Pharma stock Vectura Group (LSE: VEC) has had a rough few years and today offered little respite, with the stock down around 2% on publication of its six-monthly results to 30 June.
Vectura is a specialist in the design and development of inhaled medicines but is currently a company on hold as it awaits US regulatory approval for a number of upcoming products, in particular the generic formulation of GlaxoSmithKline’s asthma big seller Advair Diskus, planned with Hikma Pharmaceuticals.
Today’s interims were headlined “Vectura regaining momentum with continued inhaled revenue and adjusted EBITDA growth”, although clearly investors do not share management’s excitement. Total reported revenue for the period rose a modest 1.4% to £79.9m. Inhaled portfolio revenue rose 7.1% to offset a sharp 17.4% drop in non-inhaled portfolio revenues, due to non-recurrence of 2017 post patent royalties and lower product supply revenues.
Guidance for R&D costs of £55m-£65m for 2018 remains unchanged, reflecting the group’s “refocused portfolio prioritisation and initiatives to transform R&D productivity.” Adjusted EBITDA rose 51.9% to £24.6m on productivity initiatives. Vectura’s cash balance has dipped from December’s £103.7m to £83.9m, although this reflects its completion of a share buyback programme, capital investment and annual cash flow phasing.
This stock is all about the future, with management “progressing a series of new pipeline projects with significant potential future value.” The share price is down 60% over three years yet it still trades at a pricey 23.9 times earnings. Earnings per share (EPS) dropped 53% last year and City analysts are warning of a further 20% in 2018, then a 51% rebound next year.
Vectura confirmed that Hikma plans to submit data on their generic Advair to US regulators next year and anticipates a launch in 2020, with potential annual sales topping $250m. To show what this means, 2017 revenues totalled $148m. This stock is all about tomorrow, not today. You might want to build your retirement on more solid foundations.
Shire Pharmaceuticals (LSE: SHP) is a giant by comparison, a £40bn FTSE 100 pharma behemoth that is now bouncing back after falling out of favour following its $32bn acquisition of Baxalta in 2016. The stock is up a hefty 36% in the last six months on more takeover talk, only this time it is the target, with Japan’s Takeda Pharmaceutical lining up a $62bn deal. Throw in the company’s debt and the deal is worth closer to $80bn.
Takeda management reckons that Shire’s product portfolio and pipeline are highly complementary and will make it a leader in providing targeted treatments in gastroenterology, neuroscience, oncology, rare diseases and plasma-derived therapies. Takeda gets access to the US market, Shire gains Japan and emerging markets. Sounds fun all round.
As Kevin Godbold points out, Takeda may have to dig deeper into its pockets to secure the company or withdraw. However, he says that even if it does back out, this may alert other investors to the group’s undervaluation and trigger further bids. Shire currently trades at just 11 times forward earnings. I’ll be keeping a close eye on the bid, in case it throws up a buying opportunity.