Baxalta acquisition builds a more sustainable company, trading at a compelling valuation. Reiterate
OW, add to AFL
* Reflecting Baxalta acquisition, PT raised to £56, 36% upside, reiterate
OW, add to Analyst Focus List (AFL). We upgrade our forecasts to reflect
Baxalta acquisition. Following our Haemophilia deep dive, we find Core EPS
accretion of 4-6% 2017-20, with double digit accretion post 2023, the impact
of the Vyvanse genericisation halved, replaced by more gradual pressures
within haemophilia. Within Baxalta, we believe the market has overly focused
on the outlook for the haemophilia inhibitor franchise (only c.5% of NewCo
Revenues), and has overlooked the strong and sustainable outlook for
Baxalta's non-haemophilia franchise, c.20% of NewCo Revenues. After also
updating for Q1’16, we trim Core EPS for 2017, make significant upgrades
beyond. We now forecast a 2017-20 Core EPS CAGR of 13% (prev. 10%).
Over the next 12m, we expect the market to take a more positive view on
the sustainability of the Shaxalta growth outlook and anticipate a
* Our haemophilia model finds greater sustainability for Baxalta’s
franchise than the market fears. We introduce our new haemophilia
model, split by inhibitor and non-inhibitor patients, reflecting competitive
threats from new agents including Roche’s ACE910. For inhibitor Revenues
(only 5% of 2017e NewCo Revenues), we forecast a 2017-20 CAGR
decline of 20%. However, for the bigger non-inhibitor segment (c.20%
NewCo Revenues), we forecast Revenues almost flat 2017-20, with only a
mid-single digit CAGR decline from 2020-25 with competition to noninhibitor
patients not starting until 2019. Overall, we see total haemophilia
sales almost flat from 2017-20, and declining only single digit 2020-25.
* Strong outlook for Baxalta’s Non-haemophilia franchise overlooked.
We believe the market has overlooked the sustainability of the c.20% of
NewCo revenues from products outside haemophilia, i.e. Immunoglobulins
(IG), Albumin and A1PI. We see s these products growing 10% CAGR
2017-20, 4% CAGR 2020-25, sustainable growth, without substitution risk.
In particular, we see Baxalta’s HyQvia as the best in class IG, IG sales
growing from $2.1bn in 2017 to $2.8bn by 2020. Non-haemophilia assets
providing a long-term growth platform with high barriers to entry and
limited competitive threats, not reflected in the NewCo valuation.
significantly increases long-term sustainability. Mid-single digit Core EPS
accretion by 2020 is solid, if unspectacular. But more important is the doubledigit
accretion post Vyvanse. Trading on just under 12x 2017e PE, for 13%
2017-20e EPS CAGR, we reiterate our Overweight rating.