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BioLight: Developments Are Chugging Along Smoothly

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midastouch017   Wednesday, 04/08/15 12:20:33 PM
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BioLight: Developments Are Chugging Along Smoothly
Apr. 8, 2015 12:11 PM ET | About: BioLight Israeli Life Sciences Investments Ltd. ADR (BLGTY)
Anita Dushyanth, Zacks (disclaimer) (39 clicks)
Research analyst
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

On April 1, 2015, BioLight reported their financials for the fiscal year ending Dec 31, 2014.
On April 2, 2015, Hong Kong based company, Rock-One International Holdings Ltd., has committed to invest $6.2M in BioLight's products.
BioLight’s development plans are on track and there are several catalysts expected in subsequent quarters of 2015.
We continue to remain highly positive on BioLight and are maintaining our Buy recommendation and $14.00/share price target.
2014 Annual Earnings review

On April 1, 2015, BioLight (OTCQX:BLGTY) reported their financials for the fiscal year ending Dec 31, 2014. The company showed minimal revenues for the year, as expected. The net loss was ~$10M, ($0.02) per share as compared to a loss of $5.8M, ($0.017) per share in 2013. Of the total loss for the year ending 2014, R&D expenses amounted to $4.6M and SG&A amounted to $3M. The company burned ~ $7.0 million in cash from operating activities in 2014. The company exited December 31, 2014, with $10.0 million in total assets, of which $5.5M is in the form of cash and cash equivalents.

Management has provided some guidance on their operations for 2015. To accomplish near-term milestones for the projects under the ophthalmology division, management expects R&D expense of approximately $3.0 million. We think the company's current cash position should be sufficient to fund its operations until 2016. On April 2, 2015, the company announced that Hong Kong-based Rock-One International Holdings Ltd. committed to invest $6.2M to seed the acceleration of BioLight's products in mainland China. The company expects to obtain the funds approximately one month after the standard procedures are completed for closing the deal. We expect this should provide sufficient funding to carry BioLight through 2017. BioLight's development plans are on track and there are several catalysts expected in subsequent quarters of 2015.

Ophthalmology Division

In addition to the existing ophthalmologic companies, which include IOPtima (CO2 laser to treat glaucoma non-invasively), ViSci (sub-conjunctival insert for ophthalmic medications), and DiagnosTear (diagnostic kit to test tear fluid), BioLight obtained a 40% stake in OphRx Ltd. in January 2015, a new company that is involved in developing an ophthalmic drug delivery platform to treat eye diseases. OphRx offers a unique drug delivery technology that is based on the principle of molecular transport across cell membranes using liquid crystals. The technology creates a basis to load different molecules and release them in a controlled release mechanism in the target location. The company believes that this technology could be utilized for ophthalmic drug delivery for front and/or back of the eye diseases. BioLight has committed to invest about $250,000 initially for establishment costs and may invest up to $1.0 million as the new company develops the technology and achieves targeted milestones.

Since commercialization of the laser assisted glaucoma surgery device, the IOPtimate system, was focused on Asian and European markets, BioLight commenced sale of these devices in 2014 in China, Hong Kong and Europe. During the initial roll out period, training and educating physicians on the equipment's usage has been time consuming and has resulted in slower adoption. However, as clinical evidence has already proven the technology's efficiency and superiority to existing procedures, we feel an increase in widespread market adoption will happen over time. Additionally, the current agreement with Rock-One Holdings may help in steepening the revenue curve, as there is a large upward swing in the need for emerging technologies in the Chinese market. In addition to having distributors in China, management has also recruited a local sales person in that country to provide additional support with sales and service. Although the company has postponed product launch in other geographic locations (Mexico, India), the distribution agreements in these countries remain intact. Regulatory approval required to market the system in Canada is expected sometime mid-2015. We estimate revenue from the Canadian market in three years' time of approximately $1.5M. The company installed a pilot system in Thailand, Turkey and Italy and hopes to enter into a distribution agreement by the end of 2015. BioLight is also seeking to form an alliance with a local partner here in the U.S. to obtain regulatory approval for marketing the device.

