BioVie IPO: It Is Speculative

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About: BioVie Inc. (BIVI), Includes: AGN, IMUX, MNK
by: Wilsonville Capital
Summary

BioVie Inc. is a clinical-stage company focused on the development of BIV201, novel treatment of ascites due to chronic liver cirrhosis.

The company is still at an early stage of development. Besides, the number of patients who received the treatment is low.

The company is currently conducting a Phase 2a clinical trial with six patients. BioVie expects to present the results to the FDA in the first half of 2019.

In April 2018, Mallinckrodt plc challenged the patent received by BIVI. The Patent Trial and Appeal Board is expected to release its written decision on this matter before November 14, 2019.

The company expects to use the proceeds from the IPO to finance the clinical trials of BIV201.

BioVie Inc. (OTCQB:BIVI) should not have an enterprise value of $31 million. At that mark, the company is a sell. Other peers exhibiting a more advanced pipeline have a valuation close to that of BioVie Inc. Besides, the number of operating risks is elevated. The most worrying is that a significant competitor is challenging the most relevant patent owned by BIVI. Moreover, the company is a controlled entity, and the amount of related party transactions is very high.

Source: Prospectus

Source: Prospectus

Business And Intangible Assets

BioVie Inc. is a clinical-stage company focused on the development of BIV201, novel treatment of ascites due to chronic liver cirrhosis.

The company is still at an early stage of development. Besides, the number of patients, who received the treatment, is low. As shown in the image below, the company is currently conducting a Phase 2a clinical trial with six patients. BioVie expects to present the results to the FDA in the first half of 2019. Once the FDA gives comments on the new data, BIVI expects to conduct a Phase 3 trial in 2020. Finally, BIVI plans to file for NDA in 2021.

Source: Company's Website

It will be shown later in the balance sheet that the company's most valuable asset is its intellectual property. BIVI received a US Patent covering the use of BIV201 and has also filed patent applications for its product candidate in Japan, Europe, Hong Kong, and China. BIVI acquired the rights of BIV201 from LAT Pharma LLC in 2016. As of today, the company owns all the development and marketing rights to its drug candidate.

The images below offer further information on the patent granted in the United States and the orphan drug designation received by BIV201:

Source: Company's Website

Source: Google Patents

Concerning the patent received by BIVI, investors should know that in April 2018, Mallinckrodt plc (MNK) challenged the patent received by BIVI. The Patent Trial and Appeal Board ("PTAB") is expected to release its written decision on this matter before November 14, 2019. Investors should remember this date. If the decision benefits BIVI, the share price should spike up. However, if it is not favorable, the share price could go to zero. Keep in mind that BIVI does not have any other product candidate. The lines below offer further information on this matter:

"We are actively defending the '945 patent and may explore the possibility of settlement with Mallinckrodt. However, there can be no assurance in that a favorable outcome will result, or if settlement is reached that the PTAB will accept it. Although the PTAB encourages settlement, in view of public-interest considerations, the board may continue the proceeding to a final written decision even if the parties settle. If the IPR is not terminated due to settlement, the PTAB is statutorily required to issue its final written decision in this case before November 14, 2019" Source: 10-Q

Assets And Liabilities: Debt-To-Equity Swap

As of June 30, 2018, with $45 million in cash, intangible assets worth $1.7 million and no property and equipment, BIVI appears to be in a very early stage. Most clinical stage companies report some equipment. The fact that BIVI does not do so may worry investors. A list of assets is shown in the image below:

Source: 10-Q

As of June 30, 2018, the company reported $2 million in total liabilities with notes payable worth $0.825 million. However, as of March 31, 2019, the company reduced the debt and noted total liabilities worth $0.179 million. The image below offers further information on this matter:

Source: 10-Q

The reduction in financial risk is favorable. But investors should get to know how BIVI converted the debt into shares. While the financial risk diminished, the transaction created stock dilution. If BIVI continues to issue shares, the share price may decline. The lines below offer further information on the debt-to-equity swap:

Source: Prospectus

Income Statement

Like most clinical stage companies, BIVI does not report any revenue. In the nine months ended March 31, 2019, the number of R&D expenses approximated to $0.732 million, and selling, general and administrative costs ("SG&A") amounted to $0.936 million. It is interesting that SG&A expenses are more significant than the R&D expenses. In most cases, companies willing to present a new product candidate spend more money on research and less on SG&A expenses.

