May 4, 2021, was a transformational day for BioLineRx (NASDAQ:BLRX).
On that day, the company announced positive results from Phase 3 GENESIS trial - the company's most-advanced clinical study, evaluating Motixafortide (aka BL-8040), in combination with Granulocyte Colony Stimulating Factor ("G-CSF", the current standard care), for hematopoietic stem-cell mobilization ("SCM") for autologous bone marrow transplantation in multiple myeloma patients.
Source: BioLineRx, Corporate Presentation, May 2021 (Note that all slides in this article come from that source, unless otherwise indicated).
The study used 122 patients, out of which 42 were given the placebo.
The below-mentioned ratios relate to the proportion of valid "treatment arms" compared to fake "placebo arms."
The primary endpoint of the study demonstrated a 4.9x increase (70.0% vs 14.3%), while showing a high level of statistical significance (p<0.0001) in mobilizing ≥ 6M CD34+ cells/kg in up to two aphereses, and after only a single dose of Motixafortide.
The study also achieved its main secondary endpoint, demonstrating a 14.1x increase (67.5% vs 4.8%), while showing a high level of statistical significance (p<0.0001) in mobilizing ≥ 6M CD34+ cells/kg in only one apheresis.
All in all, the combination (of Motixafortide plus G-CSF) was found to be safe and well tolerated, with the addition of Motixafortide making a real difference.
Not only has Motixafortide met all targets, but it has proven itself to be a better treatment than a parallel-competing study using Plerixafor (a drug that was developed by AnorMED, which was taken over by Genzyme).
It's no wonder that in reaction to the strong results the stock soared over 100% (at some point) on May 4. However, as you can see in the chart below, the cheerful reaction was very short lived, with the stock moving back to square one very quickly.
As a matter of fact, the stock is now trading at a lower price than the price it traded at prior to May 4. Putting it differently, investors are acting as if BLRX may have been better off without Motixafortide passing Phase 3 so successfully...
Naturally, this is illogical, and drives the question: Why is Mr. Market so skeptical regarding BLRX?
For a starter, BioLineRx has a history of - how to say it nicely? - not making investors too please (to say the least).
Investors look at the below chart and what they see isn't May 4 (which can hardly be seen) but a steady decline ever since the company went public, which (for itself) is a result of many rounds of dilution (we will touch upon this hereinafter).
Our take: BLRX, indeed, is a "choker," but when it comes to a stock (generally speaking), especially a micro/small-cap biotech stock, there might be a point in time where the past is no longer an issue.
Can we say with complete certainty that BLRX is guaranteed to currently be at that point? No, but we like the odds, as reflected in the below chart.
Over the past year, in spite of the extreme volatility, the stock is making higher highs, with the support line also moving higher over time (even if not at the pace/magnitude we would like it to).
This makes for a bullish chart.
Going back to the risk of dilution.
The second thing that's likely keeping investors away - not only from BLRX, but from many small/micro-cap biotechs - is the constant need for cash, resulting in many stock offerings.
Dilution is an integral part in the lifecycle of any small-cap biotech. These companies are not making money for years, while R&D costs are mounting. Obviously, this isn't something we can change, and our suggestion is to build such an investment (into a biotech stock) over time.
As long as the company remains on the right track (toward FDA approval), moving nicely and consistently along the clinical trials/phases, we believe that participating in future stock offerings, and averaging down, is the right approach.
You don't want to have too much in any of those, certainly not on day one!
We have to admit that BLRX has disappointed us too on that front, raising cash way too many times over the past two years, even when there didn't seem to be a need to do so - neither at the specific time, nor at the offered price.
Nonetheless, we kept averaging down, and so even after multiple rounds - and although our initial purchases were done at higher prices - our weighted-average cost price is fairly close to the current stock price.
The last round of BLRX took place about five months ago, seeing the company issuing 14.375M (12.5M plus 1.875M, per the underwriter's over-allotment) ADSs (each ADS represents 15 ordinary shares) at $2.40/ADS, for a total gross proceeds of ~$34.5M.
As of March 31, 2021, the company held $58.1M in cash, cash equivalents and short-term bank deposits.
Net cash used in Q1/2021 operating activities was $6.2M, compared with $6.7M in Q1/2020, primarily a result of lower R&D expenses.
Note that over the last three years, Q1/2020 was the quarter with the biggest consumption of cash flow (in operating activities) and so there's no reason to assume that (under normal circumstances) the company would need to use much more than that in the foreseeable future.
