ALK Abello: Near Term Driven By U.S. Allergy Therapy

2012 guidance for ALK Abello (ALK-B.CO) is unchanged following a mixed Q3, with declining vaccine sales offset by partner licensing income. A new 2016 strategy should drive long-term value, but in the near term the shares are likely to be driven by US allergy tablet commercialisation by Merck & Co (MRK). Two US filings are planned for 2013.

Declining Q3 vaccine sales; new updated 2016 strategy
Q3 revenues grew 17% (local currency) largely driven by partner licensing income (+174%), but vaccine sales declined 2% owing to the challenging economic environment in Spain and Italy. 2012 vaccine sales growth has consequently been lowered to 0-2% local currency (from previous 3-5%). However, 2012 revenue and EBITDA guidance is unchanged with the lower vaccine sales expected to be offset by partner income. ALK presented a new 2016 strategy focused on simplification, innovation and growth. Previous 2015 DKK3bn revenue and 25% EBITDA targets are maintained.

Near term will be driven by US allergy tablets
US partner Merck recently disclosed that the final US Phase III trial investigating the use of allergy tablet GRAZAX met the primary end point, paving the way for US filing in 2013. Merck also plans to file the Ragweed allergy tablets in 2013 and recently announced plans to start a Phase III trial investigating the house dust mite allergy tablets in 2013. The market for these tablets is vast, with >20% of the population affected by respiratory allergies (source: ALK) and estimates that c three million patients in the US are currently treated every year with ‘allergy shots’.

Allergy immunotherapy could offer a potential cure
Allergy immunotherapy treats the underlying allergy by increasing exposure to the allergen. This aims to reset the immune system, allowing the individual to better tolerate allergen exposure. Allergy immunotherapy is generally used to treat more severe allergies where symptoms cannot be controlled with existing medication.

Valuation: EV supported by existing business
ALK’s DKK164m cash implies an EV of c DKK3.9bn. This seems broadly underpinned by ALK’s profitable business of marketed allergy immunotherapy products. The US allergy tablets are likely to be the key driver in the near term.

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