BTG — Update 29 November 2015

BTG — Update 29 November 2015

BTG

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BTG

Small upgrades following interims; strategy intact

Pharma & biotech

30 November 2015

ADR research

Price*

$9.35

Market cap

$3,579m

ADR/Ord conversion ratio 1:1

Net cash ($m) at 30 September 2015

167

ADRs in issue

382.9

ADR Code

BTGYY

ADR exchange

OTC

Underlying exchange

LSE

Depository

JP Morgan

ADR share price performance

52-week high/low

$12.5

$8.0

Business description

BTG is a UK-based specialist healthcare company with a direct commercial presence with its interventional medicine portfolio and in US acute care medicine. It also receives royalties from a number of licensing agreements.

Next events

PneumRx RENEW data

Year end 2015

FY16 close period update

Q216

FY16 financial results

May 2016

Varithena sales expansion

2016

Analysts

Christian Glennie

+44 (0)20 3077 5727

Dr Philippa Gardner

+44 (0)20 3681 2521

Lala Gregorek

+44 (0)20 3077 5700

BTG is a research client of Edison Investment Research Limited

BTG’s interim results have driven upgrades to our financial forecasts with a small boost to revenues from one-off Zytiga backdated royalties. Our operating expenses are broadly unchanged, but adjustments to financial income and tax lead to +12% to FY16e normalised net income. BTG continues to target IM sales >$1.25bn in FY21 from its diverse portfolio of interventional medicine products (including oncology, vascular and pulmonology), with selective investment ongoing in products in the early stage of launch, supported by licensing and specialty pharma cash flows.

Year end

Revenue ($m)

PTP*
($m)

EPADR
($)

DPADR
($)

P/E
(x)

Gross Yield
(%)

03/14

438.6

115.6

0.29

0.0

32.2

N/A

03/15

555.4

86.7

0.26

0.0

36.0

N/A

03/16e

660.7

134.2

0.32

0.0

29.2

N/A

03/17e

740.6

160.7

0.32

0.0

29.2

N/A

Source: Converted at $1.51/US$. Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

Strong Interventional Medicine H1 performance

Interventional medicine (IM) grew +36% (+28% at constant FX), driven by a strong performance of both TheraSphere (+32%) and EkoSonic (+41%); these are some of the key future growth drivers. Varithena was flat owing to reimbursement delays leading to lower reordering, which BTG is working to address. Following restocking last year, DigiFab declined 21%. Lemtrada +531% was boosted by the US approval and BTG received one-off, backdated Zytiga-related royalties of £8.5m ($12.8m).

FY16 guidance reiterated

BTG continues to target FY16 sales in the lower half of $620-664m (at $1.61/£); we now forecast $661m (based on $1.54/£, average ytd), with the small upgrade owing to higher Zytiga from £8.5m ($12.8m) of backdated royalties, slightly offset by lower DigiFab. We have made no changes to R&D ($120m, in line with BTG’s outlook of $113-128m). SG&A is only slightly reduced to $225m (from $226m), which is ahead of BTG’s $214-223m outlook. Financial income and tax have both been adjusted to reflect interim trends, with these driving a 12% upgrade to normalised net income.

Varithena: BTG expects an uptick in FY17

BTG is working to address the Varithena reordering rates, including activities to support physicians and payers with claims. The company continues to progress reimbursement coverage and with clarification received over the coding strategy BTG will apply for a permanent CPT code that will cover the cost of the drug and the procedure. A permanent CPT code is usually granted about two years from application. With these endeavours, and current experience showing that Varithena is used across the patient spectrum, BTG expects a sales inflection in FY17.

Valuation: DCF valuation of $5.2bn, $13.59/ADR

Our valuation is adjusted to $5.2bn (from $5.3bn) or $13.59/ADR as a result of FX, small changes to our forecasts and updating for last reported net cash of $167m.

Financials

Exhibit 1: Summary of changes to revenue forecasts

$m

FY15 

FY16e

FY17e

Comments

Reported

Old

New

Old

New

Specialty Pharma

182.9

184.0

178.4

193.8

188.1

DigiFab decreased by £4.5m ($6.8m) with FY16e growth now -15% (was -5%).

Interventional Medicine

170.2

237.4

238.6

337.8

339.6

No changes to underlying forecasts; only updated for FX (to $1.54/£ from $1.55/£, the average exchange rate fiscal ytd).

Licensing

202.3

230.9

243.7

202.6

212.9

Increased to reflect additional one-off £8.5m ($12.8m) backdated royalty for Zytiga.

Total revenues

555.4

652.3

660.7

734.2

740.6

Source: BTG accounts, Edison Investment Research. Note that both our old and new forecasts are convenience translations using our underlying GBP based forecasts, converted at current FX of $1.51/£.

