adult-close-up-eye-946727

Potential sale of IOPtima to a Chinese firm

BioLight Life Sciences 2 May 2017 Update
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BioLight Life Sciences

Potential sale of IOPtima to a Chinese firm

Sale of subsidiary

Pharma & biotech

30 April 2017

Price

NIS12.39

Market cap

NIS32m

*Priced as at 25 April 2017

NIS3.67/US$

Net cash (NISm) at 31 December 2016

25.5

Shares in issue

2.6m

Free float

45%

Code

BOLT

Primary exchange

TASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.5

26.5

(31.5)

Rel (local)

9.6

24.6

(30.6)

52-week high/low

NIS19.4

NIS8.7

Business description

Based in Israel, BioLight Life Sciences is an emerging ophthalmic company focused on the development and commercialisation of products and product candidates that address ocular conditions. Lead products IOPtiMate and VS-101 are directed towards the treatment of glaucoma.

Next events

Company decision on IOPtiMate regulatory strategy

2017

Eye-D VS-101 Phase I/IIa data

H217

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

BioLight’s IOPtima subsidiary (of which BioLight holds a 70% ownership stake) signed a non-binding term sheet on 19 April 2017 for it to be acquired by a Chinese company, Chengdu Kanghong Pharma. While there is uncertainty on whether the deal will proceed, the transaction could potentially provide IOPtima shareholders with $17m (NIS62m) within six months of completion. Our model, which does not yet include this proposed transaction, derives an rNPV valuation of NIS98.5-106.9m.

Year end

Revenue (NISm)

PBT*
(NISm)

EPS*
(NIS)

DPS
(NIS)

P/E
(x)

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

5.4

(24.8)

(9.35)

0.0

N/A

N/A

12/18e

11.5

(33.6)

(12.00)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Multi-step transaction could provide liquidity

The proposed transaction is arranged in several tranches, whereby, on signing, initially Chengdu would invest $7m in IOPtima for a 19% stake in the company, and then within six months gain exclusive Chinese distribution rights to the IOPtiMate glaucoma laser treatment system. Six months after signing, Chengdu would acquire additional IOPtima shares from the existing shareholders, raising its stake to 60%, for $17.2m. This amount will be allocated to IOPtima shareholders on a pro rata basis according to the preferences assigned to different classes of IOPtima shares, and hence the potential allocation to BioLight has not yet been disclosed. In two further stages, scheduled for 2019 and 2021, Chengdu would acquire the remaining IOPtima shares, with pricing dependent on its profitability.

BioLight in need of funding by mid-2017

BioLight finished 2016 with NIS25.5m in net cash (NIS25.1m cash and equivalents and NIS0.4m in short-term deposits), but most of this (NIS16.3m) is held at IOPtima. With NIS1.6m held at its other subsidiaries, the parent company (BioLight) had c NIS7.1m in YE16 net cash. Even if the IOPtima sale moves ahead, we estimate that, given the timing of transaction proceeds, BioLight may still require additional financing by mid-2017 to continue development of its remaining key programmes, namely Eye-D VS-101 and TeaRx.

Valuation: Risk-adjusted NPV of NIS98.5-106.9m

After pushing back our US IOPtiMate and TeaRx revenue timing forecasts by approximately one year each, and rolling forward our forecasts (for all products, including Eye-D VS-101), we now obtain an rNPV of NIS98.5-106.9m (up from NIS90.5-104.2m, previously). Our model does not yet include the proposed IOPtima sale transaction. Our base case model forecasts that BioLight will need to raise NIS30m in both 2017 and 2018 to maintain its operations and development strategy. For modelling purposes, we assign these financings to long-term debt.

