By: Dr. George S. Mack, Principal Analyst at BioDecade
Small-cap biotech investors concentrate on catalysts because significant events can move stocks dramatically. One name with a prolific pipeline, balanced with early- and late-stage therapeutic candidates, is BioTime, Inc. (Ticker: BTX). The company also has a diversified portfolio of external, non-core assets, including one about to be spun off with its shares awarded to investors.
BioTime is a regenerative medicine company with two very interesting platform technologies and a solid business plan to show investors. But you don’t have to wait until who knows when; it’s upon us. 2018 expects to reward investors with a mid-year approval as well as some definitive data from a potential mega-blockbuster cell therapy to treat a leading cause of blindness. The bottom line is that investors have two important shots on goal for some dramatic upside this year.
The company has two major products in development:
- Renevia (injectable hydrogel polymer delivery matrix for autologous [patient’s own] adipose-derived precursor cells) is about to be filed. It’s lead indication is to perk up the faces of patients with HIV-related lipoatropy, and in a few weeks it will be filed for a CE marking in the E.U. Renevia could be approved in late Q2 or Q3. In the U.S. this product is being studied in an investigator-sponsored trial under the brand name Premvia for a cosmetic indication, age-related facial volume loss, which would be a cash business and profit center for plastic surgeons and ENT physicians. There are some highly compelling reasons why these physicians and their cosmetic patients would want to use Premvia instead of traditional fat grafts, and I will get to that.
- OpRegen (suspension of human embryonic stem cell-derived retinal pigment epithelial (RPE) cells) is a cell therapy product, which is currently being developed in a phase 1/2a trial (NCT02286089) for the dry form of age-related macular degeneration (dry AMD), for which there are no currently approved therapeutic agents. The clinical trial is a single-arm, open-label study with a scheduled 15 patients ultimately enrolled.
Although the company is focusing on its two major product candidates, its preclinical pipeline includes a proposed stroke recovery program, a drug delivery technology, and an orthopedic project targeting ankle fracture. Investors are not focusing on these preclinical programs right now because of the compelling core programs mentioned above. These preclinical programs would be considered call options for the future.
Don’t let your eyes glaze over. You really need to understand the capital structure.
Although BioTime still enjoys small-cap status with a recent $387 million market valuation, the company is not your run-of-the-mill, one-molecule biotech trick. In addition to its impressive pipeline, the company also has external investments in three important companies. This has been confusing for investors, and many are unaware of the company’s true capital structure. This lack of knowledge has been a drag on the share price. So, let me clear it up for you:
- BioTime owns approximately 47% of non-invasive blood and urine diagnostic (liquid biopsy) company OncoCyte (OCX) (0.47 x $130.4 million = $61.3 million);
- BioTime owns 40% of regenerative medicine company Asterias Biotherapeutics (AST) (0.40 x $113.7 million = $45.5 million), which may actually be able to restore significant sensation and motor function in spinal card injury patients;
- BioTime owns 85% of regenerative biology company AgeX Therapeutics (private) (0.85 x $68 million = $58 million), which is developing therapies for diseases of ageing and already has three primary product development programs.
Looking more closely at these external investments, BioTime’s total equity in each of the three is approximately ($61.3 million + $45.5 million + $58 million) $165 million, which means its pipeline is being valued by the Street at roughly ($387 million – $165 million) $222 million. Keep this pipeline valuation handy because it makes for a handy comparison to the company’s potential valuation.
To simplify the structure, the company is planning to spin out AgeX in Q2 of this year and dividend the shares to investors. That should simplify the picture a bit and make investors and potential investors happy.
Now, with the housekeeping done, let’s look at what BioTime pipeline could be worth.
Renevia performed quite well in the trial setting in HIV patients who had been taking anti-retroviral drugs, which actually contribute to the loss of facial fat resulting in an emaciated appearance. The volume of fat was measured six months after injecting a 5cc dose. This period of time is significant because traditional fat grafts lose about half their volume after three to six months, and the data from plastic surgery studies are plentiful to support that fact. But after a six month period, Renevia grafts in the HIV patients retained full volume—100% retention. Some of these patients have been followed for a year, and investigators measured about 70% retention. These are important data because in the cosmetic setting, the procedure can cost about $8,000 on average in the plastic surgeon’s practice, and many patients find it unacceptable to repeat the procedure after such short periods of time. The surgeon or the ENT physician wants happy patients because these are cash-pay procedures, and there is plenty of motivation to use a better, more durable product.
In the U.S. alone, there are about 375,000 fat transfer procedures performed per year. The total for the fat transfers plus the larger volume facial fillers plus the smaller volume fillers is about 3 million procedures per year. It’s not hard to imagine that Premvia/Renevia could capture 25% of the market over a two-year period. So, if BioTime’s physician clientele can garner (0.25 x 3 million) 750,000 patients per year, you can see that the revenue could easily fund development of other company projects and move BioTime shares to the solid $5-$10 billion mid-cap range vs. its current valuation of just under $400 million.
See below potential milestones (Table 1) the company published on January 22. The bold emphasis in the table is mine, not the company’s. Investors should perform their own diligence, and remember that things can and do go wrong in clinical trials. There is no sure thing in biotech, but BioTime is a stock worth some very serious study.
Disclosure and Declaration
Dr. George S. Mack, the author of this report is an independent contractor. Dr. Mack was compensated by Sylva to author this report. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
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