BLU.TO: With Kiacta Phase 3 Fully Enrolled, Bellus Is Looking Attractive
By Jason Napodano, CFA & David Bautz, PhD
TSX:BLU
On August 13, 2014, Bellus Health, Inc. (BLU.TO) announced financial results for the second quarter of 2014. Revenues for the quarter totaled $0.42 million, compared to $0.38 million in the corresponding period of 2013, and consisted mostly of revenue recognized for accounting purposes from the asset sale and licensing agreement and the service agreement entered into with Auven Therapeutics in 2010 in relation to Kiacta™. Operating expenses consisted of $0.85 million in G&A and $0.37 million in R&D. In addition, there was a net finance gain of $0.03 million, which was mainly attributable to the depreciation of the Canadian dollar versus the U.S. dollar during the current quarter. The company reported a net loss of $0.77 million, or $0.02 per share.
As of June 30, 2014 the company had cash, cash equivalents, and short-term investments of approximately $13.1 million, compared to $15.3 million on Dec. 31, 2013. We estimate that this will be enough to finance the company’s operations beyond the end of the Kiacta™ Phase 3 confirmatory study.
Kiacta™ Phase 3 Study Fully Enrolled
On May 27, 2014, Bellus announced that the Kiacta™ Phase 3 confirmatory study in AA Amyloidosis had completed its target enrollment of 230 patients. Eligible patients that were currently in the screening process at the time of this announcement were also given the opportunity to enroll in the study, thus the final patient population may number slightly more than 230. Patients that completed the Kiacta™ Phase 3 confirmatory study are being offered the opportunity to continue in an extended program, for which the first patients were enrolled during the second quarter of 2014.
For an overview of AA Amyloidosis, prior Kiacta™ clinical data, and the current Phase 3 study we invite investors to review ourZacks/SCR Initiation Report from May 2014.
Valuation and Recommendation
Not much has changed in the past 3 months to alter our opinion on Bellus or the Kiacta™ Phase 3 trial, thus we are maintaining our 'Buy' rating on the stock as we believe an investment at this juncture still represents an attractive risk/reward opportunity for investors, even with the stock up almost 50% since we initiated coverage.
The main driver for the stock in the near future will continue to be the success or failure of Kiacta™ in the confirmatory Phase 3 trial and the ability of Bellus to monetize that asset in the form of a licensing deal or sale. We believe that the trial has a 75% chance of success, and base this on the results seen from the first trial, as well as the changes in primary outcomes and design that we think facilitate a successful trial outcome. Bellus has obtained the services of investment banking firm, Lazard Capital, as a financial advisor to explore the sale of Kiacta™ with the idea that a potential sale prior to the completion of the Phase 3 trial would provide the acquirer with the opportunity to offer input into the regulatory process for approval of Kiacta™.
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