BTG
The rejection by America’s Food and Drug Administration of one of BTG’s new medicines was another setback for the company but not unexpected (Alex Ralph writes).
BTG said yesterday that a pre-market approval application for its Elevair treatment, for people with severe emphysema, had been unsuccessful. As recently as April it had been hoping for the green light by the end of the year, but an advisory panel to the regulator recommended against approval in June. The opinions of the panel are taken into account by the FDA.
The latest pullback in BTG’s shares on the London stock exchange yesterday, down 12p, or 2.3 per cent, to 513p, appears to reflect the weak sentiment plaguing the stock at present. The shares have retreated by a third this year, undone by a trickle of negative newsflow in recent months and uncertainty around its late-stage pipeline.
BTG dates back to 1948 when it was founded as the British government’s National Research Development Corporation to commercialise publicly funded research, before being privatised in 1992. It remains best known for its CroFab treatment for snake bites and the US is its biggest market. The company warned in a trading update in April that it was taking a £150 million impairment charge on PneumRx Coils, as the emphysema treatment is known in Europe, and did not expect “material revenues” from it over the next two years.
Before the FDA advisory panel’s recommendation, City analysts had forecast $180 million of peak PneumRx sales, of which $125 million were from the US, representing less than 10 per cent of BTG’s 2024 revenues. BTG’s impairment charge left consensus forecasts at only about £800,000 this year and £1.5 million in 2020.
The company remains determined to continue developing the product, pointing out that there are few treatment options for patients with severe emphysema.
It is not the only setback BTG has suffered in its pipeline. Varithena, its treatment for varicose veins, has also endured a disappointing launch. The introduction of new reimbursement codes for Varithena in the US in January has helped boost the interest of doctors in the product, but BTG expects this to take time and that it will only have a clearer idea of demand by the end of the year.
It has frustrated BTG’s ambition to become a business with diverse revenue streams from its products. Both Varithena and PneumRx form part of its interventional medicine division, which is its biggest arm, generating £242.9 million of revenue last year or 39 per cent of its total.
The division includes its Ekos treatment for pulmonary embolism in the US. Its oncology portfolio has other late-stage projects in the pipeline, including a phase III trial designed to gain approval for TheraSphere in the US, for patients with metastatic colorectal cancer.
Other opportunities include the potential for BTG to do bolt-on acquisitions to bolster its portfolio. It had £210 million cash as of the end of March. In the shorter term, however, BTG issued disappointing guidance for 2019, with a reduction in growth expectations for its key interventional oncology and vascular portfolios.
The problems at BTG and the slump in its share price have coincided with speculation in the City that it is a potential takeover target. Such chatter, and directors buying shares in a show of confidence, have helped to support the stock, as it rallied at the end of last month.
The share price decline, the potential for a takeover and the pipeline setbacks having been priced in means BTG is worth holding rather than discarding.
ADVICE Hold
WHY Potential takeover target and recent setbacks priced in
Secure Trust Bank
As its name suggests, Secure Trust Bank is a business designed to last (Harry Wilson writes). Against a darkening economic backdrop, it has been at the forefront of lenders battening down the hatches and preparing for a storm.
Last year, the bank closed its subprime lending unit as it judged the market to be frothy. More recently, it has curtailed its unsecured loans operations in order that it could run off its book within a year should the business take a turn for the worse. It has also cut back small business lending, warning that the sector was “overheating”.
As risk management goes, it is hard to think of a bank that has done more to prepare for the apocalypse than Secure Trust.
But disaster planning is costly. By deciding to forgo revenues today to avoid losses down the line, Secure has turned its back on considerable money-making opportunities and that has hurt its shares.
Over the past year the stock is down more than 10 per cent, though with relatively thin trading volumes — it is usual for fewer than 2,000 Secure Trust shares to change hands on a given day — the shares can be subject to fairly wild swings.
As one broker put it recently, there is “limited upside” in Secure Trust. Of course, one person’s limited upside is another’s caution and the bank has loyal fans in the City, who like its steady-as-it-goes approach.
Half-year results from the bank this week showed its strategy is starting to bear fruit. A 31 per cent rise in statutory pre-tax profits and a 26 per cent rise in the loan book to £1.8 billion on the year suggest that while Secure Trust might be cautious, it is not ex-growth.
Real estate lending balances have grown in the past year from £541 million to £705 million and is focused on less leveraged borrowers, reflecting the company’s innate caution. Invoice financing has also recorded good growth with the balance doubling to £188 million.
Secure Trust has been assiduous in returning money to its investors and is expected to produce a dividend yield this year of more than 4 per cent for a stock that trades on a price-earnings multiple of about 12, highlighting its relatively good value.
ADVICE Buy
WHY The shares are cheap and the bank looks solid
