BioLineRx Ltd (BLRX)

[midastouch017]

BioLineRx: Why I See Significant Upside Potential In This $1 Biotech Stock

Sep. 1, 2017 10:40 AM ET| About: BioLineRx Ltd. (BLRX)

https://seekingalpha.com/article/4103606-biolinerx-see-significant-upside-potential-1-biotech-stock?auth_param=3ofmh:1cqisc1:98f4f5b95753b153b916791eae4de3a0&uprof=45

Summary

BioLineRx shares have dipped from recent highs and this has created an attractive buying opportunity.

This company has a very promising pipeline, multiple partnerships, a cash-rich balance sheet and a low burn rate which reduces potential downside risks.

BioLineRx has had some positive developments in recent weeks and received new analyst coverage that resulted in a buy rating and a $3 price target.

A well-known biotechnology fund recently invested more money into BioLineRx and now owns nearly 25% stake, I believe investors should follow their lead.

BioLineRx appears to be ripe for investment now due to a cheap valuation and a promising pipeline with multiple potential upside catalysts in 2017 and 2018.

When I last wrote about BioLineRx (BLRX) in July, the stock was trading for just under $1 per share. It has since rallied on some good news and a very bullish analyst buy recommendation. However, it is now off the recent highs which is providing us with another attractive buying opportunity. In my last article on this company, I went into significant detail on the pipeline, the balance sheet, and potential downside risks which you can read about here. As there have been a number of important developments since my last article on BioLineRx was published, and since I view the recent dip in the stock as an attractive buying opportunity, I wanted to write about the continued potential I see in this stock:

First of all, let's address one of the concerns I mentioned in the last article, which was that the stock was trading below $1. Because of this, the company had received a notice that the stock could be delisted if it did not regain compliance with exchange requirements for the stock to trade at $1 per share or more. In the article I said that I thought these fears were overblown since the company had plenty of time to regain compliance and I also believed the stock would go back over $1, which turned out to be the case. Because of this, the stock meets the listing requirements and that reduces potential risks for investors.

As the chart above shows, this stock was trading for around 85 to 90 cents per share a few weeks ago, but then made a run to a recent high of about $1.20 per share. On the chart you can see that the 50-day moving average (represented by the blue line) has just crossed over the 200-day moving average (represented by the red line). This has begun to create a very bullish "Golden Cross" formation on the chart, which could boost investor confidence and bring in investors who look for stocks with strong technical chart formations. I would like to also look at a different, longer term chart below

As this chart above shows, BioLineRx shares have seen much higher prices in most of the past few years. It even spiked up to around the $6 to $7 range in 2011 and 2012. In 2015, it spent a lot of time trading in the $2 to $3 range, but more recently it has been trading around the $1 level. This chart and past history shows that this stock is relatively cheap right now and that it has historically been able to trade at much higher levels. In many cases, this stock has experienced very sharp moves in a short period of time. The chart also shows that this stock has been forming a bottom right around the $1 level for the past year or so. I believe the $1 level is a solid level of support now and that this stock could see big gains from this remarkably undervalued level. This especially seems to be the case since BioLineRx has such a strong balance sheet and the potential for upside catalysts in the coming months.

Shortly after my article was published, an analyst at Oppenheimer initiated coverage (on August 4, 2017) on BioLineRx with an outperform rating and a price target of $3 per share. The analyst comments were highlighted in a recent Streetinsider.com article. The article pointed out that the analyst believes this company could be cash flow positive by 2021, and that there are numerous potential upside catalysts for the stock in the coming months. The article stated:

"Oppenheimer initiates coverage on BioLineRx (NASDAQ: BLRX) with a Outperform rating and a price target of $3.00. Analyst Mark Breidenbach comments "We believe BL-8040 could generate sufficient sales revenues as a stem cell mobilizer to see the company cash flow positive by 2021. Additionally, the drug may prove to be an effective chemo-sensitizer for patients with leukemia, and the next 12-18 months are replete with catalysts, including an interim readout from a randomized AML study."
This new analyst coverage by Oppenheimer and $3 price target seems to be another sign that analysts are taking more interest in BioLineRx and also becoming increasingly bullish. Just in the past few months, a couple of other analysts also became bullish on this stock. In February, 2017, analysts at Rodman & Renshaw initiated coverage and set a $3 price target. In May 2017, analysts at Maxim Group upgraded the stock from hold to buy and increased the price target from $1 to $3 per share. I completely agree that the current valuation of just over $1 per share is way too cheap, especially when you consider the pipeline potential, the cash-rich balance sheet and the major partnerships this little-known biotech company has managed to achieve. There appears to be a trend of new and increasingly bullish analyst coverage of this stock, and it seems to be warranted based on the pipeline progress and potential catalysts going forward.

The multiple $3 price targets suggests significant upside potential, and we should remember this stock has a history of trading at that $3 level and for even as much as about $7 per share in the past. Most investors know that biotech stocks can make big moves, even in a very short time. For example, several months ago, I wrote an article about Immunogen (IMGN) titled "Why This Neglected $1 Biotech Stock Is A Strong Buy Now" and that stock has since surged to over $8.50 per share. I think BioLineRx is well positioned for long term gains, but I also believe it could make some big short-term moves higher from this undervalued level (just as it has spiked higher a number of times in the past). This is why I remain invested in BioLineRx and I am adding to my position now.

