BTG to bounce back

There are many reasons to be excited about Varithena, despite it only managing to generate £1m of sales during BTG's last financial year. While the numbers may not look impressive, the on-the-ground feedback about the treatment following its launch last year is encouraging. Indeed, after conducting interviews with physicians and market access experts in the US, broker Investec reckons the product is better positioned than the market is giving it credit for. And for its part, BTG expects the treatment to produce sales of $15m-$25m this year before a strong pick-up after April 2016. All this underpins management's $500m-plus expectations for Varithena.

However, the market remains fixated on short-term insurance-related issues which we believe now weigh unduly on the share price. Specifically, insurance coverage for the treatment is currently limited and reimbursements from insurance companies are slow. Investec says physicians are waiting six to nine months for reimbursements, on average. While it is true that there can be no guarantee of Varithena's large-scale take-up, we think the chances of it overcoming these teething difficulties are good. Indeed, the treatment's speed, efficacy and minimally invasive nature, along with BTG's marketing efforts, give us confidence that the issues should be surmountable. And at the end of March, 'payers' that insure 50m Americans, representing 16 per cent of the target population, had established "favourable" coverage policies.

The potential of Varithena is not the only thing BTG has going for it. Its antidote for digoxin poisoning, DigiFab, is performing well and still holds a monopoly after GlaxoSmithKline (GSK) took its rival product, DigiBind, off the market in 2011. Multiple sclerosis treatment Lemtrada, which is owned by European group Sanofi, is also selling well, meaning BTG continues to earn royalties from current and future sales.

BTG's recent spending spree on acquisitions should help support growth, too. Over the past three years BTG has picked up three businesses. Since purchase, each of those companies has reported growth, which supports the argument that BTG's management is good at buying and integrating companies. For example, TheraSphere and EkoSonic, which were both bought in early 2014, have reported 31 per cent and 32 per cent growth during their first year of trading. PneumRx, which the group acquired in December 2014, has also done well, but a full year of sales from the RePneu chronic obstructive pulmonary disease (COPD) coil has yet to materialise in BTG's financial statements.

Clinical developments could also be a share price catalyst. These include the pending publication of phase three results for RePneu in the US, as well as headline data from a trial on Ekos for treating chronic deep-vein thrombosis, due in the first half.

Admittedly, there are a couple of concerns for some of the group's established drugs. Profits from prostate cancer drug Zytiga, which generates roughly £110m of group sales, and snake antivenom CroFab, which generates approximately £65m of group sales, are not secure in the long term as the two products are set to lose patents, and therefore exclusivity on the market. In fact, BTG has already had to settle a lawsuit with Mexico-based Bioclon when the latter challenged an existing patent on CroFab. As it stands, BTG has said it will allow Bioclon to sell its own rival product from October 2018 if it receives the regulatory approvals. However, we don't feel these issues shouldn't overshadow BTG's significant potential.