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Bellus Health Inc. (TSX – BLU)
Today we do something unusual. We added BLU to our portfolio @ $1.15 after meeting the CEO. Afterwards (as suggested) the company offered to us, a short synopsis of the company in the hope that we would blog it. We have never accepted any submissions previously, so we decided to publish our version (which is quite different from the submission), but also decided to make it free (rather than restricted to our premium subscribers).
Why is Bellus Unique
Bellus targets a rare disease. Its target market is small, but that market is desperate for a solution. The drug (if approved) will not find a wide distribution, but only a very profitable limited market.
Usually investors are interested in companies developing drugs that have enormous potential markets. The conventional way that companies in the pharma business present their opportunity, is to start out by describing how large the potential market is. Not Bellus. They immediately point out the advantages of investing in a company with a limited use drug, that can quickly get approval, is very much needed, and the market is wide open for the limited number of ill people needing that specific help.
What is normally an excruciating long and expensive process to obtain government approval for the drug, is a much shorter process, and is a much less expensive process for a drug developed to meet a specific limited market. Bellus has those advantages. Rather than waiting 5 to 15 years for a drug to go through all of the phase I, II, and III trials, Bellus hopes to gain approval in a much shorter time frame and unlike all of those monster trial expenses, Bellus is now fully funded to final approval (they hope).
The Stock BLU-TSX
By a complicated set of arrangements (as can be followed on SEDAR.com), the company reorganized on May 25, 2012 (3 years ago). Essentially an old shell company was reorganized to deal with this drug. A chart of the stock price follows from the date of the reorg to now. As can be seen, initially parties liquidated their positions to profit on the reorg, then the stock languished, and then as it presented its wares at Bio conferences, and also hired public relations firms to introduce people to the opportunity, the stock started showing growth.
What investors should like, is that the people behind this company know the public markets, and continually promote the stock. They are very experienced in the public markets, and seem to understand that a stock can be wonderful, but orphaned if no-one knows about it. This management does not shy away from spending the necessary dollars to show all listeners what they believe is a great opportunity.
What Does Bellus Do
We quote the company’s website:
BELLUS Health is focused on developing drugs for rare diseases, starting with conditions that affect the kidneys.
The lead program is KIACTA™, a novel drug candidate currently in a Phase III Confirmatory Study for the treatment of AA amyloidosis, a rare disease resulting in renal dysfunction that often leads to dialysis and death. KIACTA™ is partnered with global private equity firm Auven Therapeutics. The Phase III Confirmatory Study completed its enrollment in January 2015 and is expected to conclude in 2016.
KIACTA™ is also being developed as a treatment in a second indication called sarcoidosis, a rare inflammatory condition that affects the lungs. A Phase II trial is expected to begin in the second half of 2015.
In addition, BELLUS Health is developing Shigamab™, an antibody treatment for Hemolytic Uremic Syndrome caused by Shiga toxin-producing E. coli (“sHUS”). sHUS often leads to dialysis, chronic kidney disease and in some cases death, particularly in children. Shigamab™ pre-clinical studies for treatment of sHUS are currently underway.
BELLUS Health’s pipeline also includes a research-stage project for the treatment of AL amyloidosis, a rare disease in which amyloid protein builds up and causes dysfunction in various parts of the body.
So what we see is that the company has a pipeline of drugs in advanced stages of trials, that treat rare diseases. They currently are in partnership with AUVEN who paid 10 million dollars to Bellus and has funded research of an additional 60 million dollars for a 50% interest in the drug. Phase II trial produced a 50% reduction in the worsening of the disease which is an important delay in reaching dialysis. This is statistically very significant. In addition there have been no negative effects in the safety profile.
Bellus KIACTA™ is currently in a phase III confirmatory study with 260 patients enrolled. The study ends when one hundred and twenty patients reach an event of kidney function deterioration. More than two-thirds of the participants have already reached the event and the study is expected to complete in 2016.
The company is fully funded to creation of first product KUACTA AA amyloidosis.
There are 10,000 to 15,000 potential patients in the US and Europe.
Management
As in every stock pick, we look for management that is skilled, experienced, and can get the job done. The CEO is Roberto Bellini who is the son of Francesco Bellini. Franscesco founded Biochem Pharma that invented the HIV vaccine. Pretty impressive credentials.
The family continues to invest in this space and they are extremely knowledgeable in the space. Roberto believed enough in these drugs and in these opportunities to leave his previous position to take over as CEO of this company. He asserts that this is his only job.
Roberto Bellini asserted to me that he has very high expectations for BLU. He thinks that a big pharma will want to take over this pipeline of drugs after they have been proven, and he hopes that this could happen as soon as a year or two. Might happen. He expects the valuation at that time to be vastly greater. (I hope so also as we bought the stock.) He gave numerous examples of other companies that were sold in the two to four hundred million dollar range. Apparently treatment of a rare disease receives orphan drug designation with market protection between 7 and 10 years and intellectual protection until 2026.
The Stock
The Board of Directors is impressive and knowledgeable. The Bellini family owns 30% of the stock, Power Corp owns 30% & Pharmascience owns 10%. There is a partnership with biotech private equity fund Auven Therapeutics for their lead program KIACTA™.
The company finished qtr 1 2015 with $11.5M cash. With an expected burn of $3-$3.5M per year, and a partnership for KIACTA™ which fully funds the Phase III trial to beyond completion, the Company anticipates that it is fully funded.
Analysts Coverage
There are currently 3 analysts covering the stock with targets of $2.50, $3.00 & $6.00.
CymorFund Added BLU
CymorFund added Bellus to our portfolio @ $1.15
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