BioLight intends to sell IOPtima stake to a Chinese firm

Following the suspension of a privatisation attempt by an unnamed Chinese investor and with an imminent funding need (by Q217), BioLight has sought potential transactions to raise funds. On 19 April 2017, its 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. The proposed transaction is arranged in several tranches, whereby, on signing, initially Chengdu would invest $7m in IOPtima for a 19% stake in the company, and within six months gain exclusive distribution rights to IOPtima’s main product, the IOPtiMate1 glaucoma laser treatment system, in China (currently the product’s largest market). Six months after the initial $7m 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 will 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.

IOPtiMate is a proprietary carbon-dioxide laser-assisted sclerectomy (CLASS) device for treating glaucoma.

In two further stages, scheduled for 2019 and 2021, respectively, Chengdu would acquire the remaining shares in IOPtima (acquiring 20% in each stage) using a pricing formula dependent on IOPtima’s profitability (and that is calculated separately for each stage), and that can reflect an IOPtima valuation of between $40.5m to $56.25m.

However, given the suspension of the prior BioLight privatisation attempt due to Chinese regulatory restrictions on foreign investments, there remains moderate uncertainty on whether the Chengdu IOPtima sale will proceed as planned.

BioLight finished 2016 with NIS25.5m in net cash (NIS25.1m cash and equivalents and NIS0.4m in short-term deposits), but most of this (NIS16.3m) is held at the IOPtima subsidiary. With NIS1.6m held at its other subsidiaries, the parent company (BioLight) has c NIS7.1m in net cash available. As BioLight does not intend to invoke a fund transfer from its subsidiaries, BioLight signalled, prior to the Chengdu announcement, that it would need to obtain additional funding in Q217 to fund its operations. If the IOPtima sale proceeds, BioLight would, within six months of closing, obtain some of the proceeds from the sale (although the exact amounts are currently unknown due to the differing share classes and preferences). Hence, it is currently unclear how much of the funding needed to advance BioLight’s remaining ophthalmic projects, primarily EyeD VS-101 (to provide controlled drug release to glaucoma patients), and TeaRx (a multi-parameter dry eye syndrome [DES] diagnostic test), will be generated from this transaction step. We expect that if this sale moves ahead and once the six-month milestone is reached, BioLight will provide details on the IOPtima share class allocations and on its expected proceeds from the $17.2m payment from Chengdu.

Nonetheless, given that Chengdu’s initial $7m investment would go into IOPtima, and not the existing investors (namely BioLight), we estimate BioLight may still require some additional financing by mid-2017, even if the acquisition proceeds (due to the timing scenarios involved for the planned payments to existing IOPtima shareholders including BioLight).

IOPtima concentrating on Asian market

IOPtima (BioLight) had been focusing on IOPtiMate sales primarily to Asia and China, and then to parts of Europe (France, Germany, certain Eastern European countries), and Latin America. In 2016, BioLight reported NIS2.1m in sales revenue, substantially all of which was derived from IOPtiMate sales, versus our estimate of NIS2.3m. BioLight has not publicised specific geographic breakdowns of IOPtiMate sales, but we believe the majority of sales to date have been in Asia. However, even prior to the Chengdu announcement, BioLight had indicated that it was considering changing the product’s distributor in China.

For the US market, our model continues to assume that the FDA will require a Class III premarket approval (PMA) pathway for commercial registration, which would expand the scale of clinical studies required (vs a Class II pathway) and increase associated costs. US pivotal PMA study sizes of around 500 patients or more are common for glaucoma surgical devices. We assume that a 500-patient PMA-enabling study will start in H118 (versus our prior forecast of H117), costing about $8m, and could lead to US clearance and launch in early 2021 (from 2020, previously).

TeaRx service contract helps validate the platform

DiagnosTear, one of BioLight’s subsidiaries (with an 82% ownership interest), signed a services agreement in February 2017 with an undisclosed pharmaceutical company, whereby DiagnosTear will provide analysis services using the TeaRx multi-parameter diagnostic assays as part of a clinical trial for DES. This reflects the first time that TeaRx will be employed as part of a clinical trial, and BioLight indicates this 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 (likely to be within 12 months).

