Bellus: Expected Phase 3 Start Makes This A Long-Term Play

BELLUS Health Inc. (NASDAQ:BLU) is a great long-term biotech play to look into. The reason why I state that is because it intends to initiate two phase 3 studies in Q4 of 2022 known as CALM-1 and CALM-2.

It will be using its drug BLU-5937 for the treatment of patients with refractory chronic cough (RCC). The reason why it is able to advance this program is because of a positive end-of-phase 2 meeting with the FDA. Investors may have to wait a bit to see the final results of the phase 3 studies, because final results won’t be released until the 2nd half of 2024. However, the company just raised additional cash in July 2022, and it believes it has enough to fund its operations into the 2nd half of 2025. This should be enough to carry it through the data readouts from both of the CALM-1 and CALM-2 studies. Even better, the use of the CALM program can be used for potential approval in the U.S. and the European Union.

With so much time until the results, it might even be prudent to wait and see two conditions before buying in. First, the market conditions don’t worsen, especially with already two negative quarters of GDP. Plus, the fact that even though it states it has enough cash until then, I believe it may need to raise additional cash again at least once before it runs out in 2025. This may give one an entry point if they intend to wait and see if the stock does pull back a bit, because of these two conditions. Still, looking at it from a long-term perspective, I believe that this offers significant value.

Success With End-Of-Phase 2 Meeting Brings Advancement To Phase 3

BELLUS Health has already completed a successful end of phase 2 meeting with the FDA recently for the use of BLU-5937 for the treatment of patients with refractory chronic cough (RCC). Not only that but it has already received guidance from the European Medicines Agency (EMA) as well. With both of these steps having been done, it has decided how it will design both of its CALM-1 and CALM-2 studies. Both of these phase 3 studies are going to be using BLU-5937 for the treatment of patients with RCC and will be initiated in Q4 of 2022. I believe that the launching of these studies may act as a catalyst for the stock. Not as much as when clinical results are released but the stock may react to such news. A chronic cough is a type of cough that lasts for 8 weeks or more in adults and then roughly about 4 weeks in children. Consider that this type of disease is not just a hassle to deal with, but also that it may cause substantial health problems. Such health problems these patients have to go through:

• Interruption of sleep
• Feeling exhausted and out of breath
• Vomiting after excessive cough
• Feeling lightheaded
• Rib fractures occurring

It is a large market and if BELLUS can find a way to help these patients experience relief it could make a lot of revenues. The global chronic cough market is expected to reach $9.85 billion by 2027. This is a pretty good amount of potential revenue for a first indication for it. The phase 3 studies will consist of a primary endpoint dealing with 24-hour cough frequency measured at 12 and 24 weeks. How will cough frequency be counted for this study to be adequate? Well, there will be the use of VitaloJAK cough monitoring system. It has been a device used in research since 2005 and in phase 2/phase 3 studies globally since 2014.

The reason why BELLUS Health got the meeting that it did with the FDA and talks with the EMA, is because of the positive results it achieved in the phase 2b SOOTHE study that was completed. In this study, it achieved statistical significance of the primary endpoint having achieved 34% placebo-adjusted reduction in 24-hour cough frequency observed with a p-value of p ≤ 0.005 at day 28. Not only did it achieve the primary endpoint for this study, but it did so with low rates of taste-related adverse events with all doses. The percentage of taste-related adverse events was ≤6.5%. There is another small catalyst expected in Q4 of 2022. This involves the initiation of a phase 1 study which will look at once-daily extended release formulation of BLU-5937. It remains to be seen if this extended release formulation will do better, but it does give the biotech a chance at expanding its potential in treating patients with refractory chronic cough.

Financials

According to the 6-K SEC Filing, BELLUS Health had cash, cash equivalents and short-term investments totaling $220.1 million as of June 30, 2022. However, as I stated in the beginning above, it was able to raise cash in July 2022 with an offering. It enacted an offering of its common shares, resulting in the net proceeds of $176 million, including the full exercise of the over-allotment option. Thus, including the recent July 2022 cash raise, it has pro forma cash of $384.6 million. Based on the cash on hand, it believes it can fund its operations to the 2nd half of 2025. This might be enough to carry it through the data readouts of both phase 3 CALM studies, which are expected in the 2nd half of 2024.

As I stated above, I believe that it may need to raise cash again before the expected data readouts. While I don’t believe it will be done early, I think it may need to raise cash again at least by the end of 2024/early 2025 as my estimate. The only way it would need to raise cash earlier than expected is if it enacts another strategic transaction that is not yet known. Other than that, I think it does have enough cash for a few years.

Risks To Business

There are a few risks that investors should be aware of before investing in BELLUS Health. The first risk to consider is that the two phase 3 CALM studies, which are CALM-1 and CALM-2 may not succeed. Even though the phase 2 study was successful in meeting the primary endpoint, there is no assurance that the same will be achieved when BLU-5937 for refractory chronic cough is tested in a larger pool of patients. Even if the biotech does achieve positive results for both of these late-stage studies, it still has to ultimately receive approval from the FDA and/or EMA to launch its drug on the market. Whether or not it obtains regulatory approvals for both of these territories highly depends on the final safety/efficacy data obtained. While BELLUS is testing out to see if a once-daily extended release pill option is possible, there is no guarantee that it will achieve a similar or successful outcome. The testing of an extended release version of BLU-5937 in a phase 1 study is expected in Q4 of 2022.

Conclusion

The final conclusion is that BELLUS Health is a great long-term biotech to own. That’s because it has proven itself in the phase 2b SOOTHE study, where it achieved statistical significance using BLU-5937 for the treatment of patients with refractory chronic cough. The two phase 3 CALM studies will take time to complete, with results from either of these studies not expected until the 2nd half of 2024. Still, it provides investors with time to find a good entry point.

I want to reiterate that it’s quite possible terrible market conditions in the coming months could provide a greater entry point for the long term. In addition, one could maybe wait until data approaches towards the end of 2024 and see where the stock trades by then. As I stated, there will be some small catalysts coming up that may move the stock higher. One catalyst will be the initiation of both phase 3 CALM studies in Q4 of 2022.

The second catalyst will be the initiation of the phase 1 study using the extended release formulation of BLU-5937 for the treatment of patients with refractory chronic cough. Whether or not these are big enough catalysts remains to be seen, but at least there are some for investors to look forward to in the near term.

With great long-term potential of BLU-5937 for the treatment of patients with refractory chronic cough, plus the ability to possibly expand a once-daily extended release formulation of this drug for this patient population, these are the reasons why I believe BELLUS is a great long-term biotech to own.