BTG — Like a butterfly, set to transform

BTG — Like a butterfly, set to transform

BTG reported good H119 results headlined by 12% and 35% y-o-y growth in revenues and operating profit, respectively. The performance was driven by volume growth from the Interventional Medicine segment, royalties from Zytiga and cost control. Cash at the end of H119 was $285m and could be a powerful asset in redressing BTG’s uncertainties.

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BTG

Like a butterfly, set to transform

Pharma & biotech

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19 November 2018

Price

617.5p

Market cap

£2,390m

£:US$1.29

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Share details

Code

BTG

Listing

LSE

Shares in issue

387.1m

Business description

BTG is a medical technology company with products for minimally invasive procedures in oncology patients and in vascular medicine. BGT was originally a technology licensing company that licensed IP and collected pharmaceutical royalties on products such as Campath and Zytega, but more recently, BTG has grown through the acquisitions of Protherics and Novate Medical.

Bull

One of the few public UK life sciences companies that is profitable

$285m of cash at the end of H119

Diversified portfolio of product segments and licensing revenues

Bear

Interventional medicine is a commoditised market with bigger players influencing market share

Lower-cost competition to CroFab could intensify

Genericisation of Zytega in the medium term

Analyst

Andy Smith

+44 (0)20 3077 5700

BTG reported good H119 results headlined by 12% and 35% y-o-y growth in revenues and operating profit, respectively. The performance was driven by volume growth from the Interventional Medicine segment, royalties from Zytiga and cost control. Cash at the end of H119 was $285m and could be a powerful asset in redressing BTG’s uncertainties.

H119 financials

A strong H1 performance saw total revenues grow 12% y-o-y to $496m comprising 18% growth in licensing revenues and 10% growth in product sales (to $156m and $340m respectively). Adjusted operating profit rose 39% y-o-y to $179m driven by the higher revenues but also c 30% lower SG&A expenses. Together, these drove adjusted EPS up by 32%. Net cash at the end of H119 was $285m (vs $295m at FY18), whereas net cash flow in H1 was reduced by $113m due to a one-off litigation settlement of $73m and acquisitions.

A strong H1 makes for a challenging H2 comparison

The uncertainties surrounding BTG have been well flagged and we believe it has the capacity to address them. The 14% growth in interventional medicine sales in H1 was driven by volume, with flat pricing implying a commoditised market. Within the pharmaceutical business, CroFab antivenin sales grew 4%, but it is encountering low cost competition. Prostate cancer drug Zytiga (abiraterone) remains patent protected, but BTG’s partner J&J recently had its sole unexpired US patent struck down and is appealing the judgement. Zytiga’s exclusivity in Europe lasts until September 2022 but the inevitability of its genericisation casts a cloud over 28% of BTG’s H1 revenues.

Faint hearts never won fair value

Fortunately, the answer to BTG’s near- and medium-term uncertainties is elective. BTG is the largest UK specialty healthcare company, has $285m in cash and a $386m undrawn credit facility. Therefore, transformative acquisitions in addition to H1’s Novate are possible at a time when the funding appetite across much of Europe remains difficult and valuations have receded.

Valuation: Not demanding, reflecting uncertainty

Based on I/B/E/S estimates, BTG trades at a FY19e P/E of 17.3x, which is probably more a reflection of the uncertainty of its future revenues than the potential to use its cash balance in make value-enhancing deals.

Consensus estimates

Year
end

Revenue
($m)

PBT
($m)

Adjusted EPS ($)
(c)

DPS
(c)

P/E*
(x)

Yield
(%)

03/17

742.9

134.1

0.30

N/A

26.6

N/A

03/18

822.3

212.0

0.43

N/A

18.5

N/A

03/19e

967.8

269.2

0.46

N/A

17.3

N/A

03/20e

965.5

285.3

0.47

N/A

16.9

N/A

Source: Company data, Thomson Reuters I/B/E/S estimates, *PE values 17-18 are averages

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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