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Product pipeline, strength, weakness, competitors, stakeholders are analysed

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Product pipeline, strength, weakness, competitors, stakeholders are analysed


This report is prepared in order to assess the financial performance of BTG Plc for GSK (GlaxoSmithKline) as an acquisition option. The performance is analysed by comparing the financial ratios, financial highlights, accounting policies with a similar company in pharmaceutical industry. Concateno has been considered for comparing the performance with BTG and performance ratios are calculated for both the companies and ultimately comprehend whether GSK can acquire BTG Plc.

The company’s business, its products, product pipeline, strength, weakness, competitors, stakeholders are analysed besides the financial status. For this purpose the annual reports and the financial statements of both the companies for the year 2007 and 2008 are analysed. Graphs are drawn separately for Concateno and BTG in order to compare the ratios and to interpret them. In the challenging environment of global pharma companies, BTG is enhancing its reach leveraging its competitive advantages to become a top global player. The overall analysis shows that BTG plc can be a better acquisition option for GSK though further studies should be made for the better conclusion.

BTG is an international pharmaceuticals company that develops and commercialise products targeting critical care, cancer, neurological and other disorders. The company is also seeking to acquire new medicines and treatments to develop and market to hospital specialists, and is building a sustainable business financed by revenues from sales of its critical care products and from royalties and milestone payments on partnered products. They focus on partnering with other biotech and pharmaceutical companies to complete the development of new products and market them. The company has 290 employees in Europe, North America, Australia and Japan. The company has a growing revenue stream and royalties from out-licensed products. BTG operates from offices in London, Philadelphia and Osaka.

Institutional Shareholders:


 Shares Held

  % of Shares



INVESCO Asset Management Ltd.



as of 26 Nov 2009

M&G Investment Management Ltd.



as of 05 Jan 2010

Aviva Investors Global Services Ltd.



as of 13 May 2009

Schroder Investment Management Ltd.



as of 05 Jan 2010

AXA Investment Managers UK Ltd.



as of 03 Jun 2009

Source: FactSet Research Systems In


BTG earns revenues from the sales of marketed products by licensees and partners.




2009/10 Gross 

Revenues (£m)



Factor IX therapy approved for the treatment of haemophilia B



Nycomed; Swedish Orphan International AB for Nordic countries;

An antidote for Crotalid snakes venom


Two-Part Hip Cup

All major orthopaedic

companies, including

Zimmer Holdings Inc,

Stryker Corporation, Smith & Nephew Inc and Biomet Inc

Prosthetic hip joint




Genzyme Corporation

Treatment of B-cell chronic lymphocytic leukaemia



Nycomed, US; Beacon Pharmaceuticals in the EU; local partners

An antidote digoxin toxicity or overdose


Three-Part Knee

Biomet Merck Ltd and Corin Ltd

Unicompartmental knee joint replacement



Named-patient sales

Delayed MTX elimination


Source: (http://www.btgplc.com/Products/199/MarketedProducts.html)


Source: BTG corporate profile, www.btgplc.com

The development pipeline of BTG is broad and strong which mainly targets neurological, cancer, intensive care disorders and other disorders (BTG corporate profile). Currently there are eight programs on the development pipeline, most of them in phase II and phase III clinical studies after successfully completing the phase I studies. Varisolve is under final phase and is expected to be released for approval. Voraxaze, for the treatment of delayed methotrexate(MTX) elimination has completed all the clinical trials and is awaiting the approval to be commercialised. It is observed that the approval of Voraxaze will significantly increase the revenue in the future as it earned £1.5m in six months in 2009 in the US.

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Source: BTG corporate profile, www.btgplc.com

BTG has ten partnered products in clinical stage development and licensed thirteen development programmes to third parties. BTG shows considerable progress in the partnered program pipeline with eight already passed the clinical development stage, four passing clinical trials and one in preclinical studies. The partners are responsible for the development and commercialisation and BTG receives milestone payments and share of royalties when the product successfully reaches the market. The pipelines of BTG are strong for the most part of the products in the phase III clinical stage which makes the company reasonably attractive for acquisition.


