UCB SA - stock preview
Uploading my long idea here - the thesis remains intact:
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Situation overview
UCB stock is up >50% since Nov.23 as at [19 April] >> driven by primarily a multiple re-rate on news of BIMZELX approval, a reiterated MT guide AND positive alt. data on the BimZelx launch.
Stock has been volatile. It dropped 25% in FY23. mostly due to the delay in BIMZELX approval. We’re now back just above where we were in Apr-22 at €120 per share.
At the last Q; they ended year at $5.25B gross sales (€4.8net) vs $5.15-5.35B guided; but beat on Adj EBITDA (27% vs the 22% guided) and EPS (4.20 v 3.60 at midpoint) due to higher mix of EVENITY
The stock is well tracked and seen as a relatively unique asset in European SMID bio - with strong L/O and SS following. However, there is an opportunity here given moving parts on 1) magnitude of opportunity in new innovative launches; 2) existing franchise genericisation and replacement; And 3) an accommodating valuation with a number of possible upside catalysts this year
In the near term most important driver of the stock is Bimzelx launch in mod-to-severe-psoriasis; Leading indicators include expanding prescriber # + expanding scripts volume per existing prescriber. This is therefore where work needs to be focused.
TRADE IDEA: LONG; Conviction levels (Mod-to High); Target price > 150 (~25% upside)
Summary:
Q2 Beat and FY24E estimates upgrades
Entry into a multi-Q +ve beat and raise cycle, with other +ve catalysts pending
Valuation re-rates upwards from 15x NTM EPS
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UPSIDE OPPORTUNITY ON FY24 NUMBERS (Consensus FY24 at €5.3B sales, 24% Adj. EBITDA, €4.24 core EPS)
TOPLINE: Sales for BIMZELX outperform by 30% (me at €600m vs cons of €460)
Current avg. weekly scripts have done >2x since begin 2024 and continue to trend up, whereas consensus implies only ~4k incremental paid patient adds in FY24 versus last year (at $70-80k price point);
Datapoints include: Rx volume growth; paid v unpaid script mix shifts; +ve prescriber feedback on IL-17 from HUMIRA, SKYRIZI in 1L setting for plaque psoriasis
MARGINS: Implied consensus incremental margins in the bridge only at 20-30% - after adjusting for the €145m divestment in FY23; further upside based on +ve volume, mix & better drop through
UPSIDE OPPORTUNITY IN THE MID TERM i.e. 2H24 & FY25 >>>
Marketed: Positive sales traction for the RYSTIIGO (FCrn) and ZIBRYSQ franchise
Consensus currently at $1.0B Peak sales; and €180m in FY24 >>> That can go higher; In context of all the indications they can touch there; And the Rx data also showing outperformance on launch schedules. The opportunity in MG is not widely appreciated
Pipeline: A rich catalyst path for the company in FY24 & FY25
BIMZELX across additional indications (HS, Pso arthritis) + FINTEPLA LCM
SLE drug (Darolizumab) >> unmet need, and the data showed good safety profile
Atopic derm assets
[… All of which should lead to upgrades to the FY25 company guide (€6B)]
EPS growth supported by strengthening margins (in line with > 30% adj EBITDA targets)
An ongoing share repurchase programme
… AND A VALUATION THAT REMAINS SUPPORTIVE WITH OPPORTUNITY FOR POSITIVE RE-RATE:
There's a "what would I rather own"? question to be considered here…
A cash generative asset growing earnings in double digits like UCB; Or something like ARGENX which has higher expectations baked in a far richer valuation (same market cap, but burns cash and consensus has half the 2030 topline!)
Perhaps more acutely important today - given elevated interest rate sensitivity / duration risk for a name like ARGX (in context of 'higher for longer')
There is a 'margin of safety' with UCB
UCB has a top neuro franchise with Keppra and anti-epileptics meds; AND its partnership with Amgen is delivering about €500m in pure profit annually
The SoTP on the base business therefore gives you a floor on valuation of about €100 before you even start to take a view on the innovative medicines
UCB looks cheap on multiple & SoTP-based methods >> See appendix
Stock currently trades at 15x NTM P/E >> I believe multiple expansion to within the range of 18-20x NTM, to trade more in line with peers & EPS growth is achievable
On SoTP >> We get to €100 for the base; €20 for plaque psoriasis; therefore other indications and pipeline not ascribed much value (!!)
On reverse DCF; market is pricing in ~€2B for Bizmelx; And not giving credit for Rystiigo, ZILBRYSQ or the SLE med
WHY DOES THE OPPORTUNITY FOR THIS BET EXIST?