For the nine months ended March 31, 2019, the company reported a net loss of -$1.78 million. Taking into account the current amount of assets, the net losses are significant. The company will soon need additional financing to continue its operations. See below more details on the income statement:

Source: 10-Q

Controlled Entity And No Institutional Investors On This Name

Directors and executives of the company hold a significant amount of shares, 82.5% of the total share count. One shareholder owns more than 77.5% stake, which means that BIVI is a controlled entity. As a result, the Board of Directors may not be independent. It may make decisions to benefit the largest shareholder, damaging the interests of minority shareholders. The lines below offer further information on this matter:

Source: Prospectus

Note that institutional investors were not interested in the company, which is quite worrying. The image below offers a list of shareholders:

Source: Prospectus

Use Of Proceeds

The company expects to use the proceeds from the IPO to finance the clinical trials of BIV201. It appears beneficial that BIVI does not plan to use the proceeds to pay the debt or acquire shares from shareholders. The lines below offer further details on this matter:

Source: Prospectus

Related Party Transactions

BIVI reports several related party transactions. Assessing them all is impossible. However, let's mention a few of them, so that investors understand the type of deals that BIVI is signing.

In the past, BIVI accepted to give notes and shares to consultants and directors in return of their services. It is a common practice that small companies conduct when they don't want to use their cash in hand. It is interesting noting that, in July 2018, one of the directors accepted to release the company from its liabilities with him. The amount of money that the company should have paid is significant, equal to more than $534 million. The lines below offer further information on this transaction.

Source: Prospectus

In August 2018, another independent contractor accepted to release the company from all its liabilities. BIVI had agreed to pay in a combination of debt and shares. See below further details on this matter:

Source: Prospectus

Valuation

The company does not provide a list of competitors in the prospectus. Thus, let's use the list offered by Owler:

Source: Owler

Among the peers noted by Owler, only two companies trade or traded in the past:

  • Immunic, Inc. (IMUX).

  • Tobira Therapeutics, which was acquired by Allergan (AGN) for $1.695 billion.

Tobira Therapeutics had a very advanced pipeline when AGN acquired it. As shown in the slide below, it had one product in Phase 2:

Source: Seeking Alpha - Presentation

Immunic, Inc. has an enterprise value of $100 million with several products at Phase 2 and Phase 1 of development. The image below offers further details on the matter:

Source: Immunic-therapeutics

As of March 31, 2019, with 316.4 million shares outstanding at $0.10, the total market capitalization is $31 million. BIVI does not report financial debt, so the enterprise value is also $31 million.

With seven product candidates and two candidates at Phase 2, Immunic, Inc. has an enterprise value of $100 million. BIVI has only one product candidate and has a total valuation of $31 million. With these figures in mind, BIVI appears a bit expensive as compared to Immunic, Inc.

Besides, the fact that a large organization challenged BIVI's intellectual property does not help justify an enterprise value of $31 million. Until the Patent Trial and Appeal Board releases its decision, the risk on this name is significant.

Conclusion

BioVie Inc. is still at an early stage of development. Also, the fact that it is a controlled entity will not help seduce institutional investors. Keep in mind that the Board of Directors may not be independent. Directors could make decisions to benefit the largest shareholder, damaging the interests of investors.

If a new IPO is executed, the company should not have an enterprise value of $31 million. At that mark, the company appears to be a sell. Notice that other peers with many more product candidates are not trading at much higher valuations. Also, Mallinckrodt plc is challenging one of the company's most relevant patents. Notice that losing the patent could push the share price to a very low value. With this in mind, the risk on this name is significant.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.