The three elements of BTG’s strategy for sustainable profitability are 1. The identification and acquisition of promising drug programs and hospital specialised products from other pharma companies 2. Developing programmes with safety and efficacy 3. Commercialization of developed products and to market them (Source: BTG annual report 2009).

BTG do not do any research work but instead they acquire programmes from the other pharma companies worldwide. The professionals will design the development programmes by getting external advisers and support teams if required. There are networks with other research organisations and the contracted work is sometimes carried out by these organisations and they conduct development activities through the networks.

Once the product is developed the company can either choose to market the product on its own or can give the product license to their company of interest in return to additional milestone payments and share of royalties. BTG also sometimes retains certain rights on the product during licensing to other companies or the company can also co-develop the product to share the reward and risk.




Revenues from sales and royalties from marketed products.

Additional milestones and royalties from partnered programmes

Healthy cash position

Widely reached brand name

Have experts from different fields

Supply products continuously.

Strong Presence in Emerging Markets

Product failures

Expiration of patents like BeneFix

Strict regulations for pharmaceutical industries.

Third party contractors



Acquire further products targeting hospital specialists

Creating value from the development pipeline and partnered programmes

Broadening the Sales and marketing infrastructure

Specialty pharmaceuticals business

Uncertainty in the Development of new drugs and medicines

Timeliness and the costs to get the approval.

Alterations to the government regulations

Movement in foreign exchange rates affects returns.


Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market (Source: Porter (1980))


BTG serves in a highly competitive environment with the three major competitors of Baxter International Inc, Roche Holding Ltd, and Zimmer Holdings, Inc who also produce drugs and medicine equipments and sell in more than 150 countries around the world. The other competitors are Lipoxen Plc, AstraZeneca PLC, and Pfizer Inc. Industries where BTG plc Competes are Biopharmaceuticals & Bio therapeutics, Financial Services, Investment Firms, Venture Capital, Health Care Products, Medical Devices.


New pharmaceutical companies are emerging in the field day by day which will consequently increase the competition in the industry. The key barriers of BTG that may increase the level of risk are the distribution channel and customer switching costs.


BTG is developing drugs for migraine, sclerosis, diabetes, etc which has substitute products from other companies as well. For example, Caraco Pharmaceutical Laboratories, Munich-Harlaching Clinic in Germany, Thomas Jefferson University in Philadelphia (Cephalalgia 2002; 22(2): 137-4) are doing research on reducing migraine attacks and they have also come up with new strategies which can be a threat to the company reducing its cost of sales.


The end customers do not have the bargaining power. The threat from buyers is that they will switch over easily to some other brand. BTG must continuously market and differentiate their brands.


Firms are able to switch between suppliers quickly and cheaply, due to the globalised networks of cheap labour. BTG have a definite advantage and power over their suppliers since the bargaining power of suppliers is low over the company.


The company gets most of its revenue by licensing the products and from the royalties of other pharma and biotech companies that market BTG’s product. BTG also gets one-time revenue by licensing the product under development pipeline and also by selling the property rights of the product that the company will not invest in the future.

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Gross profit



Gross recurring royalties



Product revenue


Non- recurring revenues



Profit after Tax



Cash flow



Earnings per share (basic and diluted)



The revenues have increased in 2009 to £84.8m from £75.0m in 2008 which is 13.1% increase. The royalties increased by 30.4% in 2009 from £42.4m to £55.3m. While the non-recurring revenues from out-licensing programmes and technologies have decreased from 2007 to £16.1m in 2008. On the total profit on 2008/09, 58% margin is from recurring royalties, 51% gross margin is on product sales and 68% of margin is on one-off revenues.

