We are initiating our coverage on Bioverativ with a Buy recommendation and a 2018 private market value of $58 per share.
Bioverativ (ticker: BIVV), headquartered in Cambridge, Mass., is a biotechnology company that develops drugs to treat hemophilia (hem) and other blood disorders. It was spun off from Biogen (BIIB) on Feb. 1 with no debt and $325 million in cash. Biogen shareholders received one share of Bioverativ for every two shares of Biogen.
We estimate that Bioverativ will earn $2.70 per share on $1.1 billion of revenue in 2018. Earnings per share are expected to grow at a 5% compounded annualized growth rate (CAGR) from $2.25 in 2016 to $2.75 in 2020.
Bioverativ has two marketed products, Eloctate to treat hem A and Alprolix to treat hem B. We expect Eloctate to generate peak sales of $830 million and Alprolix to peak at $370 million in Bioverativ territories (excluding EU). These drugs are estimated to drive the company’s revenue growth at a 8% CAGR through 2020. We expect Bioverativ to in-license late-stage assets as its pipeline drugs are all in preclinical stage.
As a full U.S. taxpayer with 37.5% tax rate, Bioverativ would benefit from the likely tax reform under the Trump administration (by 55 cents on estimated 2018 EPS at 25% tax rate). The company has limited exposure to Medicare due to hemophilia demographics, therefore would not be impacted by Medicare negotiation.
Bioverativ is an attractive takeout target but there are no near-term buyers. We anticipate that competitors such as Shire (SHPG) and Novo Nordisk (NVO) would be interested in Bioverativ and could benefit from cost synergies. However, we do not expect a takeover in the near term.
Morgan Stanley was far less sanguine, initiating coverage at Underweight, with a price target of $41 for BIVV stock. Citing a full valuation and potential competition, Morgan Stanley suggests investors look elsewhere for profits.
Analyst Matthew Harrison comments “Bioverativ is the hemophilia spin-out of Biogen with key assets Alprolix and Eloctate. Both Alprolix and Eloctate are clotting factors which hemophiliacs can use to either prophylactically prevent bleeds or stop bleeds when they are occurring. Alprolix and Eloctate were the first of so-called “long-acting” factors as patients needed to dose less frequently than traditional recombinant factors. While Bioverativ is expected to have revenues >$1B in 2017E and positive cashflows, two unique features in SMID-cap biotech, we see current valuation as capturing those features without leaving a significant buffer for potential competition in the near-to-mid term. Thus, we see our other coverage as more attractive despite Bioverativ’s obvious positive qualities.”
Other analysts have likewise differed. Cowen initiated coverage at Market Perform with a price target of $47, while Jefferies called it a buy with a price target of $53. We tend to be sympathetic to the Gabelli thesis that Bioverativ’s strong balance sheet and strong hemophilia franchise will lead to outsized profits for shareholders.
Disclosure: The author holds no shares of any stock mentioned
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