The company believes that the available cash will finance its operations until 2H/2023 and certainly through the multiple potentially value created milestones over the next 18 months.
If we assume a cash burn rate of $6.45M per quarter (midpoint between Q1/2021 and Q1/2020), $58.1M should be sufficient to finance the company for nine quarters beyond March 31, 2021, i.e. till mid-2023 (so about in-line with what the company expects).
We can only hope that BLRX would be patient this time round and won't issue additional stocks too early, surely not too cheap.
Following the strong data coming out of Motixafortide's Phase 3, and taking into consideration additional-upcoming catalysts (see below), it wouldn't be wise to issue more shares before the stock price reaches way higher levels.
Having said that, we have to warn that the company has a history of issuing too early and too cheaply. The last thing we can say about the management team of BioLineRx is that it has mastered its stock offerings to a perfection. Unfortunately, it's the other way round.
Hope they can prove us wrong this time round.
It's about time!
Speaking of catalysts... Here are the expected, most significant, milestones over the next 12 months:
Let's break these milestones into pieces:
While many think that BL-8040, now Motixafortide, is the company's only development, BioLineRx's second clinical candidate, the anti-cancer vaccine AGI-134, has no less potential than Motixafortide.
In September 2019, BLRX announced positive safety data for AGI-134, and quickly moved to initiate Part 2 - the dose expansion phase - but then COVID-19 came to our life, and negatively impacted enrollment. Nonetheless, things are progressing smoothly since the COVID-related delay, and data is expected to be out during the second half of 2021.
We believe that this could be a major (and early) catalyst because a small-cap biotech with two advanced studies is a different species, removing one of investors' biggest fears - the "all or none" nature of a biotech with only one product.
The results from the GENESIS Phase 3 trial of Motixafortide were so strong that we don't see why the much-anticipated New Drug Application ("NDA"), allowing Motixafortide to be added to the current standard of care (G-CSF) in SCM (required for transplantation) won't be filed and accepted by the FDA inside 2022.
That, of course, is subject for BLRX filing the NDA inside 1H/2022, hopefully as early as possible. Obviously, if they do so closer to mid-year 2022, it's more likely that the FDA decision would fall sometime in early-mid 2023.
We see no reason why Motixafortide wouldn't become the new standard of care for this indication, with almost 90% of patients getting the combined treatment undergoing transplantation after only one dose of Motixafortide, and in only one apheresis session.
This is a major progress, compared to only 10.8% for G-CSF on a standalone basis, and we don't see how/why the FDA won't accept it, especially in light of the high safety and toleration levels that were registered.
Back in December 2020, BLRX reported positive final results from its Phase 2a COMBAT/KEYNOTE-202 study of Motixafortide in combination with Merck's (MRK) anti PD-1 KEYTRUDA and chemotherapy.
Forty-three patients (that were initially diagnosed with unresectable stage four metastatic PDAC) who had progressed, following first line gemcitabine based therapy, took part in a triple-combination arm.
Results showed clear improvement across all study endpoints, however that improvement - while significant compared to historical data - wasn't seen as significant enough in absolute terms.
As sad as it's to say, gaining an extra month or two for a terminal patient's life is not seen as "significant enough" for commercial purposes.
Pancreatic cancer is the most difficult type to cure, and survival rates are very low. Anything that would make a "significant enough" difference to patients' lives (length and quality) would be the equivalent of finding a gold mine.
BioLineRx is exploring if and how to progress from here, and the company made it clear that they wish to find a partner to collaborate with.
Truth is, we're not sure how easy or plausible this study is.
On one hand, BLRX is clearly onto something that may potentially turn into a huge thing.
On the other hand, they're onto something which is currently too small, and would require a lot of time, energy, and mostly money - resources that BLRX has no extras from.
It's a tough decision, and we believe that unless the company finds a partner that would fund most of a randomized controlled Phase 2/3 study - the PDAC might need to be delayed, or even abandoned.
Although the PDAC could be the biggest thing for BLRX clinically, it could also be the company's "kiss of death" if it pushes into it (right now) in full force.
Motixafortide (for sure) and AGI-134 are more immediate, more advanced, and surely less costly, initiatives, and the company must prioritize these studies.
Being a small cap, surely a biotech, means that an investment in BLRX comes with additional risks compared to the average stock.
We've already touched upon this above, and so in short - the constant thirst for liquidity means that investors in small-cap biotechs are at risk to suffer severe dilutions in the future.