Another recent and bullish development is the fact that the Biotechnology Value Fund which is also known as "BVF Partners LP" signed a definitive agreement (in July, 2017) with BioLineRx to make a direct $9.6 million investment at $1.13 per unit, for ordinary shares and warrants with four-year terms. This is particularly impressive since BVF Partners LP already owns a very significant stake and this new deal has increased it to a point where it owns about 25% of the entire company. I think investors should see this as a very positive sign because this investment is significant, and because it has been made by a fund that specializes in biotech and value. Investors have a chance to follow BVF Partners LP into buying BioLineRx shares at about the same price. Plus, they do so with the confidence that this biotech value fund has probably done extensive due diligence and potential return on investment analysis, that led them into buying a major stake in this company.

After the recent increased investment by BVF Partners LP, BioLineRx has over $60 million in cash and it has less than $300,000 in debt. That is a very strong balance sheet, and the cash is equivalent to more than 60 cents on a per share basis. Having this much cash significantly reduces potential downside risks for investors. Another interesting point is that the warrants (which expire in 4 years) that were part of this investment deal have an exercise price of $2 per share (for Series A warrants) and $4 per share (for Series B warrants). That means BioLineRx shares would have to rise above $2 for the Series A warrants to have value, and rise above $4 per share for the Series B warrants to have value to BVF Partners LP. Based on this, and the fact that BVF Partners LP now owns about 25% of BioLineRX, it seems reasonable to believe that they see significant upside potential for this stock in the next four years, obviously even possibly over $4 per share, for their Series B warrants to be exercised.

Now let's talk about the pipeline potential and update the recent progress: BioLineRx has a very promising pipeline as well as partnerships and collaborations with world-class biotech and pharma companies which include Merck (MRK), Novartis (NVS), and Genentech. BioLineRx has an immunotherapy collaboration with Merck to treat pancreatic cancer using Merck's blockbuster drug "Keytruda" along with BL-8040. It is collaborating with Genentech for multiple oncology indications using Atezolizumab with BL-8040. As stated in the BioLineRx August 2017 corporate presentation, the company is expecting data readouts in 2017 and 2018 on these various clinical studies. The phase 2a study to examine the combination of BioLineRx's BL-8040 with Merck's Keytruda was commenced in Q3 of 2016 and partial results of this study are expected in the second half of 2017 (which means this could come at any time now and might be a significant catalyst for the share price) and top-line results are expected in 2018.

The potential BL-8040 has in treating AML (acute myeloid leukemia) is also significant and it is clearly one reason why the analyst at Oppenheimer sees justification for a $3 price target and a buy rating for this stock. BioLineRx has already conducted successful proof-of-concept phase 2 studies which show excellent safety and tolerability. As the graph below shows, the use of BL-8040 in conjunction with the current and widely used treatment for AML (Cytarabine) has resulted in nearly doubling the rate of remission. I believe these very positive phase 2 clinical study results enhance the chances of FDA approval while clearly reducing potential risks for investors. These are just some of the candidates in the pipeline, complete information on the pipeline is detailed in the corporate presentation and in my other article.

Source: BioLineRx August 2017 Corporate Presentation

When you consider that BioLineRx has a current market cap of slightly over $100 million, and just over $60 million in cash (and almost no debt), that means (if you back out the cash) that the pipeline is currently being valued by the market at just about $40 million. That appears to be very undervalued when you consider the pipeline potential and the partnership deals. When the likes of Merck and Genentech are partnered with and studying BL-8040 for use in conjunction with their blockbuster drugs (Keytruda and Atezolizumab), it seems that BioLineRx's pipeline is potentially worth far more than $40 million in the long run.

There are a number of reasons why I believe potential downside risks are limited: With the stock now back in compliance for continued listing on the NASDAQ exchange, this potential risk is no longer a concern at this time. In addition, I see potential pipeline risks as being reduced because this company has a few promising pipeline candidates. This is not a situation where the entire future of the company is reliant on a single (treatment) indication, or a single partnership or a single pipeline candidate. I also see BioLineRx as a relatively low risk biotech investment because of the cash-rich balance sheet with over $60 million in cash and the low burn rate it has. For the quarter that ended on June 30th, 2017, the company posted a loss of just $5.2 million (this is similar to other recent quarterly results) which means it has enough cash to last for the next 2 to 3 years at this level.

In Summary:

It is clear that some investors who may have bought this stock a few years ago at much higher prices have given up already, but it is also clear that the world-class partners BioLineRx has attracted remain firmly committed to the ongoing drug development plans. Additionally, it is clear that major investors like BVF Partners LP are stepping up and investing even millions of more dollars in BioLineRx shares at this time. While the process of getting to this stage of drug development took years and therefore tried the patience of some investors, this appears to be an ideal inflection point in the history of the company. Momentum seems to be building now in terms of the pipeline and in terms of increased and more bullish analyst coverage. At just over $1 per share and with a cash-rich balance sheet and low burn rate, investors have an opportunity to buy into a pipeline that has significant potential and has attracted the interest of Merck, Novartis, Genentech and others.

Multiple analyst price targets of $3 per share suggests significant upside potential. I strongly believe in this under the radar biotech stock, just as I did with Immunogen before it had a major run from the $1 range to a recent $8.50 per share. I know that some people will scoff at buying anything that trades in the $1 per share range, just as many people did when Immunogen was trading at that level. However, it is a mistake to dismiss a low-priced biotech stock on share price alone, especially when you do your research and see that the fundamentals which include the pipeline, balance sheet and analysts price targets of $3, suggest a strong potential investment.

If you want updates on this stock in the future or other deep value and contrarian investing ideas, please consider following me.

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
advisor.

Disclosure: I am/we are long BLRX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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.