Join our community of smart investors

BTG falters on second product blunder

The group’s new respiratory medicine has not performed as management expected
April 11, 2018

It wasn’t long ago that BTG (BTG) was hailing the success of its PneumRX product – spring-like coils that are placed inside the lungs and make it easier for emphysema patients to breathe. That celebration looks premature as problems with the treatment’s commercial development mean it probably won’t make any money for at least two years. Management has deemed it less valuable than originally expected, and will therefore take a £150m impairment in the 2018 financial results, due in May. The disappointment sent the share price down 13 per cent – BTG’s worst one-day fall in a decade – before it regained some of the ground lost. 

IC TIP: Hold at 645p

Investors might have been a bit more forgiving if this had been the first time BTG had encountered difficulties in a product’s market development – it's not. The group’s share price fell 14 per cent over 2015 after expected sales of its varicose veins treatment, Varithena, failed to materialise. The drug had been assigned the wrong insurance codes in the US, meaning doctors wouldn’t be fully reimbursed when they prescribed the treatment. The subsequent lack of demand meant Varithena had made sales of just £8.9m in the three years to the end of September following its launch in 2014.

Doctor reimbursement is also at the centre of the PneumRX troubles, although this time the problems are in France and Germany. It turns out that the product – which BTG acquired in 2015 – is at a much earlier stage of its development than management previously thought, meaning the group is having to invest in further clinical trials to prove the treatment’s efficacy. The number of patients that could benefit from PneumRX means there is still plenty of potential, but it could be many years before it reaches its previous sales guidance.

The treatment may have only been forecast to generate 2 per cent of group sales in the coming years, but Numis has still cut its sales guidance for the whole interventional medicine division in response to the setback. However, the broker expects group revenue growth of 7 per cent in the next three years. Perhaps more concerning is that BTG has now made two incredibly similar mistakes – how many more drugs will be launched without management first ensuring they are ready for commercialisation?