The best unknown biotech in the world. Bar none.
If I told you that there is a Swiss Biopharmaceutical Company that has an enviable success record that even Genentech would be proud of; that it was founded in 1997; has revenues in excess of a billion dollars a year; gross margins in the high 80′s; and that their stock has not lost any value if you held it from Jan 1, 2008 to today; and while Fidelity owns 6% of the outstanding shares of the company, it is tracked by TWO US based analysts (that includes me), could you name it?
They have partnerships with Glaxo SmithKline, Hoffman LaRoche, Merck, and their most significant future product candidate is an orexin receptor antagonist/almorexant that is supposed to restore sleep. In other words, it will be [if successful], the next best thing for sleep since Ambien. It is in Phase III. It’s arithmetic chances of success is less than ten percent, but given the fact that I am familiar with a bit of the research, I give it a one in three chance of success – which will vault our Swiss biotech into the rarefied world of Gilead Sciences’ valuation.
Here are the financials:
| (in CHF thousands) EOY Dec 31 | 2003 | 2004 | 2005 | 2006 | 2007 |
| Product sales | 300,315 | 455,346 | 647,556 | 924,141 | 1,292,083 |
| Contract revenue | 7,229 | 16,534 | 16,033 | 21,532 | 25,309 |
| Total net revenue | 307,544 | 471,880 | 663,589 | 945,673 | 1,317,392 |
| Operating expenses: | |||||
| Cost of sales | 31,816 | 45,873 | 65,635 | 90,594 | 137,748 |
| Research and development | 79,173 | 136,288 | 171,547 | 211,814 | 292,137 |
| Marketing and advertising | 79,828 | 101,710 | 140,012 | 185,491 | 234,052 |
| Selling, general and administration | 69,645 | 95,703 | 132,087 | 185,075 | 266,083 |
| Amortization of acquired intangible assets | 1,756 | 1,721 | 2,018 | 4,510 | 19,950 |
| Write-off of acquired in-process research and development | 46,990 | 5,000 | – | – | 224,820 |
| Total operating expense | 309,208 | 386,295 | 511,299 | 677,484 | 1,174,790 |
| Operating income | (1,664) | 85,585 | 152,290 | 268,189 | 142,602 |
| Cash EBIT | 57,694 | 105,018 | 178,648 | 320,375 | 471,443 |
| Other operating income: | |||||
| Interest income | 946 | 1,036 | 2,989 | 8,386 | 20,408 |
| Interest expense | (885) | (405) | (152) | (163) | (233) |
| Amortization of debt discount and issuance costs | (1,500) | (7,448) | (7,836) | (8,410) | (4,090) |
| Other financial income/expense, net | 2,567 | 3,079 | (11,294) | 10,724 | 9,587 |
| Income (loss) before tax and minority interest | (536) | 81,847 | 135,997 | 278,726 | 168,274 |
| Income tax | (830) | (4,276) | (10,459) | (37,636) | (43,688) |
| Income (loss) from continuing operations before share in loss of affiliates | (1,366) | 77,571 | 125,538 | 241,090 | 124,586 |
| Share in loss of affiliate | (1,089) | – | – | – | – |
| Income from continuing operations | (2,455) | 77,571 | 125,538 | 241,090 | 124,586 |
| Income from discontinued operations, net of tax and minority interest | (7,461) | 9,648 | – | – | – |
| Net group income | (9,916) | 87,219 | 125,538 | 241,090 | 124,586 |
| Diluted income per share (continuing operations) | (0.09) | 0.68 | 1.11 | 2.05 | 1.00 |
For the last nine months ending September 30, 2008, the numbers were phenomenal.
Net Profit
In the first nine months of 2008, the net profit of CHF 238.9 million (9m 2007: CHF 36.1m) includes interest income of CHF 16.1 million, interest expense of CHF 4.9 million, a non-cash charge on the Convertible Bond of CHF 1.3 million, foreign currency losses of CHF 25.5 million (predominantly the result of valuation losses on cash flow hedges) and an income tax expense of CHF 20.8 million.
Cash and cash flow
In the first nine months of 2008, our biotech generated net cash flow from operations of CHF 410.7 million (9m 2007: CHF 252.6 m).
Haven’t guessed the name of the company yet? How about the last teaser – the company’s biggest product is Tracleer – the best targeted product for Pulmonary Arterial Hypertension. This drug is very sophisticated in attacking the problem at hand [specificity] as opposed to the previous generations of sodium and calcium channel blockers – which were kind of ineffective when it came to PAH. It has two other approved products – Zavesca for Type-1 Gaucher Disease [Genzyme became a real biotech by inventing the first enzyme treatment for Gaucher Disease], and Ventavis – which is an inhaled formulation for PAH.
The company – Actelion. Their potential – bigger than Gilead’s [as of now]. The down-side – watch out if the insomnia drug – the orexin modulator fails or even shows signs of failure in trials. The stock has done well since IPO. Their latest financials are here…….. Currently, about 60CHF. My price target is 120CHF by Jan 1, 2011 – assuming that two of their drugs in Phase III make it to approval. Plus, Tracleer has not reached its full potential yet. As more cardiovascular specialists prescribe this specific/effective drug, it has the potential to exceed $2 billion a year by 2012.
© Bapcha’s Stocks 2009.
Disclosures: No positions in Actelion [yet].
The stock is listed in the pink-sheets, and carries risks associated with biotechs, and additionally, currency fluctuations.