EC Bioniche: A Home Run Buying Opportunity In Biotech

The bladder cancer market is virtually free of competition

According to this independent study - the same that estimates market sizes - there is hardly any competition in bladder cancer. Here's a quote from the report:

"….Late-stage clinical development in bladder cancer is poorly served. Only one drug is being investigated in a full-fledged Phase III program and only a handful of drugs are being evaluated in Phase II company-sponsored trials. In the metastatic setting, most of the developments are being conducted by independent investigators and are therefore not designed to gain regulatory approval…"

This means the market is literally up for grabs for Bioniche.

Bioniche's financials are good

Bioniche has recently cleaned up its balance sheet and raised cash, and I estimate they currently have about $10 million in cash, virtually no debt and a moderate cash burn. Bioniche should be able to finance their operations for a full year from now without the pressing need for a capital raise. I therefore do not expect dilution this year.

Bioniche is extremely undervalued

Bioniche's $25 million market cap is exceptionally low for a Phase III biotech company. How low? Here's an overview of peer Phase III small cap biotechs targeting specific cancer types with respectively their market valuations:

Oncothyreon (NASDAQ:ONTY): $150 million valuation

Endocyte (NASDAQ:ECYT): $280 million valuation

Galena Biopharma (NASDAQ:GALE): $280 valuation

Mind you that most Phase III biotech stocks have much higher valuations (some in the billions), but I searched in the lowest bracket of valuations, and for companies targeting specific cancer types, so their addressable markets are more or less of similar size. A remarkable thing is that some companies failed their Phase III trials so far (OncoGenex for example), but still are valued at multiples of Bioniche. Other have weak financials, and are also valued much higher. So even in the lowest bracket of Phase III biotechs, valuations turn out to be 3X to 10X higher than Bioniche's, emphasizing clearly what a phenomenal buying opportunity Bioniche is.

Genuine 10-bagger upside

Bioniche is currently valued at $25 million, of which $10 million is net cash.

If Bioniche is allowed to sell on the US market, they could capture a substantial part of the market, because their technology is so unique and advanced, competition is almost non-existent, and the unmet medical need is so critical. A 20% US market share equates to peak sales of $48 million. From there on, Bioniche is able to likely generate revenue in other place, as the US sets the example. A growth stock operating in a growing biotech space generally trade at high price/sales multiples (average is 10). Say with a low multiple of 5, FDA approval could drive Bioniche's valuation to $250 million, equating to a 10X return from current share price. Remember, many biotech stocks are trading at much higher valuations the moment they obtain FDA approval. Once Bioniche gets market approval in the USA, I expect other countries to follow suit. Again applying a low price/sales multiple of 5, the valuation of Bioniche then could approach $1 billion.

If you would apply a peer comparison valuation method, which already showed how cheap Bioniche is today, a 10X return could turn out to be even too conservative.

Why I initiated a position in Bioniche

Number 1: There is an acknowledged and critical unmet need for a new bladder cancer therapy. This is not me saying this, but the medical community, experts, and the FDA itself. I believe Bioniche's technology sets the company way ahead of potential competition.

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Disclosure: The author is long BNHLF

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Chris Kisnik 6 years ago Member's comment
Risk can be good sometimes!