Company Overview: Bionomics Limited is a clinical-stage biopharmaceutical company engaged in discovery and development of drug candidates focused on the treatment of central nervous system (CNS) disorders and cancer by using its platform technologies. The Company's segments include Drug discovery and development, and Contract services. The Drug discovery and development segment includes the discovery, development and commercialization of compounds to match a target product profile. The Contract services segment includes the provision of scientific services on a fee for service basis to both external and internal customers. Its product candidates include BNC210, BNC375, BNC101 and BNC105. The Company provides treatments for CNS disorders, such as anxiety, depression and Alzheimer's Disease. Its oncology approach targets cancer stem cell therapies in solid tumors. Its technologies include ionX and MultiCore. It operates in three geographical areas, such as Australia, France and the United States.
 

BNO Details

Robust Competitive Advantages Might Act as Tailwinds For BNO: Bionomics Limited (ASX: BNO) is a small-cap biotech stock with the market capitalization of circa $68.09 Mn as of January 22, 2019. It utilizes the proprietary platform technologies for developing as well as discovering the novel drug candidates. The company happens to possess a strong management team which could support it in the growth prospects moving forward. Dr. Errol De Souza is the company’s Chairman, and Dr. Deborah Rathjen is the company’s CEO (or Chief Executive Officer) as well as Managing Director. The company had earlier published their results for FY 2018. The company posted revenues amounting to $3,953,990 which implies the fall of 79% on the YoY basis. In FY2018, its other income also witnessed a fall of 12% and stood at $8,502,456. Its other income largely reflects foreign government grants, Research and Development Tax Incentive as well as interest income. The company’s ionX, as well as MultiCore drug discovery platforms, were aided by the Merck & Co. or MSD partnership. These platforms happen to possess robust competitive advantages when it comes to dealing with the underserved therapeutic areas which include agitation, anxiety, PTSD (or Post Traumatic Stress Disorder), depression, pain as well as Alzheimer’s disease. As demonstrated by the company’s annual report of FY 2018, Bionomics has started fiscal 2019 in the robust position and the company is possessing $24.93 million cash. The cash figure partly implies a receipt amounting to $6.788 million with regards to the R&D incentive refund which was given to the company from Australian government in the month of January 2018.
 

Five Year Financial Summary (Source: Company Reports)

A Look at Key Developments: Not so long ago, Bionomics Limited had made an announcement that it had received A$654,000 with respect to the licensing revenue from the participation in Cancer Therapeutics CRC. Moreover, the company had also made an announcement about the R&D Tax Incentive Refund. As per the release, the company got A$6,568,808 in the R&D Tax Incentive Refund with regards to 2017/2018 financial year. The company had also made an announcement related to the Share Purchase Plan or SPP. As per the company’s announcement, it had managed to wrap up Share Purchase Plan for the eligible shareholders. As a result of the Share Purchase Plan, the company had managed to garner $250,000.

Recently, the company had also made an announcement that the experimental phase II clinical trial related to BNC105, which happens to be a cancer drug candidate, had started in the patients with metastatic colorectal cancer. The experimental phase II clinical trial had started with Bristol-Myers Squibb’s nivolumab in a trial which was sponsored by Australasian Gastro-Intestinal Trials Group and was helped by Bristol-Myers Squibb. The company had stated that MODULATE trial would be investigating that whether or not BNC105 when combined with nivolumab, could be utilized for the treatment of advanced colorectal cancer patients which are done with other options of the treatment.

Insights About Agreement with Merck & Co in Cognition: Bionomics Limited had stated that global license, as well as collaboration agreement with the Merck & Co will provide ongoing validation on its drug discovery platforms (i.e., ionX and MultiCore). Moreover, the joining hands with Merck & Co in cognition have led to US$20 million in the upfront payment in the year 2014. This partnership had also supported in terms of research funding from 2014-2017. The company also stated that the agreement happens to cover research with respect to BNC375 as well as related compounds.

