An Inside Look At BTG

BTG is entering a critical 12-month period marked by multiple catalysts involving its lead internal programmes (Varisolve, Beads) and partnered drugs (Lemtrada). Key near-term catalysts include FY13 results (20 May) and EU (Q213) and US (H213) regulatory decisions on Lemtrada. Continued growth in core direct sales (Specialty Pharma, Interventional Medicine) and Zytiga royalties suggests FY14 revenues of £235m; it also supports our DCF-derived valuation of £1.3bn, or 398p per share, implying 11% upside.

Updated Model Reflects Strong Core Business
BTG’s recent pre-close update guided to FY13 revenues of c £230m (prev. £215m) driven by growth in core business activities and one-off effects. We believe c 30% of the £15m guidance uplift came from increased Zytiga royalties, strong sales of Specialty Pharma drugs (c 20%), a CytoFab final payment (c 25%) and favourable FX movements (c 25%). We now forecast FY13 revenues of £229.6m, underlying diluted EPS of 19.7p and period-end cash of £151m. Looking forward, continued growth in Specialty Pharma (+7% y-o-y), Interventional Medicine (+12%) and Zytiga royalties (+38%) suggests FY14 revenues of £235m and underlying EPS of 16.2p.

Zytiga: Multiple Growth Drivers In mCRPC
We expect BTG to receive Zytiga royalties of c £42m in FY13 on sales of $1.1bn by partner J&J. The Q113 uptick in US sales and script growth allays, in our view, concerns about new competition from Medivation/Astellas’ Xtandi. We expect the expanded label and ongoing ex-US roll-out to drive continued sales growth in 2013.

Lemtrada: Upcoming Regulatory Catalysts A Positive EU regulatory opinion for Lemtrada in relapsing multiple sclerosis (RMS) in Q213 could lead to EU approval and launch by partner Sanofi in Q313. An FDA decision is expected H213. Phase III extension data reinforce our positive view on Lemtrada’s efficacy. However, we continue to believe that a positive benefit-risk decision by the EU regulator hinges on the risk (safety) side of the equation.

Valuation: Fair Value Of 398p Per Share
We value BTG at £1.31bn, or 398p per share, based on a DCF analysis of revenues/royalties on marketed products (£737m), probability adjusted estimates for Varisolve (£270m) and Lemtrada (£147m), plus end-FY13 cash of £153m. We continue to view BTG as an attractive investment proposition, with the current share price offering c 11% upside to a valuation underpinned by its core cash-generative business segments and a low-risk profile by biotech standards.