Phase I/IIa clinical trials on humans employing the EyeD technology are underway in the U.S. In order to test the efficacy of the device, patients need to be medication-free for a 2-week period (known as the wash-out and screen period). During this time, the effect of the prior medication (latanoprost drops) is expected to wear off causing fluctuations in the intra-ocular pressure. At this time if the patient's eye was inserted with the EyeD, then its efficacy would be proven. However, unforeseen delays were encountered during these trials as the wash-out period turned out to be more than 2 weeks. The effect of the latanoprost drops did not appear to wear off even after 6 weeks of discontinuing the medication. As a result, the recruitment of trial participants is now expected to be completed in the second half of 2015. This is about one quarter behind schedule than previously estimated. While the slight delay is disappointing, what is important is that it is unrelated to the technology and management still hopes to complete the trial on time.

Cancer Diagnostics Division

Under the cancer diagnostics division, BioLight is involved in the development and commercialization of the CellDetect technology, a diagnostic technology for staining and identifying cancerous and precancerous cells in several cancer indications. BioLight is also engaged in the recruitment of strategic partners for the continued development of a novel diagnostic kit for identification of carriers of BRCA mutations that increase the risk of developing breast and ovarian cancer as well as for the completion of development and commercialization of a diagnostic kit for early detection of colorectal cancer in blood tests.

CellDetect Cervical Cancer diagnostic kit: Proof of concept has been completed for cervical cancer cell detection and identification kit. CE marking was granted for marketing CellDetect as a supplementary product in Europe. The department of medical devices and accessories at Israeli Ministry of Health approved the marketing of CellDetect as a supplementary product in Israel. The product also received the CFDA approval for marketing in China. The company anticipates to launch the product in China in 2Q 2015.

CellDetect Bladder cancer diagnostic kit - BioLight completed the development of the kit for monitoring the recurrence of bladder cancer in early 2015. The company is considering developing this technology for other cancer indications. Proof of concept for identifying bladder cancer cells in histological urine samples has been established. The multicenter clinical trial for proof of efficacy of the bladder cancer diagnosis using urine samples has been completed. The company expects CE mark, an approval for sales in the European Union, in 2Q 2015. Pending approval, BioLight expects to sign distribution agreements covering the CE Mark territories and commence launch there in the 4Q/15 or 1Q/16 time frame and expects to approach the FDA to file for clearance in the U.S.

BioLight is currently focused on the development of a test to identify the population at increased risk of developing a side effect from the use of bisphosphonate drugs, BRONJ among multiple myeloma patients. The trials are being conducted at Tel Hashomer with results expected in 2Q 2015. Based on the results, BioLight anticipates the possibility of employing the test to other patients affected by cancer and osteoporosis. In addition, BioLight is engaged in the financing of a NOFAR program researching the prediction of the development of brain metastasis by lung cancer patients.

Valuation

We remain positive on BioLight and believe the company's strategy to focus on developing markets where there is a large subset of population with a growing need for cost-effective treatments may help in building a steady revenue stream. BioLight is making a substantial effort to expand market share in China. The sheer size of the population creates an enormous opportunity for BioLight that could help drive the revenue numbers in one years' time. The sales of IOPtimate systems should be the primary revenue driver for 2015. With the currently acquired funds, BioLight is well established to drive revenue, which we think begins to show a greater rate of acceleration going into 2016. BioLight's manufacturing lab units have ISO accreditation which is the gold standard around the world, and emphasizes the technical and manufacturing competencies. We think gross margins expand with higher production volumes and, coupled with the growing top-line, further improve profitability and cash burn. We continue to remain highly positive on BioLight and are maintaining our Buy recommendation and $14.00/share price target.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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