multiple tumor types through a distinct mechanism of action based on a "one-two punch" and its overall ability (preclinical and clinical data) to impact the tumor microenvironment and play well with others in the combination sandbox (especially checkpoint inhibitors)."

Roth assigned a "Buy" rating on the stock with a $3 price target.

Current BioLineRX Pipeline

The slide below from the company's February 14, 2017 presentation at the Bio CEO and Investor Conference shows the current pipeline and collaborations:

As can be seen in the slide above, in addition to oncology and immunotherapy collaborations with Genentech and Merck, the company is working with several drug candidates in the area of immunology, primarily with Novartis. Furthermore, the company is already receiving revenues through an out-license with Perrigo for BL-5010 as a therapy for skin lesions. On April 4, 2016, the company announced that its partner Omega Pharma (now part of Perrigo) has received CE Mark approval for B-5010 as a novel OTC treatment for the non-surgical removal of skin lesions.

The following slide shows the clinical development plan for BL-8040. Notice that in addition to the three ongoing programs, the company plans to initiate 5 clinical trials during the second half of 2017:



Regarding AML, on December 5th, 2016, the company reported that results from a phase 2a study showed that BL-8040 offered a 38% complete remission rate in AML. This is far superior than the roughly 20% historical remission rate for patients that were treated with chemotherapy agent cyrabatine.

In simple terms, acute myeloid leukemia (AML), is characterized by the rapid growth of abnormal white blood cells that build up in the bone marrow interfering with the production of normal blood cells. AML is the most common type of acute leukemia affecting adults. Because of this, its incidence is expected to increase as the population ages.

The very promising Phase 2a data speaks volumes about the blockbuster potential of BL-8040 as a therapy for multiple cancer indications in addition of AML. Again this is because of the unique mechanism of BL-8040 to flush out cancer cell from their hiding places, and to help expose cancer cells so that chemotherapy agents like Genentech's Tecentriq and Merck's Keytruda can be more effective killing solid tumors.

For those of you who are visual like myself, the following slide will help you understand BL-8010's working mechanism on cancer cells:



On March 3, 2016, the company announced that is has initiated a Phase 2 clinical trial for BL-8040 as a novel approach for the mobilization and collection of bone marrow stem cells from the peripheral blood circulation. The study will also evaluate the safety and tolerability of BL-8040 in healthy donors, as well as graft durability, and other recipient-related parameters.

The company has already completed a successful Phase 1 safety and efficacy study in healthy volunteers, supporting BL-8040 as one-day, single-dose collection regimen for rapidly mobilizing substantial amounts of stem cells.

Partial results of the Phase 2 trial are expected during 1Q 2017.

The following two slides show details of the collaborations with Genentech and Merck to help their drugs Tecentriq and Keytruda respectively expand their current indications by using the ability of BL-8040 to expose cancer cells:

BioLineRx Plan With Genentech's Tecentriq



The Genentech-BioLineRx collaboration agreement was announced on September 7, 2016. BioLineRx CEO Philip Serlin commented:

"This collaboration agreement in multiple cancer indications with Genentech marks our second collaboration with a world leader in cancer immunotherapy for the combination of BL-8040 with an approved immune checkpoint inhibitor. Immune checkpoint inhibitors are a new class of promising drugs that have revolutionized anti-cancer treatment; however, it is becoming clear that certain tumor types will require a combination of immunotherapy with other classes of drugs."

BioLineRx Plan With Merck's Keytruda



On January 17, 2017, the company announced that it initiated a second Phase 2a trial investigating BL-8040, in combination with Merck's Keytruda (pembrolizumab), in patients with metastatic pancreatic cancer. The initial collaboration agreement between BioLineRx and Merck was announced on January 12, 2016.

Near-term Catalysts

Partial results from Phase 2 study for BL-8040 in stem-cell mobilization for allogeneic transplantation are expected in Q1 2017
Partial results in immuno-oncology Phase 2a study for pancreatic cancer for BL-8040 in combination with Merck's Keytruda are expected by H2 2017
Phase 1b immuno-oncology studies for BL-8040 in combination with Genentech's Tecentriq (Atezolizumab) in multiple solid tumor indications and AML will begin in 2017.
As seen in the slide showing the BL-8040 development plan, there are five new clinical trials scheduled to start in the second half of 2017 in addition to the ongoing three trials.
Also notice that the main pipeline slide above shows 5 new immunology programs about to start; 4 with Novartis, and the 4th one with JHL Biotec for China and South East Asia.
Risks and Uncertainties

As with any biotech in the clinical-development stage there are several potential risks that should be considered:

Failure of clinical trials
Large collaborators opting out of current agreements for several reasons like restructuring, buyout, disappointing clinical results, etc.
Collaborator exit could cause and increase in cash burn that would cause the company to seek equity financing thus diluting shareholders.
Loss of key talent to the competition.
Acts of terrorism, war, or natural disasters.
Conclusions

I believe BioLineRx is misunderstood by the investment community and this in turn result on it's very low valuation when compared to the significant upside potential that is about to unfold.

The company is being unfairly penalized for not having a drug-discovery platform of their own. I concluded this when I read some comments in StockTwits highlighting this perception. In fact there is one that I can still remember very clearly, "this is just a small biotech peddling drugs from startups to large pharma." Nothing could be further from the truth. In fact, in my opinion not having their own platform gives them the opportunity to select the best drug candidates regardless of their origin is not a curse but a blessing. I am sure that if BioLineRx had its own discovery platform it would not be sitting comfortably of the potential BL-8040 gold mine. Furthermore, the company saves itself up to a decade in drug development time and money.

The collateral effect of having gained the respect and acceptance of large pharma like Novartis, Merck, and Genentech is that more and better drug candidates will be knocking on the door. And obviously, this opens the door for more large pharma to want to work with the BioLineRX team on their drug-development goals.

BLRX shares are deeply undervalued because having about 70c/share cash and no debt, the market is only assigning a value of about $30M to the company's extensive pipeline and rich collaboration deals.

The current analyst recommendation is a "Buy" rating with an average $3.02 price target. The highest PT is $7/share. The most recent recommendations were given as a "Buy" with a $3/share PT by Rodman and Renshaw on February 13, 2017 and on February 15, 2017 by HC Wainwright.

As CEO Philip Serlin mentioned yesterday at the Bio CEO conference, the company is well funded through the end of 2019 with the current $39M in cash, no debt, and expected growing revenues from its OTC skin drug (licensed to Perrigo). It should be noted that its cash burn is relatively low $3M/quarter because it's large pharma partners do much of the heavy lifting, such as the up to 75% of development costs being paid by Novartis.

In addition to Novartis owning about 9% of the common stock, there are many institutions that own the stock as shown by Seekingalpha contributor Hawkinvest in its excellent recent article recommending BLRS stock "BioLine Rx: This Under-The-Radar Biotech Stock Is A Strong Buy At $1."

The company is at the verge of reporting many catalysts in 2017 starting in 1Q 2017 and the majority of them in the second half of 2017. The opportunity for pps appreciation is certainly there and I believe the share price will start reflecting its fair value of about $3/share in the following months.

Investors should always review in detail all the risks and uncertainties as listed in the company's filings with the SEC.

Disclosure: I am/we are long BLRS.