BioLight Life Sciences |
IOPtiMate sales slow as Asian distribution on hold |
Financial update |
Pharma & biotech |
12 September 2017 |
Share price performance
Business description
Next events
Analysts
|
||||||||||||||||||||||||||||||||||||||||||||||||||
BioLight reported H117 results in late August and IOPtiMate revenue was lower than expected, due to a pause in distributor activity in China. This interruption may last until there is a definitive conclusion in the pending Chengdu transaction. We have decreased our near-term IOPtiMate forecasts and extended the time runway estimated to achieve our peak sales targets for the product. We now derive an rNPV of NIS109.7-130.7m (down from NIS121.6-135.7m, previously).
Year end |
Revenue (NISm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
1.4 |
(25.1) |
(6.96) |
0.0 |
N/A |
N/A |
12/16 |
2.1 |
(26.3) |
(5.55) |
0.0 |
N/A |
N/A |
12/17e |
2.2 |
(30.1) |
(6.88) |
0.0 |
N/A |
N/A |
12/18e |
8.9 |
(34.6) |
(8.81) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
BioLight reports H117 results
BioLight recently reported H117 revenue of NIS0.574m, an EBITDA loss of NIS13.5m, and a reported net loss of NIS15.32m. As Q117 results were already known, we infer Q217 revenue of NIS0.190m, an EBITDA loss of NIS7.07m, and a reported net loss of NIS7.78m. The Q217 net loss figure included NIS3.04m in losses attributable to non-controlling interests. We had expected Q217 revenue (derived from IOPtiMate sales) of NIS1.16m and an EBITDA loss of NIS5.14m.
IOPtima distribution activities in Asia on hold
IOPtiMate’s Q217 revenue was well below our expectations, as H117 BioLight revenue declined 32% y-o-y to NIS0.574m. Management explains that the current primary distributor for China has halted most of its continuing sales efforts, due to IOPtima’s ongoing negotiations for it to be sold to Chengdu Kanghong Pharma (which would become the new distributor in Asia if the sale were to proceed). Hence, a majority of IOPtima sales in China are on hold pending the result of the IOPtima sale negotiations with Chengdu. If the negotiations terminate without a transaction, the current distributor is expected to recommence sales efforts.
Valuation: Risk-adjusted rNPV of NIS109.7-130.7m
Eye-D VS-101 remains the largest potential source of revenue for the company, and we continue to use a 30% probability of success estimate for this project. After reducing our near-term IOPtiMate estimates, extending the duration needed to achieve peak sales, and adjusting forex assumptions (and the public market value of held Micromedic shares), we now obtain an rNPV of NIS109.7-130.7m (down from NIS121.6-135.7m). BioLight’s H117 net cash position of NIS25.5m (with NIS13.5m held at the parent company and the remainder at its subsidiaries) should be sufficient for the company to maintain operations into Q417. Our base case model assumes that BioLight will raise NIS18m in H217 and NIS30m in 2018 to maintain its operations and development strategy. For modelling purposes, we assign these financings to long-term debt. We have not adjusted our model for the potential IOPtima sale to Chengdu.
BioLight reports H117 financials
BioLight reported H117 financials in late August 2017; H117 revenue was NIS0.574m, the EBITDA loss was NIS13.5m, and the reported net loss was NIS15.32m. Given that BioLight had reported Q117 results in May 2017, we infer Q217 revenue of NIS0.190m, an EBITDA loss of NIS7.07m, and a reported net loss of NIS7.78m. This Q217 net loss figure included NIS3.04m in losses attributable to non-controlling interests, including those attributed to the Micromedic subsidiary (BioLight owns 34% of Micromedic). Excluding the non-controlling interests, the Q217 net loss attributable to BioLight shareholders was NIS4.74m.
While BioLight consolidates the financial results of the Micromedic subsidiary in its financials, our forecasts do not include projections or considerations for Micromedic. Overall, we had expected Q217 BioLight revenue of NIS1.16m, an EBITDA loss of NIS5.14m, and a net loss of NIS5.27m.
