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BioLight Chugging Along Slowly But Steadily

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midastouch017   Saturday, 12/05/15 06:58:18 AM
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BioLight Chugging Along Slowly But Steadily
Dec. 4, 2015 3:25 PM ET | About: BioLight Israeli Life Sciences Investments Ltd. ADR (BLGTY)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

On December 1, 2015 BioLight Israeli Life Sciences Ltd. (OTCQX: BLGTY, TASE: BOLT) reported third quarter financial results.

For the third quarter of 2015 BioLight's revenues were $167k, mostly from the sales of IOPtiMate systems.

The company burned roughly $1.4 million in cash from operational activities and exited the third quarter with a cash balance of $9.4 million.

There are several catalysts in the pipeline that have the potential to drive up shareholder value.

Operational Update
During the second quarter of 2015 BioLight signed a strategic partnership with Rock-One International Holdings Ltd. to help maximize its presence within China. Rock-One has a history of successful international collaborations and vast experience and understanding of China's unique regulatory requirements. As China is the second largest healthcare market in the world after the U.S., and since Rock-One has a reliable domestic distribution and service infrastructure within China, the partnership with Rock-One should help BioLight expand their reach within the country.

In July of this year the company announced the changes in American Depository Receipts (ADR) conversion ratio. A 1-for-10 reverse split of its ordinary shares, where one ADR represents ten shares.

Product development pipeline…
…IOPtiMate…

To-date, BioLight has installed the IOPtiMate system in healthcare centers in Thailand, Italy, Eastern Europe (Poland, Hungary, and Romania), Turkey, Hong Kong, and China as they sported favorable market dynamics and insurance reimbursement. In August 2015, one system was sold in Peru, following which the company entered into additional distribution agreements in Argentina and Portugal. BioLight generates revenues for IOPtiMate systems from two channels; from initial sales of the device as well as from the fees customers pay for each procedure they perform using the system.

During the second quarter of this year BioLight announced their first commercial sales of the IOPtiMate system in Hungary as well as in Romania. It was the first sale in Romania using the pay-per-procedure model. Physician adoption is a major driver of revenue for new technologies, and thus far, sales have been nominal as the IOPtiMate systems are still largely in an evaluation stage. As physicians share their clinical experience, we expect adoption and utilization to increase gradually. Since the IOPtiMate system already has a CE Mark, the company is continuing its efforts to accelerate sales in the European Union.

In March 2014, the China Food and Drug Administration (CFDA) approved the marketing and sale of the IOPtiMate system in that country. The devices that were installed in a few medical centers across the country the past year are currently undergoing clinical evaluation. BioLight intends to use the Chinese market as an anchor to enter additional developing Asian territories, such as India, which could be an additional long-term revenue catalyst. BioLight is pursuing regulatory approval in Canada and is in search of a partner in the U.S. to market their device. We see these regions as having potential to meaningfully drive up sales of the IOPtiMate systems.

BioLight, along with venture funds in Taiwan and China invested roughly $7.2 million in its subsidiary IOPtima in November 2015. BioLight will hold approximately 71% of IOPtima's issued and outstanding shares when the deal closes in the coming weeks. As per the agreement the investors will have the right to trigger a "drag along mechanism" if IOPtima fails to reach the forecasted revenue ($13.7 million) and regulatory milestones (FDA approval) within three years of deal closing.

Meanwhile, in September 2015 the IOPtiMate system was granted an Israeli patent that will expire on December 30, 2029.

…EyeD…
Clinical trials in the U.S. (Phase 1/2a) involving the EyeD technology are currently underway. While conducting the trials in humans with the prototype (EyeD) device, the R&D team gathered an initial base of clinical experience. Due to a slower than expected enrollment rate and optimizations of the insert's structure and its insertion procedures the results of the clinical trials are expected during the first half of 2016.

…TeaRx…
In February 2015, the company reported clinical study findings that identified positive statistical correlations between the TeaRx test's diagnostic parameters and widely used benchmark tests for dry eye syndrome (NYSEARCA:DES). BioLight has initiated a second clinical trial in order to assess the effectiveness of the tests in tears of healthy subjects as well as patients with severe DES. Management noted in its third quarter report that the enrollment of subjects for the trial was completed at the beginning of Q3 2015 and the results from this second trial are expected by end of Q4 2015. The process of defining the reliable combination of parameters that are required for the DES diagnostic kit is underway after which BioLight will initiate regulatory approval activities.

In mid-June 2015, BioLight announced their collaboration with Ora Inc., a world-leading independent, full-service ophthalmic contract research organization (CRO) and product development firm, to aid in the commercial development of TeaRx. The two companies have agreed to fund the clinical study and other activities required to obtain U.S. 510K regulatory approval for TeaRx as well as to incorporate the test kit in other clinical trials sponsored by third parties and performed by Ora.

Diagnostear received investment from BioLight as well as from the Office of Chief Scientist in the amount of $550k. BioLight's holdings in Diagnostear will be 74%.