Source: (Annual report of BTG 2009)

The revenues and gains for five years is analysed and it shows that there has been a steady rise in the revenue over the years except for the year 2007 where the revenue decreased from £50.2m in 2006 to £45.7m in 2007. But there was a rapid increase in the revenues from £45.7m in 2007 to £75.0m in 2008. In the total revenues around 57% is contributed by recurring royalties of BTG’s products. In 2009, one of the one-time revenue was the licensing of semiconductor technology patents of BTG which brought in net revenue of £10m after taxes and other costs.

Recurring revenues – increased and diversified

The major portion of the 2009 revenue is from the sales of products BeneFix and CroFab which accounts for £13.0m and £11.5m of the total revenues respectively.

Source: BTG preliminary report 2010


Revenue increased by 13.1% from £75.0m to £84.8m.

The gross profit increased by 11.3% from £42.9m to £47.7m bringing the gross margin from 57.2% to 56.3%.

Recurring royalties increased by 30.4% from £42.4m to £55.3m

Non-recurring revenues gave additional income of £16.1m.

Acquisition of Protherics provided revenue of £13.4m.

Operating profit before the acquisition of Protherics was £7.0m.

Healthy cash position of £78.2m at the end of the year.


Eight clinical programmes in development pipeline; ten partnered programmes in clinical development.

Varisolve after successful completion of phase II study is continuing towards phase III trials.

CB7630 is going for second phase III trial in prostate cancer patients.

CytoFab for severe sepsis progresses through phase II study.

BGC20-1531 for Migraine completed phase I study and is about to start phase II studies.

TRX4 phase III trial is initiated in diabetes patients.


The financial ratios for the companies BTG and Concateno is calculated and compared for two years to obtain better results. Concateno’s 2007 and 2008 annual report and BTG’s 2008 and 2009 annual reports are used for the calculation since the fiscal year for Concateno ends on 31st Dec and for BTG ends on 31st march.







Return on net assets





Gross margin





Sales margin





Asset Turnover





Sales per Employee





Profit per Employee





Working Capital

Stock days




Debtor days





Creditor days





Liquidity and Solvency

Current Ratio





Acid test





Interest Cover










Shareholder’s view

Return on Equity





Earnings per share (p)






Return on net assets (RONA)



In the year 2008, the return on net assets of BTG is 17% and Concateno is 1.32% which indicates that BTG has better utilized its assets. While in the year 2009, BTG shows negative RONA and Concateno shows improved RONA. There is a fall from 17.23% to -3.54% which may be due to the operating loss and the acquisition of Protherics plc. The operating loss of BTG is £9.2m from post acquisition modifications and reorganization costs. Even though the acquisition of Protherics caused a fall in financial figures for this year, it will strengthen the business in future. The revenues of BTG have nevertheless increased due to the Protherics with the sales growth of 8% in US and other revenues from Protherics totalled £3.3m.

Gross Margin

The gross profit of BTG has increased from £42.9m in 2007 to £47.7m in 2008/09; an increase of 11% which shows that the gross profit was higher relative to the sales revenue. The gross margin therefore for BTG is 56.25% (07/08: 57.2%) and Concateno is 57.82% (07/08: 59.27%). Both companies show higher gross margin which could mean that larger percentage of sales revenue retained to pay other costs. But there is a fall in gross margin for both companies from 2007 to 2008 which could be due to the increase in cost of sales as a result of increased labour wage or raw materials.

Sales margin

Sales (m)

The graph shows that BTG has higher sales margin compared to Concateno indicating BTG has good profit for every £1 of sales. Though BTG shows higher margin, there is fall from 11.33% in 07/08 to 10.85% in 08/09. This lower profit margin is due to the increased costs than the revenues.

Asset turnover

The extent to which the company’s investment in fixed assets contributes towards sales is calculated.



BTG shows higher turnover for the year 2008 compared to Concateno still the ratio falls from 1.21 to 0.33 in 2009. The ratio indicates that BTG is able to sell £1.21 for every £1 with adequate sales in 2008 while it is reduced to £0.33 for every £1 in 2009. On the other hand, Concateno ratio shows that the company is able to sell only £0.18 for every £1.