While BioLight does not break down its revenue by product line or subsidiary, we estimate that as in prior quarters, the large majority of reported Q217 revenue reflected IOPtima-related sales (including capital equipment sales and per-procedure recurring revenue). We believe that a small proportion of Q217 revenue (proportion undisclosed by the company) was recognised from the analysis services agreement entered by DiagnosTear (one of BioLight’s subsidiaries, with an 82% ownership interest) with an undisclosed pharmaceutical company in February 2017. Under their agreement, the undisclosed partner will use DiagnosTear’s TeaRx multi-parameter diagnostic assays as part of a clinical trial for dry eye syndrome (DES). BioLight indicates this entire contract agreement should provide revenue in the hundreds of thousands of Israeli shekels range, and a positive gross margin, over the term of the services agreement (which we estimate could last into early 2018). BioLight recently also confirmed that as part of its TeaRx development plans, it has started recruitment for a European TeaRx validation study, which could end by YE17 and would be used to support a regulatory filing for the approval of this diagnostic test in Europe.
IOPtima revenue fell below expectations as distributor paused sales efforts
We estimate that IOPtima Q217 revenue was approximately NIS0.15-0.19m, which is well below our Q117 estimate of NIS1.16m. In Q216 BioLight reported revenue (of which IOPtima revenue reflected the large majority) of NIS0.09m. IOPtiMate sales growth has stalled recently, as shown by H117 BioLight revenue declining 32% y-o-y to NIS0.574m. Management explains that the current primary distributor for China has halted most of its continuing sales efforts, due to IOPtima’s ongoing negotiations for it to be sold to Chengdu Kanghong Pharma (which would become the new distributor in China if the sale were to proceed). If a sale occurs, then Chengdu will start distribution activities; if the negotiations terminate without a transaction, the current distributor is expected to recommence sales efforts. Altogether, we estimate that a considerable proportion of ex-US IOPtima sales are currently on hold pending the result of the IOPtima sale negotiations with Chengdu.
Potential IOPtima sale to Chengdu still under consideration
On 19 April 2017, BioLight’s IOPtima subsidiary (of which BioLight holds a 70% ownership stake) signed a non-binding term sheet, which calls for it to be sold to a Chinese company, Chengdu Kanghong Pharma. As detailed in our 2 May 2017 research note, the proposed transaction is arranged in several tranches, whereby existing IOPtima shareholders (eg BioLight) could begin receiving cash proceeds from the sale approximately six months from the formal signing of the transaction.
As a reminder, on signing of a formal transaction, initially Chengdu would invest $7m in IOPtima for a 19% stake in the company. Six months after this initial investment, Chengdu would acquire additional shares in IOPtima from the existing shareholders for $17.2m (about NIS62m), thereby raising its stake to 60% (this would value IOPtima at about $42m at that point). This amount would be allocated to IOPtima shareholders on a pro rata basis and according to the preferences assigned to different classes of IOPtima shares. While BioLight owns 70% of IOPtima equity, the different IOPtima share classes and their assigned preferences have not been disclosed, and hence the potential allocation to BioLight (of this $17.2m payment) has not yet been disclosed. In two further stages, scheduled for 2019 and 2021, respectively, Chengdu would acquire the remaining shares in IOPtima (20% of IOPtima in each stage). The price to be paid by Chengdu in each of these two stages (each corresponding to a purchase of 20% of IOPtima’s equity) would be determined using a pricing formula that is dependent on IOPtima’s profitability at the time (and that price would be calculated separately for each of these two stages), and that can correspond to an IOPtima firm valuation of between $40.5m to $56.25m. We believe BioLight is continuing to work with Chengdu to finalise a formal transaction, but as of yet, there is still no assurance that this process will be completed.
Financials
BioLight’s shareholder rights offering (described in our 19 June 2017 update note) was subscribed at a 96% level, which led to the sale of 1.028m new shares at NIS11.20 per share, and gross proceeds of NIS11.5m. The offering increased BioLight’s shares outstanding by 39%. The completion of the rights offering helped fulfil the firm’s imminent need to raise additional funds, as it finished Q217 with NIS25.5m in net cash (NIS25.1m cash and equivalents and NIS0.4m in short-term deposits). However, NIS11.6m of this cash is held at IOPtima and other BioLight subsidiaries (NIS9.9m at IOPtima, NIS1.3m at Micromedic and NIS0.5m at other subsidiaries), and BioLight prefers to avoid inter-corporate cash transfers to the parent company. Hence, the parent company (BioLight) only had c NIS13.5m in net cash available at Q217.
BioLight had an H117 operating cash burn rate (including all subsidiaries) of NIS12.8m, and we estimate a similar burn rate in future quarters. Hence, we believe BioLight’s cash on hand should last into Q417, assuming that no inter-company transfers will take place. This runway could potentially also be sufficient to allow for the closing or finalisation of the IOPtima sale to Chengdu.
