Buy the BTG sell-off

However, we feel investors are ignoring BTG's attraction due to problems with Varithena. In 2014, the treatment - which allows for quick extraction of varicose veins - was touted as the group's major growth driver. But US sales failed to take off after the treatment was assigned an insurance code that meant patients would have to pay for it partly out of their own pocket. Varithena was therefore not heavily prescribed and revenue of just £4m was reported in the year to March 2017. But, come January 2018, Varithena should have a new insurance code, meaning sales are expected to pick up in the following year. Indeed, analysts at Jefferies think the treatment could reach peak global sales of $410m (£315m).

Management remains cautious about expectations for the treatment. However, even completely excluding forecast sales from the varicose veins treatment, the shares still look good value.

Broker Jefferies has applied historic sector valuation multiples to its sales forecasts for each of the group's divisions. Based on these metrics, the speciality pharmaceuticals business - which includes toxicity products Vistogard and DigiFab - has a net present value (NPV) of £1.01bn and the licensing business, where BTG earns royalty revenues from partnered products, is £257m.

The interventional medicine business is where the biggest value lies. Even excluding potential revenue from recently acquired Galil, NPV is £1.9bn. In total, this gives BTG an NPV of 866p per share, which suggests 33 per cent upside from the current share price. And even stripping out all 129p of value ascribed to Varithena, the valuation still implies 13 per cent upside.

In the past few years, BTG's revenue has been well diversified across its sectors, but this is set to change. The forecast decline in sales from licensing products is another reason why we think the shares have been overlooked. Revenue is forecast to fall 18 per cent to £150m in the year to March 2018 and drop to £119m the year after as sales of prostate cancer medicine Zytiga (licensed from US healthcare giant Johnson and Johnson and accounting for 67 per cent of last year's £183m licensing revenue) continue to decline.

This fall will be more than made up for by the speciality and interventional divisions, where sales are expected to increase by 8 per cent to £185m and 21 per cent to £262m, respectively. Management has used its strong cash generation to invest heavily in interventional drug development in recent years. This has produced to a broad suite of best-in-class products, which was further boosted by the acquisition of Galil Medical in June 2016. Meanwhile, a greater prominence of the high-margin speciality pharma business will help increase the quality of the group's revenue. Gross margins are expected to rise from 69 per cent to 73 per cent this year.