BioLine Rx: This Under-The-Radar Biotech Stock Is A Strong Buy At $1
Jan. 26, 2017 1:34 PM ET| About: BioLineRx Ltd. (BLRX), Includes: MRK, PRGO
Summary
This biotech stock is flying under-the-radar even though it has multiple pipeline candidates and partnership deals with industry heavyweights like Merck, Genentech and Novartis.
It has a high potential pipeline candidate with "BL-8040" which is being studied for use in collaboration with Merck's blockbuster "Keytruda".
BioLine Rx has a cash-rich balance sheet, a low burn rate and multiple pipeline candidates, all of which greatly reduces potential risks.
This stock is deeply undervalued because when you back out the cash on the balance sheet, the pipeline and partnerships are only being valued at about $12 million.
With analyst price targets between $3 to $7 per share, the upside potential is very compelling.
BioLine Rx Ltd. (NASDAQ:BLRX) is a clinical-stage biotech company that appears to be a "hidden gem". It has a high potential pipeline, a cash-rich balance sheet and a number of partnerships with Genentech, Perrigo (NASDAQ:PRGO), Merck (NYSE:MRK), and Novartis (NYSE:NVS), which is the largest shareholder with a stake of about 9%. Its pipeline is primarily focused on cancer, immunology and skin lesions. BioLine Rx seems to be flying under the radar and I think part of that is because it is a small company and the stock price is just about $1 per share. However, it has a lot going for it, so let's take a closer look:
The Pipeline:
Source: BioLine Rx company website
As shown above, BL-8040 is being targeted as a treatment for a number of cancers which include AML (or acute myeloid leukemia), gastric cancer, non-small cell lung cancer, pancreatic cancer, and stem-cell mobilization. Both Genentech and Merck have partnered with BioLine Rx on BL-8040. Merck's blockbuster "Keytruda" (also known as Pembrolizumab) is being tested in phase 2 trials for use with BL-8040. Additional results are expected in the second half of 2017 and top-line results are expected in 2018.
BL-8040 is the most advanced candidate in the pipeline and it also might have the most potential since AML has such a low survival rate. BL-8040 has been successfully hitting endpoint targets in clinical trials. It is designed to inhibit a protein found in many cancerous cells and without this protein, cancerous cells die. On January 17, 2017, BioLine Rx announced that it was initiating phase 2A trials for BL-8040 in collaboration with Merck and The University of Texas MD Anderson Cancer Center. The company press release gave details on the purpose of the study to treat pancreatic cancer and stated:
"Dr. David Fogelman, from MD Anderson Cancer Center, the principal investigator of the trial, stated, "We hope that BL-8040 will prime the immune system and increase the anti-tumor activity of Keytruda. We have designed the study to look for evidence of this, both in the tumors themselves and in the patient as a whole. If this combination is successful, we will move pancreatic cancer research forward in a new direction."
BL-8040, BioLineRx's lead oncology platform, is a CXCR4 antagonist that has been shown in several clinical trials to be a robust mobilizer of immune cells and to be effective at inducing direct tumor cell death. Additional findings in the field of immuno-oncology suggest that CXCR4 antagonists may be effective in inducing the infiltration of anti-tumor T cells into the tumor. Therefore, when combined with KEYTRUDA, which blocks the interaction between PD-1 and its ligands, PD-L1 and PD-L2, thereby activating T lymphocytes, BL-8040 has the potential to enable activated T cells to better reach tumor cells in the fight against pancreatic cancer."
It's worth noting that on December 5th, 2016, the company reported that results from a phase 2a study showed that its lead product candidate BL-8040 offered a 38% complete remission rate in AML, which is far superior to the roughly 20% historical remission rate for patients that were treated with chemo. That is very promising, and one more reason why I believe the current price of this stock is a bargain, especially since it has a pipeline that shows this much potential.
