An Article written by Keith Williams in Seeking Alpha.

Written by

Keith Williams

Bionomics Springs Back To Life

Feb. 13, 2021 11:02 AM ETBionomics Limited (BNOEF)BMSMRK12 Comments5 Likes

Summary

• After several years of turmoil, Bionomics is back on target to finally determine the value of its BNC210 drug for PTSD (Post Traumatic Stress Disorder).
• Capital restructuring puts the company in good financial position to complete its Phase 2b PTSD trial.
• Bionomics now has several knowledgeable investor groups with deep understanding of mental health treatments.

I last wrote about the prospects for Australian biotech company Bionomics (OTCQB:BNOEF) [ASX:BNO] four years ago. At that time I thought the company had finally resolved tumultuous times, but I was wrong. Since 2016 Bionomics has experienced much further upheaval, but the core value of the business has remained, although progress has been painfully slow. The share price has been decimated but long time shareholders who kept the faith have been able to average down their investment entry price. News this week suggests that Bionomics is once again seaworthy and bright times might at last be in sight. For biotech investors looking for opportunity, I think that Bionomics has near term upside that looks interesting.

What went wrong?

The event which precipitated the loss of the longstanding CEO Deborah Rathjen in November 2018 was the absence of overall effect on the primary endpoint in a pivotal Phase 2 PTSD (Post Traumatic Stress Disorder) clinical trial involving BNC210. Fast forward a couple of months and in February 2019 it became clear that there was a reason for the trial failure. It became clear that a switch from dosing in a controlled setting to dosing at home with the liquid formulation (where dosing with food was critical) led to lower than expected blood levels of the drug. Fortunately, blood samples were taken and so the levels of dosing achieved were recorded. With this information it became clear that BNC210 was effective in those patients whose blood levels reached the expected effective dose level. It turns out that this problem had been anticipated and an effective solid dosing formulation was already being evaluated in human volunteers.

One can draw one’s own conclusions about the above timelines, but the result was the CEO who had built the company and overseen major developments was sidelined. The share price crashed, with ~80% loss (from ~$0.40 to ~$0.08). This was an opportunity to change management, although there was no change in the business and the principal goal remained commercialisation of BNC210 for treatment of PTSD as a prelude to a variety of other neurological conditions.

There were a lot of unhappy shareholders, but the Chairman got on with restructuring the company by providing an opportunity for a new group to achieve a major position in the company which continued to be focused on a major advance in treatment of PTSD, which is a major opportunity.

Next steps for BNC210 and PTSD

BNC210 has a strong record of safety and likely effectiveness in several mental health clinical conditions. The company recently published positive results on a Phase 2a study in Generalised Anxiety Disorder patients.

The big opportunity for BNC210 is undoubtedly as a treatment for PTSD and as indicated there have been setbacks in early trials for this condition. A history of BNC210 was presented at the 2020 AGM for Bionomics. Bionomics received Fast Track designation for BNC210 as a treatment for PTSD in November 2019.

The solid formulation of BNC210 is now ready for a new clinical trial and a 7-day dosing pharmacokinetics study was announced last month. The results of this trial, which are expected in Q1 2021, will be used to determine the dosing regime for a new Phase 2b trial of BNC210 for PTSD. The Phase 2b trial is expected to commence mid-2021.

Metastatic colorectal cancer Phase 2 trial for BNC105 in combination with PD-1 immune checkpoint inhibitor OPDIVO

Another Bionomics new chemical entity BNC105 is a vascular disrupting agent. This drug has been chosen by the Australasian Gastro-Intestinal Trials Group to be combined with Bristol-Myers Squibb (NYSE:BMS) PD-1 (Programmed death-1) immune checkpoint inhibitor nivolumab (OPTDIVO) in a Phase 2 trial involving patients with metastatic colorectal cancer. Patients completed their treatment phase by late January 2021 and results are expected in Q2 2021, which is significantly earlier than the expected early 2023 date for topline results. The trial also involves another drug combination of a STAT3 (Signal Activator of Transcription) inhibitor with nivolumab. This will provide a useful comparison to the BNC105/nivolumab combination treatment.

Investors

For a biotech company having a strong group of sophisticated investors on your register is a help because it provides a reference and also connections with other sophisticated investors. Merck (NYSE:MRK) has owned ~5% of Bionomics for some years now and it has a partnership with Bionomics in Alzheimer’s disease.

The turmoil of recent years has led to new US and Europe focused investors, with US investors Apeiron Investment Group Ltd. and BVF Partners LP each holding more than 10% of the stock. Investor groups interested in psychedelics and biotech include Novamind, Mike Novogratz and Peter Thiel, while as mentioned above Merck has a partnership with Bionomics for treatment of Alzheimer's disease and it holds a stake of ~5% after an investment in October 2015.

The investor group has considerable experience in mental health studies and is a valuable asset as Bionomics moves to the new Phase 2b trial for BNC210 involving PTSD.

Cash position

After a number of years where lack of cash precluded advancing clinical trials of Bionomics lead compound BNC210 for PTSD, a recent capital raising of $A16 million (plus an as yet undisclosed amount from an Entitlement offer to existing shareholders at the same offering price) to sophisticated North American and European investors clears the way for this trial to proceed.

This capital raising is interesting to existing investors because Apeiron Investment Group Ltd. (the group underwriting this raising) had committed a minimum pricing of $A0.06/share. The capital raising has been successful at $A0.145/share, which avoids substantial dilution of existing shareholders, while being attractive to new investors as it is a 20% discount to the volume weighted average price as of 5 February. In the Australian biotech scene, it is common for capital raisings to be conducted at a substantial discount to current share price. This invariably means that the share price falls to match the price of the capital raising. So far in this case the share price has not fallen and indeed it is currently trading at a significant premium to the 5 February price. This is an encouraging sign of confidence. The above capital raising completes the underwriting obligations of the Apeiron Investment Group in recapitalising the company. Executive Chairman of Bionomics Dr. Errol De Souza indicated that the capital raising was strongly oversubscribed.

Conclusion

For high risk stocks my take is that if the fundamentals continue to make sense, then putting them in the bottom drawer is a strategy. This has worked for me on several investments that eventually produced alpha rewards, although sometimes one needs a lot of patience. Bionomics is one of a select group of biotech stocks that have the potential for big upside, which while still speculative has been substantially derisked. The team involved with the PTSD trial is sophisticated, and if the trial is successful, it is likely to be able to guide broadening out the applications for BNC210.

The good thing about Bionomics for new investors is that they avoid the “sturm und drang” that has surrounded the company in recent years. This year is a critical year for Bionomics as success on the Phase 2b PTSD trial would undoubtedly lead to substantial share price growth. As a long term investor, I’m biased, but I think this company is worth a look at the speculative end of a biotech portfolio.

I am not a financial advisor but I do have a strong background in biotech and its commercialisation. If my comments about possible investment in Bionomics helps you and your financial advisor to think about high risk biotech investing, please consider following me.