As DES is a multifactorial, chronic condition with different potential causes and contributors,2 which can possibly be identified through measuring different biomarkers, one of the key objectives is for the TeaRx multi-parameter assay to differentiate sub populations of responders and non-responders to the proposed DES drug treatment. Should the study show that TeaRx is effective at differentiating between responders and non-responders, the parties may extend their collaboration in a subsequent stage to enter a joint-development project of a potential companion diagnostics solution or test.

DES has been associated with inflammatory factors affecting aqueous tear production, inflammatory factors affecting the regulation of meibomian gland function, obstruction of the meibomian and accessory tear glands, medication interactions, mechanical or radiation injury to the cornea or ocular adnexa, autoimmune diseases and other factors.

TeaRx US clinical programme pushed back into 2018

As reported in our initiation report, BioLight previously conducted two US clinical studies comparing TeaRx’s composite DES diagnostic measure with a composite of four established legacy DES assessment tests. The studies showed a strong positive correlation between TeaRx and the four applied tools, but the company will need to complete another US study prior to obtaining FDA 510(k) regulatory clearance. BioLight management indicates that it has received agreement from the FDA on the proposed protocol for this study, but it plans to delay the start of this study into Q118, which pushes back the potential US launch for TeaRx as a diagnostic tool into H218. We had previously modelled, in accordance with management’s prior guidance, that a US launch could occur in H217.

Our timeline forecasts for Eye-D VS-101, an in-office insertable product that provides the controlled release of latanoprost, are largely unchanged. BioLight announced on 26 April 2017 that the last patient in the ongoing Phase I/IIa study of Eye-D VS-101 has completed his treatment, and it expects to provide results in H217. If Eye-D VS-101 results are positive, the company then plans to complete a larger scale Phase IIb trial and then a pivotal Phase III under the 505(b)(2) regulatory pathway. BioLight intends to partner VS-101 with a major ophthalmic biopharma firm prior to starting pivotal studies. Under 505(b)(2), the applicant may rely on much of the existing data already established on latanoprost, and hence the pivotal study would likely be shorter and less costly than what would be required for a new drug application (NDA) or premarket approval (PMA). Our model continues to assumes a 505(b)(2) pathway, with BioLight spending c $8m on VS-101 R&D across 2017 and 2018, before partnering the product prior to starting a Phase III study (funded by the partner) in late 2018.

Micromedic subsidiary advancing bladder cancer diagnostic

BioLight owns 5.29m shares of Micromedic (MCTC, TASE), or about 34% of current shares outstanding. Micromedic is an Israel-based firm developing proprietary diagnostic tests for cancer detection, using its histochemical staining platform (termed CellDetect), which is designed to facilitate the differentiation between cancer cells and normal cells. CellDetect is based on combining the effects of a proprietary plant extract and generic dyes. Micromedic’s initial diagnostic product is being advanced for bladder cancer, and has received CE mark approval in Europe.

Bladder cancer affects mostly males, particularly those above age 55 (median age of diagnosis is 73). The National Cancer Institute (NCI) estimates that there are nearly 700,000 people living with the condition in the US, with over 79,000 new US cases per year and almost 17,000 deaths. Bladder cancer is conventionally diagnosed with cystoscopy (where a thin camera-mounted tube is inserted into the bladder under anaesthesia). According to the American Cancer Society (ACS), about 85% of bladder cancers are detected when the cancer is confined only to the bladder (ie before having spread to other tissues), with five-year survival rates of 96% (when it is in-situ, or only in the inner layer of bladder wall) or 70.1% (when it has invaded into deeper bladder cell layers). Bladder cancers that have spread beyond the bladder can have five-year survival rates as low as 15% (per ACS). Hence, early detection is critical. Further, as regression and recurrences can often occur, treated patients are generally monitored every three to six months for at least three years post-treatment (and once yearly thereafter). Cystoscopy is an invasive test, and less invasive urine sample analysis methods are not sensitive enough to reliably detect low-grade tumours.

