Biomed-Lublin S.A. (Market cap PLN 1.16bn/EUR 253.4m) is a company with traditions: Its origins date back to 1944. With two production facilities in the city of Lublin (eastern part of Poland), it mainly produces drugs and serums/vaccines e.g. 1. BCG 10 – a vaccine against tuberculosis 2. Onko BCG – a drug used in the treatment of urinary bladder cancer 3. Blood plasma-derived immunoglobulin Histaglobulin – used in chronic asthma illnesses 4. Blood plasma-derived immunoglobulin GAMMA anti-hbs – used in prophylaxis of liver inflammation Hepatitis B 5. Blood plasma-derived immunoglobulin Gamma anti D – used in prevention of hemolitic illness of the newborn, and 6. Distreptaza – drug used in treatment of hemorrhoids and adnexitis. Through partners, the company also distributes its products abroad, especially in CEE/SEE and countries of the former Soviet Union (exports account for c. 33% of yearly revenues). BML’s strategy foresees investments in production capacity and a R&D center for further development of BCG 10 and Onko BCG in the coming years.
Biomed-Lublin has been listed on the Warsaw Stock Exchange since 2011 (first in the NewConnect segment and from 2015 in the Main Market). While BML traded in a range of PLN 0.58-PLN 7.90 between 2011 and March 2020, since April 2020 massive demand from Polish retail investors has led to a significant increase of its market capitalization, which was a consequence of rumors that the company could introduce a COVID-19 treatment based on blood plasma of people, who recovered from the coronavirus, and use its vaccine against tuberculosis in the fight against COVID-19.
Members of BML’s management and supervisory board used the strong share price performance and sold in total 5.36m shares (c. 8.6% of BML’s shares outstanding) at PLN 4-33 per share in April-August 2020. As a planned capital increase failed, the insiders partially returned the cash to the company in the form of credit lines worth in total PLN 20m (duration of one year; interest rate is similar to current market rates) that are supposed to be used for the construction of a new R&D center and extension of production capacity for the product Onko BCG (total value of the project is PLN >48m, of which PLN 29m are supposed to be financed by EU grants).
The publicly available results for Biomed-Lublin date back to 2009. In 2009-2019, its revenues increased from PLN 32.3m to PLN 39.1m (CAGR of 1.3%). Net income grew at a CAGR of 4.6% to PLN 2.5m over the same period, however in 2015, 2016 and 2018 the company reported very high write-downs relating to a failed investment in a new production facility for fractioning of blood plasma in Mielec. In early 2016, BML had to file for insolvency protection as it was not able to fulfill its financial obligations relating to this project (according to the most recent agreement with creditors, it has to pay all obligations that are worth PLN >15m in total by the end of 2024 in monthly installments).
In H1/20, Biomed-Lublin generated revenues of PLN 19.7m (+7.3% y-o-y), EBITDA of PLN 5.2m (+6.2% y-o-y) and net income of PLN 719k (H1/19: PLN 609k). As of 30/06/2020, the company’s cash position equaled PLN 1.2m and it had net debt of PLN 13.2m (net gearing of 39.2%).
Summary & Conclusion
Based on median EV/EBITDA 2019 multiples of 11 Western and CEE-based pharma companies, the fair value of Biomed-Lublin’s existing business is PLN 2.13 per share (88.3% below its current share price). Thus, its current valuation seems to be solely based on its COVID-19-related projects (especially the COVID-19 treatment based on blood plasma-derived immunoglobulin), whose effectiveness still has to be proven in clinical trials and which have to go through a formal registration process before market introduction.
Currently, there are many Pharma/Biotech companies worldwide, which work on COVID-19 treatments and have much stronger financing capabilities than Biomed-Lublin (e.g. German BioNTech, which has a strategic partnership with Big Pharma company Pfizer; US-based Johnson & Johnson; or CureVac, which conducted a very successful IPO on NASDAQ in August 2020). But this is not the only reason, why we have serious doubts whether Biomed-Lublin will be successful with its immunoglobulin COVID-19 treatment:
1) While Chinese officials stated that treatment with blood plasma of recovered coronavirus patients had helped COVID-19 patients and NHS Blood & Transplant is optimistic that its current large-scale clinical study with plasma that has high levels of neutralizing antibodies will show positive results, a recent study that was published on 16 October 2020 in the British Medical Journal concluded that blood plasma of recovered coronavirus patients fails to reduce deaths and stop progression to severe COVID-19. The study was conducted in Apr-July 2020 in dozens of public and private hospitals in India on 464 adult patients with an average age of 52 (however, with blood plasma that had relatively few antibodies).
2) Biomed-Lublin wants to conduct clinical trials of its COVID-19 treatments only in Poland and not in Western Europe or US, which would in our view make a successful registration and market introduction there a lot more likely.
3) The large-volume sales of shares by BML’s key staff on the stock exchange since April 2020 make us skeptical whether management/supervisory board members, whose track record at the company does not convince us, really believe in the future prospects of their business.
Investors, who believe that BML’s share price performance in 2020 does not reflect the company’s fundamentals, have the possibility to use futures that the Warsaw Stock Exchange introduced on 24 September 2020. BML’s average 3-month daily turnover is PLN 71m/EUR 15.5m and 59.7% of its shares are in the free float. According to publicly available information, no institutional investor has a stake of >5% in the company.