Exhibit 2: Summary of the main changes to our BTG financial forecasts

$m

FY15

FY16e

FY17e

Old

New

Old

New

Revenue

555.4

652.3

660.7

734.2

740.6

COGS

(173.2)

(200.6)

(206.6)

(220.0)

(224.7)

Gross profit

382.2

451.7

454.1

514.3

515.9

Gross margin

1.0

1.0

1.0

1.1

1.1

R&D

(103.1)

(119.7)

(119.7)

(127.1)

(127.1)

SG&A

(188.4)

(226.5)

(225.3)

(249.8)

(248.6)

Operating profit (reported)

52.7

54.2

58.7

79.9

82.8

Operating profit (normalised)

99.1

114.0

117.6

145.8

148.6

Operating profit (underlying)

102.5

105.5

112.4

137.3

140.2

Net income (reported)

50.7

56.2

69.3

70.8

73.1

Net income (normalised)

97.1

110.1

123.5

121.5

123.8

Basic EPS, p

13.8

14.7

18.1

18.5

19.1

Normalised EPS (p)

0.26

0.29

0.32

0.32

0.32

Source: BTG accounts, Edison Investment Research. Note: Normalised numbers exclude amortization, exceptional items (such as FX gains, profits on disposals) and share-based payments. Underlying is as per BTG’s definition, which excludes acquisition related and reorganization costs. Note that both our old and new forecasts are convenience translations using our underlying GBP based forecasts, converted at current FX of $1.51/£.

Valuation

As a result of the changes to our model (increase to Zytiga, decrease to DigiFab, no changes to Interventional Medicine) and updating for FX and last reported net cash of £110.6m ($167m) at end September (from £73.8m/$111.4m at end March 2015), our valuation is adjusted slightly to $5.2bn (from $5.31bn) or 13.59/ADR. Our updated valuation is shown in Exhibit 3.

The main upside to our valuation comes from BTG’s ability to deliver on its target of IM sales of >$1.25bn in FY21. We estimate that the division will generate sales of c $930m in FY21, with the main difference between our forecasts and BTG’s target due to Varithena (we estimate $330m vs BTG expectations >$500m), as we have conservatively excluded the product’s potential in the cosmetic, non-reimbursed US market and in other geographies. If Varithena can achieve peak sales of $500m, our valuation would be $6.2bn ($16.20/ADR), all else being equal.

Exhibit 3: Summary of sum-of-the-parts DCF valuation of BTG

Product

DCF ($m)

Partner

Indication

Peak sales/
Royalty ($m)

Probability of success (%)

Specialty Pharma (SP)

589

 

CroFab

-

Snake anti-venom

101

100%

DigiFab

-

Digoxin tocixity

62

100%

Voraxaze

-

Methotrexate toxicity

32

100%

Uridine triacetate

Wellstat

5-FU toxicity

43

60%

Interventional Medicine (IM)

1,901

 

DC/LC Bead

Distributors ex-US & EU

Liver tumours

121

100%

TheraSphere

Distributors ex-US & EU

Advanced HCC / Second-line mCRC

198

100% / 60%

EkoSonic

Distributors ex-US

Severe blood clots

154

100%

RePneu

Distributors ex-US

Emphysema

192

100%

Varithena

-

Varicose veins - US reimbursed

333

100%

Licensing (LG)

152

 

Zytiga

J&J

Prostate cancer

180

100%

Lemtrada

Sanofi/Genzyme

Multiple sclerosis

35

100% (EU & US)

Two-part hip cup

Various

Hip replacement

22

100%

Other recurring

Various

-

17

100%

Total DCF

2,640

 

Terminal value

3,139

 

R&D

(666)

 

Capex

(76)

 

Net cash

167

 

Total value ($m)

5,203

 

Value per ADR ($)

13.59

 

 

 

 

Source: Edison Investment Research. Note that our valuation is a convenience translation using our underlying GBP based DCF, converted at current FX of $1.51/£.

Exhibit 4: Financial summary

$m

2013

2014

2015

2016e

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

352.9

438.6

555.4

660.7

740.6

805.5

COGS/revenue sharing

(101.5)

(143.5)

(173.2)

(206.6)

(224.7)

(226.5)

Gross profit

251.4

295.2

382.2

454.1

515.9

579.0

R&D expenses

(62.2)

(71.3)

(103.1)

(119.7)

(127.1)

(132.3)

SG&A expenses

(87.6)

(126.8)

(188.4)

(225.3)

(248.6)

(287.8)

EBITDA

 

 

113.4

111.7

107.4

125.9

160.7

179.4

Operating Profit (norm)

108.7

106.6

99.1

117.6

148.6

167.4

Operating Profit (BTG underlying)