In terms of immunology, BioLine Rx has partnered with Novartis on BL-1210 and BL-1220 for liver failure diseases, and BL-1230 for dry eye syndrome. It also partnered with Perrigo on BL-5010 for skin lesions. BioLine Rx is developing BL-7010 for Celiac disease and gluten sensitivity. It is testing a polymer that binds to a critical part of gluten protein and then prevents it from being absorbed in the small intestine. Celiac disease is said to impact over 3 million people in the United States alone. It is developing BL-9020 for type 1 diabetes with JHL Biotech. Diabetes is widespread, so any successful treatment could be a potential blockbuster.
While BioLine Rx is a clinical stage biotech company, it has numerous pipeline candidates and it is collaborating with industry leaders. This greatly reduces potential downside risks. If just one of its pipeline candidates achieves success, this company could be valued at many times the current market cap, especially since it has a strong balance sheet.
Potential Downside Risks Appear Limited Due To A Cash-Rich Balance Sheet And Other Factors:
When I buy a small cap stock I always want to consider the downside. If the company is losing money and/or if it has a weak balance sheet with lots of debt and little to no cash I won't even consider buying it. The potential downside risks for BioLine Rx are greatly reduced thanks to an incredibly strong balance sheet which holds $39 million in cash and just around $365,000 in debt. This is equivalent to roughly 70 cents in cash on a per share basis, which means the stock price is trading for only about a 20 cent per share premium to the cash it has on hand. That is a sign this stock is undervalued, especially when you consider that it has many pipeline candidates and partnerships. Since this company has multiple pipeline candidates the potential downside risks are also reduced.
When it comes to biotech investing, another potential downside risk to consider is the cash burn rate. Once again, the potential risks appear limited because this company has a low cash burn rate. For the third quarter of 2016, the company posted a loss of $4.3 million. The total net loss for the nine month period ending on September 30, 2016, was $11.6 million. With about $39 million in cash and an average quarterly burn rate of about $4 million per month, this company has enough cash to last for over two more years and maybe more, due to potential milestone payments it could receive in the future.
BioLine Rx Is Making Progress And Recent Developments Have Been Positive:
In the third quarter financial results, the company also outlined achievements which include the following:
Signing of significant immuno-oncology collaboration with Genentech, a member of the Roche Group, for several Phase 1b studies for BL-8040 in combination with Genentech's Atezolizumab, in multiple solid tumor indications and AML
Steady progress in existing immuno-oncology collaboration with MSD (known as Merck in the US and Canada), with initiation of a Phase 2a study in pancreatic cancer for BL-8040 in combination with Merck's KEYTRUDA®
Signing of immuno-oncology collaboration with MD Anderson Cancer Center for additional Phase 2a combination study in pancreatic cancer, as part of strategic clinical research immunotherapy collaboration between MSD and MD Anderson Cancer Center
In-licensing of three new projects under strategic collaboration with Novartis, including two novel liver fibrosis/failure projects, and a novel anti-inflammatory treatment for dry eye syndrome
Presentation of growing body of clinical evidence surrounding BL-8040 at leading medical and scientific conferences, including an oral presentation at the upcoming ASH 2016
Expanded geographic reach with new joint venture in China for development of novel drug candidates
Multiple 2017 Catalysts For BioLine Rx Could Push The Stock Higher:
1) In the first quarter of 2017, the company expects to receive partial results from a phase 2 study for BL-8040 in stem-cell mobilization for allogeneic transplantation.
2) By the second half of 2017, the company expects results on an immuno-oncology phase 2a study for pancreatic cancer for BL-8040 in combination with Merck's Keytruda.
3) The company is expecting to start phase 1b immuno-oncology studies for BL-8040 in combination with Genentech's Atezolizumab for multiple solid tumor indications and AML.
