A negative reaction to full year results (16 May) from FTSE 250 specialist healthcare firm BTG (BTG) reflects market focus on the underwhelming performance of its Varithena varicose vein treatment and a stock which was priced for perfection.

Investors taking a view on whether this sell-off represents a buying opportunity need to concentrate on its ongoing transition from specialty pharmaceutical, addressing conditions with small patient populations for which there are limited or no existing treatment options, and deriving royalties from products sold by partners, to an increased focus on interventional medicine. Currently revenue is split relatively evenly between these three areas.

Interventional medicine seeks to provide diagnosis and treatment of conditions in a less invasive way by pinpointing problems inside the body and providing targeted solutions.

Cantor Fitzgerald reckons BTG is ‘on the cusp of driving strong growth from its key interventional medicine business from 2018’.

This might explain why, despite recent weakness, the stock still trades on a relatively lofty 17.8 times Panmure Gordon’s forecast March 2018 earnings per share of 37.2p.

Improvements in patient care

Patient care can be improved using interventional medicine as it treats diseases locally and minimises side effects. It also allows patients to recover faster compared to conventional surgery, which can help hospitals cut costs.

BTG develops and sells innovative products directly to interventional radiologists in the US and uses distributors in Asia.

In 2011, BTG made its first major move into interventional medicine when it bought Biocompatibles for its bead technology, which literally involves inserting very small beads into the body.

It has three key areas of focus in interventional medicine: oncology; interventional vascular; and interventional pulmonary.

Among its core products is its LUMI range, which BTG developed as a next generation version of Biocompatibles bead technology by making the beads more visible inside the body.

LC Bead LUMI is a radiopaque bead that sends radiation to the tumour without hitting the rest of the body, helping to reduce side effects.

The bead is inserted through a catheter and can be loaded with doxorubicin to treat liver cancer. Surgeons can also see where it is going in real-time and where it has been up to six months later.

Expansion in oncology

In 2016, BTG expanded its oncology division by acquiring Galil Medical, a manufacturer of cryoablation systems and needles. These are used to treat kidney cancer as the needles can be inserted into the tumour.

Galil’s systems use compressed argon gas to produce extremely low temperatures that form an ice ball at the tip of the needle as the gas passes through, effectively freezing and destroying the tumour.

BTG has funded studies to try and expand the use of the needles to tackle lung cancer and bone metastases.

Treating pulmonary embolisms is a key focus of its interventional vascular division using its endovascular system, which was acquired from EKOS in 2013.

The EkoSonic system makes it easier for blood clot medicine to get into the affected area by creating an acoustic pulse to break up the fibrous elements of the clot.

BTG is trying to find out how much of the clot-busting drug is needed to help lower the bleeding rate and is awaiting a study readout for its EKOS acoustic pulse thrombolysis treatment.

The Varithena problem

Interventional vascular also encompasses Varithena, of which the bulk of the development, clinical and regulatory work was undertaken by BTG. Varithena is a foam that can be injected into swollen and enlarged veins known as varicose veins. It displaces the blood by directing it to other veins.

Varithena has experienced a slower launch than anticipated as problems with the payment system means it can take at least six months for the hospital to get paid for patients on Medicare.

Cantor describes the £4.1m worth of Varithena sales in the March 2017 financial year as ‘somewhat disappointing’, however, the company is optimistic that uptake will improve when new reimbursement codes are introduced in the US in January 2018.

In 2014, BTG bought PneumRx as it saw minimally invasive coil RePneu as an attractive addition to its portfolio.

RePneu helps people who suffer from severe emphysema, a long-term, progressive disease of the lungs caused by smoking. It makes it difficult to breathe as the lung sacs have degraded and are bloated with air.

The coil, which is not yet approved in the US, grabs damaged tissue and props open the lung to help people to breathe better and exercise more.

What to expect going forward

BTG is bullish about the outlook,  guiding for mid-to-high teens growth in interventional medicine revenue; specialty pharma sales growth of low-to-mid single digits; and a high teen decline in royalty income from licensing in the March 2018 financial year.

The 7% share price decline following the results looks unjustified. Buy at 664.5p. Panmure Gordon’s price target of 809p implies upside of more than 20%.

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