We continue to model that BioLight will raise NIS18.0m in H217 in debt to sustain its operations and R&D projects. We continue to model that BioLight will raise NIS30.0m in 2018 and NIS25.0m in 2019. For modelling purposes, we assign these financings to long-term debt.
Given the uncertainty as to whether the Chengdu transaction will proceed, we have not adjusted our model or valuation for this potential transaction (our model continues to assume that IOPtima will operate as a separate, BioLight-controlled entity). We continue to assume that IOPtiMate ex-US sales will account for the majority of near-term BioLight revenue, and that R&D and other operating costs will exceed sales growth in the near term. We have not materially changed our G&A and R&D estimates for the remainder of 2017 and for 2018. However, given the slowdown in IOPtima sales as the Chinese market distribution activities are on hold, we have decreased our IOPtima sales forecasts for 2017 and 2018, to NIS2.2m and NIS8.6m, respectively, from NIS4.9m and NIS11.0m, respectively. We have not reduced our peak sales estimates, but have extended the amount of time expected to reach peak sales by one year in both the US market (to 2027) and also in ex-US markets (to 2024).
Valuation
As we do not include completion of the Chengdu transaction in our forecasts, our BioLight valuation continues to include the prospects for IOPtiMate, Eye-D VS-101 and TeaRx. We apply a risk-adjusted net present value (rNPV) model with a 12.5% cost of capital. For each of these projects, we provide a weighted rNPV based on BioLight’s ownership of the associated subsidiary company. For IOPtiMate, we continue to apply a lower probability of success for our US forecasts than our ex-US market forecasts, as the product has yet to receive US regulatory clearance, while it is already cleared for sale in Europe and China. As we have decreased our near-term IOPtima revenue estimates and prolonged the time runway needed to achieve our peak sales targets, our IOPtiMate valuation components have mildly decreased. Eye-D VS-101 remains the largest potential source of revenue for the company, and we continue to use a 30% probability of success estimate for this project. After adjusting our IOPtiMate estimates and adjusting forex assumptions (and the public market value of held Micromedic shares), we now obtain an rNPV of NIS109.7-130.7m (down from NIS121.6-135.7m, previously).
Exhibit 1: BioLight Life Sciences rNPV assumptions
Product contributions (net of R&D costs) |
Indication |
rNPV |
rNPV/share (NIS) |
Probability of success |
Launch year |
Peak sales (US$m) |
IOPtiMate for ex-US Markets (70% weighted) |
Glaucoma |
83.5 |
22.97 |
70.0% |
2015 |
$22.1 in 2024 |
IOPtiMate in US Market (70% weighted) |
Glaucoma |
24.2 |
6.65 |
40.0% |
2021 |
$23.4 in 2027 |
VS-101 (97% weighted) |
Glaucoma |
122.1 |
33.60 |
30.0% |
2020 |
$69.8 in 2026 |
TeaRx (80% weighted) |
DES diagnosis |
26.1 |
7.18 |
50.0% |
2017 |
$19.8 in 2025 |
Corporate costs & expenses |
||||||
SG&A expenses |
(58.4) |
(16.08) |
||||
Net capex, NWC & taxes |
(90.4) |
(24.88) |
||||
Value of Micromedic shares (MCTC, TASE)* |
3.3 |
0.90 |
||||
Total rNPV |
110.3 |
30.35 |
||||
Net cash (debt) (H117) |
25.5 |
7.01 |
||||
Total equity value** |
135.8 |
37.36 |
||||
FD shares outstanding (000) (H117) |
3,634 |
Source: Edison Investment Research. Note: *5.29m shares held with 6 September 2017 price of NIS0.617 per share. **Excludes the impact from any dilution resulting from any future equity offerings.