Sales per employee and Profit per employee

BTG has 290 employees and each employee has generated £547,096.7 of sales and profit of £59354.8. On the other hand, Concateno has 338 employees and each employee has generated £140455 of sales and £12517.75. The value shows that BTG employees are more efficient, more productive and has generated more revenues and profit compared to Concateno and BTG have been utilizing the employees in proper way.




Cash conversion cycle for BTG and Concateno

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= 103 days

= 104 days


The working capital days of BTG is calculated and compared with Concateno. The cash conversion cycle of BTG shows that the working capital is tied in the operating cycle for 104 days while Concateno’s 103 days. The cost of sales of BTG per day would be £0.14m in 2009. BTG requires £10.4m funding for the year either by debt or equity as the working capital is held for 104 days. The trade receivables of BTG has increased in 2009 by 88 days which is an indication that the company has trouble in collecting the money from customers or clients while it has decreased in case of Concateno. The trade payables have also increased for BTG in 2009 showing that BTG is taking more time to pay the creditors while it has decreased for Concateno indicating that the company maintains its supplier goodwill.


Current Ratio



The current ratio of BTG is 2.98 in 2008 which has fallen to 1.7 in 2009. Though the ratio has decreased it is more than 1 and the company’s current liabilities can be covered by current assets. Concateno on the other hand shows that the current ratio has decreased from 1.1 to 0.58 in 2008 showing that the company cannot cover the current liabilities.

Acid ratio



The acid test ratio for BTG is 2.98 in 2008 as there are no inventories for the particular period. The ratio has fallen to 1.55 in 2009 still the company has sufficient funds to cover its current claims. The ratio indicates that BTG is effectively maintaining its liquidity in the business for the period. As there are no problems in covering current liabilities the company doesn’t have problems with liquidity. While Concateno’s ratio has fallen to 0.46 which means the company may possibly have problems in settling its short term obligations.

Interest cover



Concateno ratio indicates that the company has 1.26 times amount from the profit to meet the interest payable. The interest cover of Concateno has increased from 0.972 in 2007 to 1.26 while for BTG it has decreased from 17.0 in 2008 to -1.84 in 2009. This may be the result of Protherics acquisition.




The graph above shows that BTG’s gearing ratio has risen showing the company can pay 22% of the debt by equity. Concateno’s gearing has reduced to 35% which signify that the company uses 35% of debt to finance its business.


Return on Equity



The graph of BTG and Concateno companies explains that the companies ROCE (%) has declined and is negative. The decline for BTG is probably due to the post-acquisition adjustments and reorganization costs leading to the financial loss. The shareholders may not be pleased with the result as the companies are not giving the expected returns.

Earnings per share

The ratio shows that profit available to the shareholders on per share basis is -7.1p while that for Concateno it is -0.43p. Both the companies were profitable in 2007/08. The turn down for BTG is mainly caused by the acquisition and resulted in loss of share prices affecting the shareholders value.


The overall performance of BTG is found to have good progress in the clinical pipeline and the partnered programmes which has attracted the company for acquisition. It has also made a strong start to the second half of the year by licensing BGC945, a novel anticancer compound, to Onyx Pharmaceuticals in a deal that has generated a $13m upfront payment and has the potential to generate up to $307m in additional development and commercial milestones, together with a royalty on worldwide sales. The 5 year annual record shows that the revenues and gross profit of the company has increased steadily. BTG has high revenue from marketed products and it has strong cash position of £71.8m.

The financial performance of BTG is analysed with Concateno along with the factors like industry, competitors and also future trends. The ratios indicate that the company is effectively managing its resources and funds. The efficiency, investment, liquidity and profitability ratios indicate that the company is managing its assets and liabilities effectively and the investment on development and research were generating good profit for the company. The acquisition of Protherics has further increased the opportunities for the business earning revenue of £13m. There is been a growth in recurring and one-off revenues which provides strong platform for the future growth of the company. After analysing the SWOT, performance, financial records, GSK can go ahead with the acquisition of BTG which will also add the revenues for GSK.

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