BTG Gets EU Nod For Lemtrada
Edison | Jul 01, 2013 07:10AM ET
The positive European regulatory opinion on Lemtrada (multiple sclerosis therapy) points to EU approval in Q313 and potential launch shortly thereafter. The recommended indication represents, in our view, a best case scenario for BTG (BGC:L) and partner Sanofi (SNY). Separately, an FDA decision on Lemtrada is expected late-2013. With the positive EU opinion adding 10p to our risk-adjusted DCF, our new fair value for BTG is 510p.
Positive EU regulatory opinion on Lemtrada…
The European regulator (CHMP) has recommended that Lemtrada should be approved to treat multiple sclerosis (MS). As a reminder, Lemtrada is partnered with Sanofi/Genzyme and, we estimate, BTG receives a c 6% gross (c 3% net) royalty on global sales until September 2017. The recommended indication ‘adult patients with relapsing remitting MS (RRMS) with active disease defined by clinical of imaging features’ and dosing ‘two annual treatment courses’ is consistent with Lemtrada’s use in Phase III studies. This represents, in our view, a best case scenario given the lack of other restrictions to use in RRMS patients. Despite this, we expect initial Lemtrada use in more severe patients given the availability of other MS therapies and the potential side effects (autoimmune thyroid disorders).
…Should trigger formal approval in Q313
We anticipate formal EU approval in Q313 and potential launch shortly thereafter. Edison sees Lemtrada sales achieving $750m (c 40% in EU) in 2016 (BTG’s last full year of royalty entitlement) with BTG receiving gross royalties of £29m (£14.5m net) in FY17. However, the key unknown is pricing - Sanofi is faced with an unusual pricing issue given the drug’s infrequent dosing (two courses only) rather than chronic use. Separately, the FDA recently extended the review cycle by 3 months, which means a US approval decision is expected late 2013.
Valuation: Fair value of 510p per share
Following the CHMP opinion, we have raised our probability of success on EU Lemtrada sales to 100% (from 80%). We now value BTG at £1.83bn, or 510p per share, based on a probability-weighted, sum-of the-parts (SOTP) DCF analysis. We value the business segments at £2.06bn, deduct R&D (£208m) and capex (£43m) costs and add net cash (£28m) to arrive at our fair value. Our fair value of 510p per share offers c 40% upside to the current share price and, moreover, is underpinned by a value of 341p for marketed assets. This implies downside protection and potential if the pipeline fails to achieve key data and regulatory milestones.
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