Belite Bio, Inc

Moat: 1/5

Understandability: 4/5

Balance Sheet Health: 3/5

Belite Bio, Inc. is a clinical-stage biopharmaceutical company focused on developing novel therapeutics to address unmet needs in inherited retinal diseases, including Stargardt disease, dry age-related macular degeneration (dry AMD) and certain other inherited retinal diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Belite Bio, Inc. (BLTE) is a clinical-stage biopharmaceutical company, meaning they are primarily engaged in research and development and have not yet launched commercially viable products on the market. Their core focus is on developing treatments for inherited retinal diseases, a niche area with significant unmet medical needs. Their most advanced drug candidates include Tinlarebant for Stargardt disease and LBS-009 for geographic atrophy related to dry AMD. They operate in the high-risk, high-reward biotechnology industry. The company has three pipeline projects STGD1, an orphan drug designation for Stargardt disease, LBS-008 for oral treatment of Stargardt disease, and LBS-009 for dry AMD. LBS-008 will compete in the same space as LBS-009, which is also pursuing that opportunity, although a combination may have a more substantial impact.

  • Revenue Distribution: As a clinical-stage biopharma company, Belite Bio currently has no product revenue. Its funding is derived from private placements, including equity financing, debt financing and license agreements with partners.
  • Industry Trends: The biotech industry, especially in rare diseases, is characterized by high R&D expenses, significant regulatory hurdles, and long development timelines. There is a trend toward more targeted, precision medicines and a growing awareness of inherited retinal conditions. There are some strong tailwinds going on for companies trying to cure rare diseases. For example, the FDA is supporting and incentivizing companies to research and create medicine for rare diseases because in most cases the profit is very low for companies to take on. But it can make the biggest difference to a specific portion of the population.
  • Margins: Because BLTE is in the development stage, traditional measures of profitability such as gross profit and operating margin are not applicable. The company does focus on managing costs associated with research, development, and clinical trials.
  • Competitive Landscape: The company faces competition from both larger pharmaceutical companies and other biotech companies, all working to address the same diseases and indications. For STGD1, its competition is coming from smaller biotechs like Alkeus Pharma with the drug gildeotret, and larger companies like Sanofi with their SAR441255 drug. For geographic atrophy, its competitors are Apellis with Syfovre and Iveric Bio with Zimura. These are not head-to-head competitors however, as the drugs are all very different.
  • What Makes the Company Different: Belite Bio differentiates itself by emphasizing its novel, small-molecule drugs, its focus on specific gene mutations, and its expertise in eye diseases. The company also focuses on the science behind the disease and tries to target the specific gene that they want to fix. The management team has a lot of scientific background and has great knowledge in this area, with the CEO having had an active involvement in identifying novel pathways and targets for retinal diseases. However, the business model of developing treatments in-house and working with manufacturing companies on large-scale production is fairly similar to most other biotechs.

Financial Analysis

  • Capitalization & Liquidity: The latest document (2023 10-K) shows cash and cash equivalents at $251.7 million.

This provides the company with the financial resources to continue operations and continue trials for at least a few years.

  • Debt: BLTE has limited total liabilities in the amount of $5.2 million. This also demonstrates the sound financial health of the company as they are not burdened with debt.
  • Operating Expenses: R&D expenses have been high, around $40 million in 2023 but down by $15 million in 2022 and increased by $10 million in 2021, in each of those periods. SG&A expenses have also been high, between $30-$40 million in the previous years, with 2023 reaching a high of 47.8 million. These figures illustrate the fact that they do not generate revenue, but this is very common for clinical-stage biotechs.
  • Historical Profitability: Belite Bio does not generate profits. Net losses have been substantial, from $52.5 million in 2021 to $84.6 million in 2023.
  • Capital Allocation & Dilution: The company has been raising capital through private placements, and that has led to some dilutions.

Given the company’s business model, some dilution is expected in the future.

  • Recent Concerns/Controversies:
    • In recent times, concerns about a potential for increased competition have created a short-term drop in share price. This has increased the fear of some investors that a better competitor will come along, and cause them not to invest with BLTE. The CEO addressed this at length in a recent earnings call, acknowledging these concerns but reassuring investors about the differentiated nature of BLTE’s pipeline. They seem to be focused on treating the disease, not just slowing down its progression like other competitors.
    • There are some concerns about the clinical timeline. They’ve had some delays, including for the LBS-009, which are making some investors concerned that they may be lagging.

Moat Analysis: 1 / 5

Belite Bio’s competitive advantage is very limited, and does not constitute a wide moat. Here’s the breakdown:

  • Intangible Assets (Brands, Patents, Regulatory Licenses): They have patents on their drug candidates, which are useful in creating some sort of advantage, however, this is not as strong as it appears. Other competitors can easily come up with alternative treatments, and then try to compete with Belite Bio’s medicines. There is very little evidence of any kind of regulatory license in the documents that I have reviewed.
  • Switching Costs: There are absolutely no switching costs associated with BLTE. The end customers (patients) and doctors will want to go with the product or drug that is best for the individual, with the best data, and the best cost. They are unlikely to stick with anything for sentimental or emotional reasons. This means that the company doesn’t have any pricing power.
  • Network Effects: There is absolutely no evidence that there is any kind of network effect associated with BLTE. They are not platform business. They are a straight, singular company, and that does not have any kind of network effects.
  • Cost Advantages: They do not have any major cost advantages. While their approach is somewhat unique, it is not fundamentally different than others who are trying to come up with treatments for retinal disease. Therefore, there are no real cost advantages to the company.
  • Conclusion: Overall, the company does not show evidence for any economic moat, and hence gets the lowest rating, a 1 out of 5. They have products in the pipeline, but it is very likely that other companies can develop and offer better products.

Risks to the Moat and Business Resilience

  • Clinical Trial Failures: This is a fundamental risk for clinical-stage biopharma companies. If any of BLTE’s drug candidates fail in clinical trials, it will have a significant impact on the company’s future prospects and valuation.
  • Competition: Several companies are developing therapies to address the same diseases. If these other companies reach the market sooner, or have a better efficacy profile for their products, it will have a massive adverse effect on BLTE. They will also have to compete on price at a later stage of their business.
  • Regulatory Hurdles: Obtaining regulatory approvals is a complex and expensive process, subject to government agency decisions. A delay in approvals for BLTE’s products will affect the company’s ability to bring products to market.
  • Financing Risk: Clinical-stage companies need constant investment, and there will be some sort of dilution. There’s also the uncertainty around how much capital will be needed going forward.
  • Manufacturing Risk: As BLTE moves towards commercialization, the company may face problems in scaling up the production of its products, which is done by third parties. This may cause a potential delay in drug launch.
    • Business Resilience: Despite the identified risks, BLTE has a strong management team, and has significant experience in the biotechnology and regulatory landscape. In the case of any failures, the management team will seek alternative pathways. But this is still a very high risk, high reward industry.

Understandability: 4 / 5

The company’s operations are relatively straightforward to understand. While the science behind the treatments is complex, the business model is easy.

The company is focused on developing and commercializing therapeutic drugs targeting a narrow set of rare eye diseases, making it easy to track their development programs, and any successes or failures. Overall a 4 on the understandability, due to the complexity in biotechnology drugs and processes.

Balance Sheet Health: 3 / 5

Belite Bio’s balance sheet shows a moderate level of health.

While the company has a significant amount of cash currently, it is burning through its cash at a relatively fast pace, which may bring issues for the company in the future. Given the company’s current business model, more dilutions are very likely. They have almost no debt however, which is a benefit. They are therefore at a 3 out of 5 ranking.