Stock offerings normally take place at least once a year, usually more, and that may erode the value of the investment over time.
2) Clinical Failure
Any failure/bump which is related to the clinical aspects may result in the stock price losing a lot of value, very quickly.
A failure could be in the form of not meeting expectations in a clinical study, but it can also be related to a rejection of the NDA, or not approving the drug as smoothly (without any limitation) as the company expects.
While BLRX is enjoying a healthy trading-volume pattern, and although there seems to be no problem buying or selling, small-cap biotechs may become less liquid than the average stock.
This can be due to lack of near-term catalyst, little interest, or loss of hope.
While we believe BLRX is likely to be immune to any of those over (at least) the next two years, this is something to keep in mind.
4) "All or None" Nature of the Business
Small-cap biotechs have no revenue, and the only reason for their existence - as well as the justification for their valuation - is the expectation/belief that a clinical study would end up becoming an effective drug/product.
The road is long, the road is costly, and there's no assurance whatsoever that a company would be able to cross the finish line successfully. As a matter of fact, most small-cap biotechs won't cross the finish line successfully and this means a severe, or even total, loss of the invested money.
BLRX has more than one promising indication, and that puts the stock at a better position compared to a single-product biotech company, however it provides no guarantee of success!
5) Great IP, Bad PR
BLRX could be bought out already.
The fact that none of these giant pharma corporations made a move is a warning sign.
Although they tend to wait for small-cap biotechs to prove their clinical edge, and most M&A activity is done close to-, or after-, an FDA approval, it's not rare to see a takeover happening around, surely after, a successful Phase 3.
Not once ever since we follow the company has BioLineRx's management given an indication for an interest shown by a potential acquirer.
Merck was, and remains, the ultimate candidate to takeover BLRX, not only because they are currently the only active collaboration, but mainly because i) they know the company well, and ii) they keep growing their oncology product line.
Are they (or anyone else) interested? We don't know, and we aren't going to guess. Perhaps they wish to have a higher certainty regarding Motixafortide? Perhaps they wish to see more from AGI-134? And perhaps they just wait a while longer, waiting for BLRX to be in a more distressed situation (clinically and/or financially) to get it for a cheaper price.
With a market cap of $128M, BLRX won't cost them more than $500M (nearly 300% premium) even if they make a move today. That's small money for a company like Merck, and it might be a cheaper price to pay (right now) than wait another year or two, get a higher certainty (regarding Motixafortide and AGI-134) but end up paying way more than that.
Is it easy to invest in a small/micro biotech stock? No, far from it.
Is it certain for a successful Phase 3 study to turn into an approved drug/treatment? No, but the odds are certainly improving.
Is BioLineRx a guaranteed success story? No, but it has all the necessary ingredients:
1) A promising pipeline
Source: Company's website
2) A successful Phase 3 that demonstrates how efficient the addition of Motixafortide in SCM treatment is.
3) Sufficient cash to avoid additional stock offering, at least not before the stock is trading way higher from here on a sustainable basis.
While we can't guarantee success, this is as close as a company can get to the biotech holy grail - an FDA approval.
Three analysts are currently assigning a BUY rating for the stock, with an average price target of $13, comprising of two $10 (Maxim and Oppenheimer) and one $19 (H.C. Wainwright) price targets.
We believe that, under the assumption of a successful NDA, the stock is a top candidate to be taken over before the end of 2022 at a price that would be closer to $10 if the takeover is done inside 2021 (less likely), or to $19, if a takeover is done towards end 2020 - early 2023 (more likely).
Either way, we're looking at significant upside potential.
We assume that the stock could and should move back to its 52-week high, at the very minimum, and a premium (in a takeover deal) of between 100%, at the very minimum, to 200%, subject to positive progress with AG-134.
For the sake of simplicity, we use $7 as BLRX PT for the next 6-12 months, before a potential takeover, and a 100%-200% premium on top, in case of a takeover.
This puts BLRX 12-24 month PT at $14-$21, with $16-$19 being a narrower range, if you'd like.
At the midpoint of $17.50 we're looking at an upside potential of more than 500% between now and the end of 2022.
Only time will tell if the stem-cell (mobilization) ends up ringing the register's bell.
WoF: $959 (-26.2%) for the 1st year, $1,199 (-7.7%) then after
MTF: $499 (-12.0%) for the 1st year, $567 then after
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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.