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BTG aims for FTSE 100 as specialty medical devices outstrip snake venom antidote

CEO Louise Makin has every intention that BTG PLC will be known for more than its rattlesnake antivenom once she has finished building up the multi-billion pound medical devices company that was a hodge-podge of loosely grouped intellectual property businesses when she took over some 13 years ago.

Makin intends to lead the London-based company to the FTSE 100 by using some of the £200 million cash pile she has accumulated to snap up further acquisitions, and by driving growth from the three existing businesses and key varicose vein and lung devices. "That's the goal," Makin told S&P Global Market Intelligence in an interview at BTG's London headquarters. "If Varithena and PneumRx get to the top end of expectations we'll be FTSE 100 but we're not relying on that, we've got many other things to get there."

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BTG CEO Louise Makin

By cultivating close relationships with interventional radiologists, or surgeons who operate using imaging to guide minimally invasive precision surgery, Makin has leveraged her R&D and turned BTG, which was worth just under 100 pence per share when she joined in October 2004 from Baxter Healthcare Corp., into a pioneer in interventional medicine. In turn, BTG's products have helped to relieve the burden of cost and the trauma of hospitalization by transforming many major invasive procedures into brief outpatient visits for targeted therapy.

"They've been quite selective in building and adding products on and using cash flow from both of those to invest in interventional medicine," said Numis analyst Paul Cuddon in an interview. "Louise was very early to recognize the potential in this interventional market."

Cuddon, who rates the stock a "buy," says the interventional medicine segment is BTG's "core attraction" as it serves under-penetrated markets that are growing rapidly and have little competition. BTG is the largest player in the interventional radiology space outside of the $13 billion imaging market, and he estimates that the $270 million of IM sales can double by 2020. Panmure Gordon's Julie Simmonds estimates that the IM business will account for 44% of sales in 2017 compared with 38% in 2017, and she sees the potential for adding technically proven products with no clinical risk to the IM portfolio.

Makin has made no secret of her acquisitive intentions but points out that she is under no pressure to buy in businesses to drive growth. "We're monitoring about 30 to 40 companies at any one time but we might monitor them for three or four years and then we might decide that they're not right," Makin said. "We want to be the leader in the innovative, fast-growing spaces that are under penetrated."

Snake bite

Under her stewardship, BTG navigated from being a fairly passive recipient of royalties to the acquisition of Protherics PLC, which brought in a highly cash-generative specialty pharma business, and CroFab. The rattlesnake antivenom was the first to be launched in 50 years when it was introduced in 2001, and sales are estimated to reach £81.4 million in 2017, according to Stifel analyst Max Herrmann.

Subsequent deals included EKOS Corp., which makes devices to bust blood clots — a $1 billion market according to Numis' Cuddon — and Galil Medical Inc., which freezes and kills cancer tumors through a minimally invasive technology called cryoablation. Along the way, BTG also snapped up TheraSphere, which delivers high doses of radiation directly to a tumor via tiny glass beads, and PneumRx, a coil device which improves lung function and exercise when inserted into the lungs of emphysema sufferers, among other products.

But the one issue that polarizes sector analysts is how to value Varithena, an injectable microfoam procedure that was originally hailed as a breakthrough treatment for varicose veins but has fallen short of expectations due to its lack of a dedicated reimbursement code in the U.S.

Makin said BTG will have the reimbursement code by Jan. 1, 2018, which is widely seen as the catalyst to drive an uptick in sales that analysts have long awaited.

"It's not one of those things where practice changes overnight, but it does lay the important foundation of basically taking the fundamental headwinds off the table," she told S&P Global Market Intelligence. "Varithena and PneumRx — they're at the early stage, and they've not quite lifted off yet."

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TheraSphere

Source: BTG

Still, even ahead of Varithena's prospective springboard, analysts including Stifel's Herrmann reckon that as a profitable and cash generative business, BTG is something of a rarity in the U.K. market. "We expect strongly growing revenues from its interventional medicine division to provide robust earnings growth, supported by the cash cow of its licensing and spec pharma division," said Herrmann, who rates the company a "buy" based on the catalyst he expects for Varithena at the end of this year, the company's strong fundamentals and the fact that BTG is trading at a discount to its peers.

BTG's track record of beating earnings estimates and rapidly digesting acquisitions has earned it a loyal following of investors, including its biggest shareholder, Invesco. Even Neil Woodford, the high profile U.K. fund manager who had a lengthy and public disagreement with FTSE giant GlaxoSmithKline plc over strategy — and then sold down his stake — has not ventured to disagree with her.

"Invesco, Neil [Woodford] and others, they've been there for us. We've delivered for them as well," Makin said. "The path to greatness is not a straight line and you look back over our history and there have been times when we've needed that support of shareholders to invest in us, trust us and support us."

BTG shares were trading at 655 pence apiece as of 1 p.m. London time Aug. 7.