GROWTH
This year, the driver of outperformance will be an underappreciation of the BIMZELX launch cadence. As laid out above, the consensus numbers now seem soft in relation to how the launch data is tracking
Simple math illustrates this below: based on prescriber data; assuming zero QoQ new fill growth from Q2 onwards; with modest uptick in paid v unpaid rate shows that Q4 FY24 is mechanically 4x higher than Q1
Mid to long term we can expect to see the sellside upgrades on peak sales numbers beyond what they’re currently modelling (esp for Bimzelx and Rystiggo/ Zibrysq)
MARGINS
There IS a margin story here (mix shifts, R&D and SGA leverage), but MGT have already reiterated their recent guide. I don’t have a lot of conviction right now on them getting higher than the low 30s steer
VALUATION
As laid out above (and see appendix)
Note that implied valuations also don’t price much in re: pipeline or launches this year eg. Hidradenitis
CAPITAL ALLOCATION
Undergoing a share buyback programme
Overall the company has a solid, long standing management team who have executed incredibly well on M&A and R&D execution
ACCOUNTING
Have an asset sales in last year's other op income that need to make sure is in the bridge. This should be in most people’s numbers
There is possibly some edge to be had on better forecasting their amortisation numbers; and getting a better understanding on changes in scope and restructuring programmes
Where do Debates exist?:
Achieving the FY25 margin target
Offsetting declines in Vimpat due to genericisation
FY24 margins> earnings compression due to launch (primarily higher S,G&A investments)
Topline drivers
What are the key assumptions here? How will we know if we are wrong?
Biggest assumption in this thesis? >> That there is a valid inference from Management commentary / Prior Q numbers and inter-Q prescription data (i.e. no disruptions / +ve uptake from prescribers & no abnormality in the Rx data that does not make it a good readacross)
Most likely way I'd be wrong here is less on the data readacross, and more if I've misunderstood buyside expectations into this Q and they are are too high. I’m not currently in touch with any of the sellside or buyside on this topic so it’s probably unrealistic to expect I have the perfect view on sentiment here
What does market currently think / what WILL the buyside think?
Stocks path since Dec has been up and to the right on stronger volumes - since the BIMZELX approval overhang had been removed; with notable L/O's increasing their size
I wonder whether we also see some of the large L/O sector specialists looking harder at this name => disappointed by recovery in tools sector / utilisation trends in HC Services sector, you might argue that there is appetite for a different, more secular, high quality growth story in names like UCB
Overall, I would expect the launch traction so far is well appreciated, but a key next catalyst could be upgrades to the FY25 company guidance from €6B on the back of stronger launch data; where they set out new Mid term guidance framework of how they are going to get to €7B
Re: the print, I expect we see sellside upgrades to land just beyond topend of management’s FY24 guide. I don’t think we are likely to see an actual upgrade from Mgt - although there will likely be positive noises on the call
Other sentiment indicators:
Short interest
De minimis
ATM straddle: 1-month Option implied move
~5%
Notable Option skew
Nil
What are my conviction levels? And WHY? >> Moderately high conviction;
We have a floor on valuation from about 500m pure profit per year on the AMGEN partnership with EVENITY; + the rest of the established sales portfolio which is relatively stable
Therefore a combination of positive catalysts, perceived edge on the earnings event in near term and long term, with an accommodative valuation, make this attractive on Risk/ reward
What is the Trade AFTER the trade?
Likely take a small profit after the print
If there are any meaningful upgrades pre-print (which I deem unlikely); may also want to take some off prior
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OTHER BACKGROUND
Catalyst Path in FY24
2H: Rystiggo: phase 3 in MOG-AD
2H: Fintepla phase 3 in CDKL5
Dapirolizumab pegol: 1st Ph3 in SLE (mid-year) result will trigger whether the 2nd phase 3 study will take place, for regulatory approval.
Bepranemab phase 2a (Alzheimer’s)
UCB9741 phase 2a (atopic dermatitis)
OTHER >> competitive data readouts / launches
MG names
ARGX
Psoriasis names
Biosims; and branded
Roche (failed the Ph3)
Hidradenitis
The nanoparticle from MIRA
NVS w/ Cosentyx
Key assets and peak sales estimates
Name
Consens. Peak Sales
Comments
BIMZELX
€3.2B
HS in 2H 24
Zilbrysq and Rystiggo
€1.0B
Zilbrysq - self-inject formulation is a differentiator vs competition
Not yet going after some pretty plausible indications with complement eg. (HUS, PNH etc)