Factors which Could Aid BNC210: The presentation published by Bionomics Limited listed certain factors which could aid BNC210 moving forward. It stated that BNC210 happens to be innovative, first-in-class and it can also address the unmet need in the large patient population. Other key characteristics related to BNC210 include advancement in care, ability to achieve large market share as well as limited branded competition. It can be assumed that the company is optimistic about the potential of the US market related with regards to the BNC210. As shown in the chart below, with regards to the PTSD, there happens to be substantial opportunity amounting to US$4.7 billion while with respect to Agitation, there is an opportunity amounting to US$2.3 billion. We expect that the company’s BNC210 can witness growth moving forward and support topline growth in years to come. Bionomics Limited had stated that Agitation as well as PTSD are expected to substantially support BNC210.
 

BNC210: US Market Potential (Source: Company Reports)

Update Related to the Fund Raising: Earlier, Bionomics Limited had provided information related to the fund-raising event. The company stated that BVF Partners, LP and associates have decided to acquire fresh shares of the company (approximately 48 million shares). This implies around 10% of the company’s previous issued capital which was $0.1637 per share. As a result, the company would be able to garner $7.9 million. The release also states that Bionomics as well as BVF have locked in a placement agreement. The placement agreement happens to possess rights for BVF Partners, LP and associates related to the top up with regards to the holding to 19.9% Corporations Act Limit.

In the same release, Bionomics Limited had also provided information related to the Institutional Placement. It stated that the company had offered up to 50% of its issued capital. This offering was made to the institutional investors and it also involves the same price which BVF had decided to pay for BVF Placement. The top management of Bionomics Limited had stated that, considering the brokers’ feedback related to the insufficient demand from the institutions and also because of the unfavourable market conditions (at that time), the company’s Board decided to pass that offer. As at 31 October 2018, the group had a pro-forma cash and cash equivalent of $27.1 Mn, considering SPP is fully subscribed.

Key Future Growth Drivers for Bionomics Limited: Bionomics Limited would primarily be focusing towards BNC210 as well as the strong pipeline with regards to preclinical programs moving forward. As demonstrated by the company’s annual report for FY 2018, the company happens to be in a better position when it comes to the financing of the BNC210 clinical trials as well as for the support needed for its relationship with MSD. In addition to evaluating the BNC210 partnering, the group is continuing to evaluate the opportunities for the BNC210 development.

The company has been leveraging the leadership, strategy, cost base as well as capital structure in order to respond the conditions of the market as well as clinical data. The company has witnessed a fall in the cash burn rate. This, coupled with the cash position stabilization with the help of SPP as well as successful placement, places the company in a better position with regards to the optimization of the shareholder value. As a result, there are expectations that the company might retire the debt during FY 2019.

Stock Recommendation: On the daily chart of Bionomics Limited, a technical indicator (Relative Strength Index or RSI) has been used and the default values were used for the purposes. As per the observation, the company’s Relative Strength Index is in the positive territory which might support the stock moving forward. Therefore, there are expectations that the company’s stock might encounter an upward momentum. Also, the candlestick charts were also used for analysis purposes. Few months back, the company’s stock witnessed a substantial fall with a gap down which is expected to be filled in the upcoming months. Apart from the above-mentioned factors, the expected growth related to BNC210, stabilization of the cash position as well as the strong management team is expected to provide further support to the company moving forward. Current ratio and quick ratio came in at 2.67x and 2.70x, respectively in FY18. Cash conversion cycle also substantially increased from 205 days to 874 days in FY18 over the prior year. However, we see a potential opportunity at the back of BNO's ongoing process to monetize its oncology program, i.e., BNC 101, BNC105, the robust market opportunity for BNC210 drug in the United State, and strategic realignment to focus on Ion channel assets. Talking about the stock’s past performance, it has managed to deliver the return of -26.47% in the time span of three months. However, in the time frame of previous one month, the stock had given the return of 13.64%. Give the backdrop of aforesaid facts along with transformation initiatives which are underway, we give a “Speculative buy” recommendation on the stock at the current market price of A$0.120 per share (down 4% on 22 January 2019).
 

BNO Daily Chart (Source: Thomson Reuters)
 

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