…OphRx…
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 mechanism to the target location. BioLight believes that this technology could be utilized for ophthalmic drug delivery for front and/or back of the eye diseases. The company is currently working on developing a novel formulation for the molecule. It is being designed to deliver the correct dose, follow a predictive route, and release the drug either in a controlled or sustained pattern. Once the formulation is completed, management anticipates commencing pre-clinical trials.

In November 2015, XL Vision and Integra invested the aggregate amount of $0.4 million in OphRx.

…CellDetect…
A large unmet need exists in the U.S. and Europe for non-invasive screening of bladder/cervical cancer. Studies have shown the incidence/mortality rates as well as the costs associated with the disease detection to be high.

Bladder Cancer - Management reported successful results from their blinded, multi-center clinical study using the CellDetect technology. The primary endpoint of effectively detecting the recurrence of bladder cancer in subjects with a history of the disease was achieved. BioLight is pursuing an Israeli AMAR approval, pending which the company hopes to launch in Israel by Q1 2016. The company is now focused on building awareness of the product to facilitate broader roll-out in Europe using distribution agreements in CE Mark territories. In November 2015, BioLight entered into a partnership with Axella Research LLC, to help manage clinical trials and obtain regulatory approval for marketing the CellDetect diagnostic test kit in the U.S. Axella has agreed to contribute over $1 million for this purpose and in exchange will be paid royalties from future U.S.-based sales of CellDetect diagnostic test kits.

Cervical Cancer - Proof of concept has been completed for cervical cancer detection and identification using the CellDetect kit. CE Marking was granted for marketing CellDetect in Europe and Israeli Ministry of Health approved the marketing of CellDetect in Israel. The product also received CFDA approval for marketing in China. BioLight is scouting for possible distribution channels in China and India to commercialize the CellDetect technology for the detection of cervical cancer. The company is also actively pursuing strategies to accelerate sales with their existing distributors in other geographical regions.
In July 2015, the U.S. and European patent office issued a patent for the CellDetect technology, intended to identify cervical cancer cells, which will be in effect until 2030.

In September 2015, the company obtained approval for conducting a clinical trial for diagnosing prostate cancer in urine samples using the CellDetect technology. The trial is expected to conclude by end of Q1 2016.

…BRONJ…
BRONJ is a severe side effect from the use of biophosphonate drugs, prescribed to metastatic cancer patients and osteoporosis patients, causing necrosis of the maxillary bone. This side effect has a prevalence rate of up to 18.6% among multiple myeloma patients, 1.2-12% among breast cancer patients, 6.5-7% among prostate cancer patients and up to 0.1% among osteoporosis patients treated orally. Over 15 million prescriptions for biophosphonates, administered orally or by way of infusion, are issued in the U.S. alone.

At Tel Hashomer Medical Center, Israel, a study was conducted to identify the unique genetic profile that enables the assessment of risk among cancer patients to develop BRONJ and results were reported in May 2014. In order to validate the findings from this study, another trial was performed at the Florida University in the U.S., and at the Tel Hashomer Medical Center, Israel, using diverse patient populations from the U.S., Europe, and Israel. The trial involved 125 subjects who were treated with bisphosphonate drugs, of which 108 were multiple myeloma patients, 13 were breast cancer patients, and four were patients suffering from other cancers. Of the total number of subjects, 69 patients developed BRONJ and the remaining 56 did not. In August 2015, the company announced that they are developing a novel SNP assay (licensed technology from the University of Florida) to detect individuals with a unique genetic profile that are 10 times more susceptible to develop BRONJ. Eventually, the company anticipates developing a test kit that will allow categorizing the risk of developing BRONJ in patients who are treated for cancer.

Valuation
BioLight is currently working towards expanding its distribution network in the global regions by increasing the number of distributors and engaging independent sales representatives. The IOPtiMate systems are currently under clinical evaluations at several leading medical centers in Europe and Asia and therefore are yet to be fully launched. Although this process builds awareness and helps in expanding the device's presence in the respective regions, being in the "try-out" phase by physicians alone does not translate into meaningful revenue numbers. Since the commercial roll-out in Q4 2014, quarterly sales revenues have been incrementally increasing from the beginning of 2015 but have been relatively light. While we remain optimistic that IOPtiMate device uptake may gain traction as awareness builds, we think that revenues could be uneven until demand grows for state-of-the-art technologies in glaucoma surgery. As market adoption increases, we anticipate a significant increase in system/procedure sales beginning late 2016 which would help smooth this unevenness. Therefore, we have modeled sales to be light in the initial years since device uptake may be slow but built in double-digit sales growth in most territories in the out years.

We think that BioLight is likely to gain entry into the U.S. market for the IOPtiMate system around 2018 and if the company is successful in obtaining regulatory approval, it has the potential to steepen the revenue curve. We are looking forward to the results from the clinical trials employing the TeaRx and EyeD technology. OphRx's molecule, a nascent-stage product in the pipeline could be a potential source of revenue in the long term.

The slower than anticipated market adoption of the device has prompted us to make some meaningful downward revisions to our forecasted revenues in the near term. Consequently, this has resulted in a downward revision in the target price from $12.00/share to $10.00/share. However, there are several catalysts in the pipeline that have the potential to drive up shareholder value. We remain optimistic as the company continues to execute its growth strategy. We maintain our Buy rating.

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