Exhibit 2: Financial summary
NIS000s |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
941 |
1,391 |
2,111 |
2,217 |
8,937 |
20,061 |
Cost of Sales |
(538) |
(734) |
(996) |
(1,172) |
(4,022) |
(9,027) |
||
Sales, General & Administrative |
(8,529) |
(11,956) |
(10,360) |
(10,234) |
(9,193) |
(11,640) |
||
Research & Development |
(18,560) |
(13,045) |
(10,982) |
(18,010) |
(27,800) |
(21,800) |
||
EBITDA |
|
|
(26,686) |
(24,344) |
(20,227) |
(27,199) |
(32,077) |
(22,406) |
Depreciation |
(3,884) |
(1,306) |
(3,190) |
(1,329) |
(2,400) |
(2,400) |
||
Amortization |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit (before exceptionals) |
|
(30,570) |
(25,650) |
(23,417) |
(28,528) |
(34,477) |
(24,806) |
|
Exceptionals |
(5,886) |
(2,475) |
(7,357) |
241 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(36,456) |
(28,125) |
(30,774) |
(28,287) |
(34,477) |
(24,806) |
||
Net Interest |
448 |
543 |
(2,836) |
(1,563) |
(143) |
(800) |
||
Profit Before Tax (norm) |
|
|
(30,122) |
(25,107) |
(26,253) |
(30,091) |
(34,620) |
(25,606) |
Profit Before Tax (FRS 3) |
|
|
(36,008) |
(27,582) |
(33,610) |
(29,850) |
(34,620) |
(25,606) |
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax and minority interests (norm) |
(17,216) |
(16,784) |
(14,467) |
(23,224) |
(32,024) |
(24,744) |
||
Profit After Tax and minority interests (FRS 3) |
(23,102) |
(19,259) |
(21,824) |
(22,983) |
(32,024) |
(24,744) |
||
Average Number of Shares Outstanding (m) |
1.9 |
2.4 |
2.6 |
3.4 |
3.6 |
3.6 |
||
EPS - normalised (NIS) |
|
|
(8.91) |
(6.96) |
(5.55) |
(6.88) |
(8.81) |
(6.81) |
EPS - normalised and fully diluted (NIS) |
|
(8.91) |
(6.96) |
(5.55) |
(6.88) |
(8.81) |
(6.81) |
|
EPS - (IFRS) (NIS) |
|
|
(11.96) |
(7.98) |
(8.37) |
(6.80) |
(8.81) |
(6.81) |
Dividend per share (NIS) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
8,002 |
9,832 |
5,282 |
7,910 |
13,749 |
17,749 |
Intangible Assets |
7,106 |
6,869 |
3,910 |
3,910 |
3,910 |
3,910 |
||
Tangible Assets |
896 |
2,963 |
1,372 |
4,000 |
9,839 |
13,839 |
||
Current Assets |
|
|
32,432 |
53,439 |
30,031 |
30,501 |
16,289 |
13,298 |
Short-term investments |
6,408 |
385 |
417 |
382 |
382 |
0 |
||
Cash |
22,196 |
50,697 |
25,057 |
27,476 |
9,406 |
1,928 |
||
Other |
3,828 |
2,357 |
4,557 |
2,643 |
6,500 |
11,370 |
||
Current Liabilities |
|
|
(6,552) |
(6,605) |
(6,988) |
(7,121) |
(772) |
(1,525) |
Creditors |
(6,552) |
(6,605) |
(6,988) |
(7,121) |
(772) |
(1,525) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(8,144) |
(9,605) |
(11,915) |
(29,653) |
(59,653) |
(84,653) |
Long term borrowings |
0 |
0 |
0 |
(18,000) |
(48,000) |
(73,000) |
||
Other long term liabilities |
(8,144) |
(9,605) |
(11,915) |
(11,653) |
(11,653) |
(11,653) |
||
Net Assets |
|
|
25,738 |
47,061 |
16,410 |
1,637 |
(30,387) |
(55,130) |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(27,435) |
(24,580) |
(24,106) |
(22,885) |
(39,687) |
(25,279) |
Net Interest |
448 |
543 |
(2,836) |
(1,563) |
(143) |
(800) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(402) |
(182) |
(370) |
(4,066) |
(8,239) |
(6,400) |
||
Acquisitions/disposals |
0 |
(837) |
(227) |
(192) |
0 |
0 |
||
Financing |
38,374 |
47,320 |
2,554 |
11,479 |
0 |
0 |
||
Net Cash Flow |
10,985 |
22,264 |
(24,985) |
(17,227) |
(48,070) |
(32,478) |
||
Opening net debt/(cash) |
|
|
(17,901) |
(28,604) |
(51,082) |
(25,474) |
(9,858) |
38,212 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(282) |
214 |
(623) |
1,611 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(28,604) |
(51,082) |
(25,474) |
(9,858) |
38,212 |
70,690 |
Source: BioLight Life Sciences reports, Edison Investment Research. Note: The reported financial results consolidate Micromedic’s
financials, and forecast financial results (2017e and beyond) do not include Micromedic operations.
|
|