Novartis Owns About 9% And There Are Other "Smart Money" Institutions Investing Invested:
As mentioned previously, Novartis has taken a stake of about 9% in BioLine Rx and it is the largest shareholder. A number of institutional investors also have taken stakes in the company. This includes Senvest Management with over 4.4 million shares or nearly 8% of the company and Orbimed Advisors which owns over 1 million shares and specializes in biotech investing. The data below is a partial list of institutional holders and it is provided by Yahoo Finance.
Top Institutional Holders
Holder Shares Date Reported % Out Value
Senvest Management LLC 4,443,500 Sep 29, 2016 7.88% 5,110,025
Orbimed Advisors LLC. 1,038,600 Sep 29, 2016 1.84% 1,194,390
Alyeska Investment Group, L.P. 637,303 Sep 29, 2016 1.13% 732,898
Morgan Stanley 551,122 Sep 29, 2016 0.98% 633,790
Opaleye Management Inc. 250,000 Sep 29, 2016 0.44% 287,500
Deutsche Bank Aktiengesellschaft 213,696 Sep 29, 2016 0.38% 245,750
The Chart:
BioLine Rx shares spiked up to $1.40 in September and then fell back to around $1 by late October, but then spiked again to $1.15 by mid-November. However, more recently the stock has mostly been treading water. This is probably due to the current negative sentiment towards the biotech sector over concerns that President Trump will negotiate and implement price controls on the sector. I think these fears are overblown, especially for biotech firms that do not have any risk of missing estimates on the next earnings report because they are clinical stage companies. There is no reason for this stock to be trading at such cheap levels and I believe this is a rare biotech "value" stock that offers significant potential. I don't think it will take much for this stock to make another run at $1.42 as it did in September and if it takes out $1.42 that would be a new 52-week high. However, in the long run, the upside appears far more significant and analyst price targets suggest this as well.
Analyst Price Targets Of Up To $7 Suggests Significant Upside:
The highest analyst price target is $7 per share and the average is $4 per share. On March 9, 2016, analysts at J.P. Morgan Chase set a $3 price target and this appears to be the largest investment banking firm that has initiated coverage on BioLine Rx.
In Summary:
This stock was regularly trading for about $1.15 per share in November so it appears that tax-loss selling pressure has caused it to drift even further into deep value territory. In the short-term I think it can easily rebound back to the $1.15 level which is about 20% upside from current levels, but that would still be deeply undervaluing the very promising pipeline this company offers. If the company continues to show clinical progress on BL-8040 (in particular) or some of the other candidates, it is totally reasonable for this stock to be trading between the analyst price targets of $3 to $7 per share. (With about 57 million shares outstanding, the market cap would still only be about $170 million, if the stock traded at $3 per share.)
BioLine Rx has very promising pipeline and multiple candidates, so positive results on just one candidate could send the stock much higher. With a market cap of just around $51 million and with about $39 million in cash, this implies the market is currently valuing the pipeline and partnerships at an incredibly low $12 million (a market cap of $51 million, minus the roughly $39 million it has in cash, [since it has almost no debt] leaves us with about $12 million to use as a value for the pipeline and partnership deals). This sum-of-the-parts analysis suggests the stock is significantly undervalued.
This is a company that has shown very positive results in clinical trials for its lead candidate BL-8040. It is hard to put a price on the value of partnerships which also have the potential to offer milestone payments from companies like Genentech, Merck, Novartis, and Perrigo, but there is no doubt in my mind these collaborations are worth plenty. Multiple analysts also suggest the stock is too cheap to ignore since the price targets range between $3 to $7 per share and that would offer about 300% to 700% upside. This $1 biotech stock offers a lot of value and upside potential, while potential downside risks appear limited due to the cash-rich balance sheet and low cash burn rate. For all of these reasons, it is a strong buy.
The company is making a presentation on February 13, 2017 at the "Bio CEO and Investor Conference". In the recent past, BioLine Rx has made important announcements on or around the same day of biotech conferences like this, so we might soon be getting an update on the clinical progress that this company continues to make. 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.
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