CellDetect platform may provide non-invasive urine analysis for bladder cancer

Micromedic believes that its CellDetect platform could potentially provide a less invasive approach to bladder cancer diagnosis, using urine test samples and proprietary dye testing methods that can provide high enough cancer cell specificity and sensitivity, particularly for early stage tumours, in under 30 minutes. The firm reported a blinded study across nine centres in Israel (121 healthy subjects and 96 patients with bladder cancer), where the sensitivity was 84.4% and specificity was 82.7%. The results also indicated that the urine test’s negative predictive value (NPV), defined as the probability of a false-negative result, was 98.5%.

While the product has CE mark approval in Europe, management believes the largest commercial opportunity will be in the US, with pricing that can be double that of average EU pricing (the current approved bladder cancer product is sold at an approximate price of $20-30 per test).

Micromedic is also undertaking a 100-patient study in Israel on a CellDetect-based diagnostic product for prostate cancer, but does not expect commercialisation in this indication for at least several years.

Micromedic hired a new CEO, Guy Lerner, in H216, who has raised the firm’s emphasis on commercialising the bladder-cancer based product, and is attempting a parallel commercialisation process for the US market. In addition to seeking conventional product approval through 510(k) clearance process (which may require additional studies), the new management team is also seeking to sell the product directly to specific US CLIA (Clinical Laboratory Improvement Amendments) certified laboratories, which would be permitted to use the product on human test specimens without requiring additional medical device (eg 510(k) or PMA) approvals. While Micromedic sales to date have been sparse (NIS0.03m in 2016), the company expects meaningfully higher revenue and sales in 2017, given in part the initiative to target existing US CLIA laboratories.

Recent Micromedic equity raise provides funding into 2018

Micromedic also raised NIS3.5m (c $1m) in a February 2017 equity offering of 4.4m shares, and 2.2m warrants (exercisable at NIS0.94 per warrant and expiring in August 2017). Given its year-end 2016 cash position of NIS1.0m, we estimate that the firm now has sufficient resources to fund operations into Q417 and potentially into 2018. The company indicated the offering had sufficient investor demand for potentially up to NIS5.6m, but opted to cap the offer size at NIS3.5m.

Prior to the NIS3.5m financing, BioLight held 48% of Micromedic’s outstanding shares, and as it did not participate in this offering, it now owns 34% of outstanding shares. However, BioLight plans to continue to consolidate Micromedic’s financials into its own operating results, as it has “effective control” of Micromedic (it is by far the single largest Micromedic shareholder, its chairman and chief financial officer hold similar roles at Micromedic and its chief executive officer is Micromedic’s vice chairman). Micromedic now has 15.37m shares outstanding.

2016 results largely in line with forecasts

BioLight recently reported 2016 financial results, with revenue of NIS2.1m, an EBITDA loss of NIS20.2m and an adjusted net loss per share of NIS5.55. These compare to our 2016 estimates of NIS2.3m, NIS22.5m and NIS5.98, respectively. The bulk of company revenue (c 99%) reflects IOPtiMate sales to customers in ex-US markets. The adjusted net loss calculation excludes NIS7.0m in other/non-specified expenses and a NIS0.4m expense item relating to the company’s share of losses of an affiliate accounted for at equity. Including these amounts, the reported IFRS net loss to equity holders was NIS8.37 per share. Both these net loss figures (IFRS reported and adjusted) also remove NIS11.8m of loss reflecting the non-controlling interest attributed to the Micromedic subsidiary (BioLight owned 48% of the outstanding shares of Micromedic at year-end 2016, but now owns 34%). The total reported 2016 net loss, including the Micromedic non-controlling interest, was NIS33.6m. Our model and financial forecasts do not include projections or considerations for Micromedic.