104.2

94.1

102.5

112.4

140.2

158.9

Amortization and impairment

(65.5)

(36.7)

(42.9)

(51.3)

(57.4)

(57.4)

Profit on disposals

0.6

1.7

0.5

0.0

0.0

0.0

Write-offs

(2.7)

0.0

0.0

0.0

0.0

0.0

Restructuring costs

4.8

(22.3)

4.5

0.9

0.0

0.0

Share based payments

(7.1)

(8.0)

(8.5)

(8.5)

(8.5)

(8.5)

Operating Profit

 

38.8

41.2

52.7

58.7

82.8

101.5

Net Interest

(2.4)

9.1

(12.4)

16.6

12.1

18.1

Pre-tax profit (norm)

106.3

115.6

86.7

134.2

160.7

185.5

Pre-tax profit (reported)

36.4

50.3

40.3

75.4

94.9

119.7

Tax

(11.6)

(13.6)

10.4

(6.0)

(21.8)

(31.1)

Profit After Tax (norm)

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax (reported)

0.0

0.0

0.0

0.0

0.0

0.0

Average Number of ADRs Outstanding (m)

326.9

355.2

367.9

382.3

382.9

382.9

EPADR - reported ($)

 

0.08

0.10

0.14

0.18

0.19

0.23

EPADR - normalised ($)

0.29

0.29

0.26

0.32

0.32

0.36

Dividend per ADR ($)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

71.2

67.3

68.8

68.7

69.7

71.9

EBITDA Margin (%)

32.1

25.5

19.3

19.1

21.7

22.3

Operating Margin (before GW and except.) (%)

30.8

24.3

17.8

17.8

20.1

20.8

BALANCE SHEET

Fixed assets

 

465.1

853.9

1,265.8

1,221.9

1,168.1

1,114.4

Intangible assets

315.9

600.8

902.8

853.6

798.3

743.1

Goodwill

89.4

186.6

277.5

277.5

277.5

277.5

Tangible assets

38.4

47.3

53.6

58.9

60.4

61.9

Investment in associates

21.4

19.2

31.9

31.9

31.9

31.9

Current assets

 

357.7

220.8

313.5

422.8

533.2

621.9

Stocks

35.2

40.8

61.2

62.5

79.2

100.7

Debtors

82.3

113.4

138.8

152.0

170.3

185.3

Cash

239.6

57.7

111.4

206.2

281.6

333.8

Other

0.6

8.9

2.1

2.1

2.1

2.1

Current liabilities

 

(99.1)

(132.6)

(174.6)

(172.1)

(192.1)

(208.3)

Creditors

(93.0)

(120.6)

(167.6)

(165.2)

(185.1)

(201.4)

Accruals/deferred income

0.0

0.0

0.0

0.0

0.0

0.0

Employees/provs/tax

(2.7)

(11.9)

(5.6)

(5.6)

(5.6)

(5.6)

Derivative instruments

(3.3)

0.0

(1.4)

(1.4)

(1.4)

(1.4)

Short-term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

Long-term liabilities

 

(67.5)

(141.2)

(259.3)

(259.3)

(259.3)

(259.3)

Long-term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

(67.5)

(3.9)

(27.0)

(27.0)

(27.0)

(27.0)

Net assets

 

 

656.2

800.9

1,145.5

1,213.3

1,249.9

1,268.7

CASH FLOW

Operating cash flow

 

92.1

83.8

94.7

109.7

100.8

121.7

Net interest

1.1

0.3

(0.2)

16.6

12.1

18.1

Tax

(8.3)

(10.6)

(23.0)

(6.0)

(21.8)

(31.1)

Acquisition/disposal of intangibles

(3.9)

3.5

(2.0)

(2.1)

(2.1)

(2.1)

Capital expenditure

(11.5)

(17.5)

(14.8)

(13.6)

(13.6)

(13.6)

Acquisitions/disposals

0.0

(393.1)

(223.0)

0.0

0.0

(40.8)

Financing

0.0

155.1

222.3

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.5

(3.5)

(0.3)

(9.8)

0.0

0.0

Net cash flow

69.9

(182.0)

53.8

94.8

75.4

52.3

Opening net debt/(cash)

(169.7)

(239.6)

(57.7)

(111.4)

(206.2)

(281.6)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

(0.0)

Closing net debt/(cash)

(239.6)

(57.6)

(111.4)

(206.2)

(281.6)

(333.8)

Source: Edison Investment Research, company accounts. Note: Solely for the convenience of the reader the financial summary table has been converted at a rate of US$1.51/£. BTG reports statutory accounts in pounds. These translations should not be considered representations that any such amounts have been or could be converted into US dollars at the assumed conversion rate.

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Marston’s — Update 27 November 2015

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