Financials

The 2016 operating cash burn rate was NIS24.1m (excluding NIS2.8m in net interest costs). At YE16, BioLight held NIS25.5m in net cash (NIS25.1m cash and equivalents and NIS0.4m in short-term deposits), but most of this (NIS16.3m) is held at the IOPtima subsidiary. With NIS1.6m held at its other subsidiaries, the parent company (BioLight) has c NIS7.1m in net cash available. As BioLight does not intend to invoke a fund transfer from its subsidiaries, BioLight signalled, prior to the Chengdu announcement, that it would need to obtain additional funding in Q217 to fund its operations and development projects. We continue to model that BioLight will need to raise NIS30.0m in both 2017 and 2018 to sustain its operations and R&D projects. We also assume a NIS25.0m raise 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 revenue, and that R&D and other operating costs will exceed sales growth in the near term. We have deferred some of our R&D expenditure forecasts, given our assumption that the TeaRx and US IOPtiMate studies will start approximately one year later than previously anticipated. We project R&D costs of NIS18.4m in 2017 and NIS27.8m in 2018, versus our prior forecasts of NIS27.6m, and NIS25.2m, respectively.

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 in 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. Eye-D VS-101 remains the largest potential source of revenue for the company and our 20% probability of success estimate reflects its early clinical development stage.

Exhibit 1: BioLight’s upcoming catalysts

Event

Timing

Guidance from FDA on regulatory pathway for IOPtiMate

2017

VS-101 Phase I/IIa data

Mid-2017

TeaRx 510(k) clearance and US launch

H218

Event

Guidance from FDA on regulatory pathway for IOPtiMate

VS-101 Phase I/IIa data

TeaRx 510(k) clearance and US launch

Timing

2017

Mid-2017

H218

Source: BioLight Life Sciences reports

We have pushed back our US IOPtiMate and TeaRx revenue timing forecasts by approximately one year each, and have rolled forward our forecasts (for all products, including Eye-D VS-101). Given these changes we now obtain an rNPV of NIS98.5-106.9m (up from NIS90.5-104.2m, previously).

Exhibit 2: BioLight Life Sciences rNPV assumptions

Product contributions (net of R&D costs)

Indication

rNPV
(NISm)

rNPV/share (NIS)

Probability of success

Launch year

Peak sales (US$m)

IOPtiMate for ex-US Markets (70% weighted)

Glaucoma

94.2

36.13

70.0%

2015

$21.4m in 2023

IOPtiMate in US Market (70% weighted)

Glaucoma

25.4

9.74

40.0%

2021

$22.6m in 2026

Eye-D VS-101 (97% weighted)

Glaucoma

82.5

31.63

20.0%

2020

$69.8m in 2026

TeaRx (82% weighted)

DES diagnosis

26.5

10.17

50.0%

2018

$19.8m in 2025

Corporate costs & expenses

SG&A expenses

(55.0)

(21.10)

Net capex, NWC & taxes

(78.1)

(29.97)

Value of Micromedic shares (MCTC, TASE)*

4.8

1.85

Total rNPV

100.2

38.45

Net cash (debt) (Q416)

25.5

9.77

Total equity value**

125.7

48.22

FD shares outstanding (000s) (Q416)

2,607

Source: Edison Investment Research. Note: *5.29m shares held with 19 April 2017 price of NIS0.91 per share. **Excludes the impacts from any dilution resulting from any future equity offerings.

Exhibit 3: 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

5,449

11,532

23,833

Cost of Sales

(538)

(734)

(996)

(2,452)

(5,189)

(10,725)

Sales, General & Administrative

(8,529)

(11,956)

(10,360)

(8,060)

(9,486)

(12,162)

Research & Development

(18,560)

(13,045)

(10,982)

(18,400)

(27,800)

(21,800)

EBITDA

 

 

(26,686)

(24,344)

(20,227)

(23,463)

(30,943)

(20,854)

Depreciation

(3,884)

(1,306)

(3,190)

(1,622)

(2,400)

(2,400)

Amortization

0

0

0

0

0

0

Operating Profit (before exceptionals)

 

(30,570)

(25,650)

(23,417)

(25,085)

(33,343)

(23,254)

Exceptionals

(5,886)

(2,475)

(7,357)

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(36,456)

(28,125)

(30,774)

(25,085)

(33,343)

(23,254)

Net Interest

448

543

(2,836)

288

(261)

(890)

Profit Before Tax (norm)

 

 

(30,122)

(25,107)

(26,253)

(24,797)

(33,605)

(24,143)

Profit Before Tax (FRS 3)

 

 

(36,008)

(27,582)

(33,610)

(24,797)

(33,605)

(24,143)

Tax

0

0

0

0

0

0

Profit After Tax and minority interests (norm)

(17,216)

(16,784)

(14,467)

(24,379)

(31,280)

(23,674)

Profit After Tax and minority interests (FRS 3)

(23,102)

(19,259)

(21,824)

(24,379)

(31,280)

(23,674)

Average Number of Shares Outstanding (m)

1.9

2.4

2.6

2.6

2.6

2.6

EPS - normalised (NIS)

 

 

(8.91)

(6.96)

(5.55)

(9.35)

(12.00)

(9.08)

EPS - normalised and fully diluted (NIS)

 

(8.91)

(6.96)

(5.55)

(9.35)

(12.00)

(9.08)

EPS - (IFRS) (NIS)

 

 

(11.96)

(7.98)

(8.37)

(9.35)

(12.00)

(9.08)

Dividend per share (NIS)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed and non-current assets

 

 

8,002

9,832

5,282

8,092

13,982

17,982

Intangible Assets

7,106

6,869

3,910

3,910

3,910

3,910

Tangible Assets

896

2,963

1,372

4,182

10,072

14,072

Current Assets

 

 

32,432

53,439

30,031

32,842

19,614

17,812

Short-term investments

6,408

385

417

417

417

0

Cash

22,196

50,697

25,057

30,098

14,529

8,355

Other

3,828

2,357

4,557

2,327

4,668

9,457

Current Liabilities

 

 

(6,552)

(6,605)

(6,988)

(6,988)

(931)

(1,802)

Creditors

(6,552)

(6,605)

(6,988)

(6,988)

(931)

(1,802)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(8,144)

(9,605)

(11,915)

(41,915)

(71,915)

(96,915)

Long term borrowings

0

0

0

(30,000)

(60,000)

(85,000)

Other long term liabilities

(8,144)

(9,605)

(11,915)

(11,915)

(11,915)

(11,915)

Net Assets

 

 

25,738

47,061

16,410

(7,969)

(39,249)

(62,923)

CASH FLOW

Operating Cash Flow

 

 

(27,435)

(24,580)

(24,106)

(20,815)

(37,017)

(23,884)

Net Interest

448

543

(2,836)

288

(261)

(890)

Tax

0

0

0

0

0

0

Capex

(402)

(182)

(370)

(4,432)

(8,290)

(6,400)

Acquisitions/disposals

0

(837)

(227)

0

0

0

Financing

38,374

47,320

2,554

0

0

0

Net Cash Flow

10,985

22,264

(24,985)

(24,959)

(45,569)

(31,174)

Opening net debt/(cash)

 

 

(17,901)

(28,604)

(51,082)

(25,474)

(515)

45,054

HP finance leases initiated

0

0

0

0

0

0

Other

(282)

214

(623)

0

0

(0)

Closing net debt/(cash)

 

 

(28,604)

(51,082)

(25,474)

(515)

45,054

76,228

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.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

EDISON INVESTMENT RESEARCH DISCLAIMER

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

EDISON ISRAEL DISCLAIMER

Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

EDISON INVESTMENT RESEARCH DISCLAIMER

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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