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Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
S&P Capital IQ Recommendation
12-Mo. Target Price
EUR 68.83 (as of 30-September-2016) S&P Capital IQ Equity Analyst Jit Hoong Chan
GICS Sector Health Care
Summary UCB combines traditional synthetic chemistry and biotechnology approaches
in targeting central nervous system (CNS), notably epilepsy, and immune & inflammatory Key Stock Statistics (Source: S&P Capital IQ, company reports)
EUR 62.26 - 85.55 S&P EPS 2016E
EUR 3.16 Yield (%)
Trailing 12-Month EPS EUR 1.37 S&P EPS 2017E
EUR 3.48 Dividend Rate/Share
Trailing 12-Month P/E (x) 50.9 Common Shares Outstg. (M)
188.26 Beta
P/E on S&P EPS 2016E 21.8 Market Capitalisation (M)
EUR 12,957.6
Qualitative Risk Assessment
30-Week Mov. Avg.
12-Mo. Target Price Volume Above Avg.
10-Week Mov. Avg.
Our risk assessment reflects the defensive pharma merits but ongoing challenges of replacing off-patent Zyrtec and Keppra with a new generation of products, needing regulatory and market acceptance, notably Vimpat and Rikelta (epilepsy), Neupro (Parkinson's disease) and Cimzia (Crohn's disease, arthritis).
S&P Capital IQ Quality Ranking Revenues / Earnings Data
Past performance is not an indication of future performance and should not be relied upon as such.
Revenues (Million EUR)
Analysis prepared by Equity Analyst Jit Hoong Chan on 29-Jul-2016.
f UCB's 1H 2016 top-line (EUR2.0 billion) rose f Our recommendation is Hold. We remain 5% at constant exchange rates (CER). In concerned of a sharp fall in UCB's off patent Immunology, Cimzia (EUR602 million) grew 24% products, notably Keppra which now makes CER, supported by strong demand globally. up 18% of sales - it lost exclusivity in the As for Neurology, Vimpat (EUR379 million) U.S. (Nov. 2008) and Europe (Sept. 2010). On a and Neupro (EUR143 million) expanded 18% more positive note, we observed increasing and 12% CER respectively. However, Keppra focus in Immunology and Neurology drugs, (EUR354 million) fell 7% CER due to lower post divesting its generics unit, Kremers restocking activities. We are now looking Urban for USD1.2 billion to Lannett Company Earnings Per Share (EUR)
forward to the launch of Romosozumab as we in November 2014. Thus far, the redeployment believe this will be the next key growth driver of capital from this divestment bode well for for UCB, after posting a positive set of Phase III UCB - Cimzia, Vimpat & Neupro (CVN) have results. For 2016, UCB is guiding: (i) revenue to been showing strong sales growth and now the come in at EUR4.0-4.1 billion, (ii) core EBITDA in trio makes up 56% of total revenue. Further, the range of EUR0.97-1.01 billion, and (iii) core promising drug pipeline like Romosozumab EPS in between EUR2.90- 3.20. In our opinion, (a treatment for bone-related conditions, these targets are achievable given the robust including osteoporosis) is a boon as well. We sales traction seen so far into the year. continue to see strong demand for these drugs, which in turn, fend off slower sales in Keppra Fiscal year ended 31 Dec.
f In 1H 2016, core EBITDA (EUR549 million) and and Zyrtec (both facing generic competition). EBIT (EUR432 million) rose 11% and 18% CER. Dividend Data
In turn, this lifted respective margins up by f Downside risks to our opinion and target 3-4%-pts to 27% and 21%. This was primarily price include: (i) weak demand for CVN, (ii) due to lower opex like: (i) R&D -2% CER and (ii) rising competition from generics, (iii) slow G&A -11% CER, which mitigated the increase progress in Phase III clinical trials, (iv) weak in marketing activities (+6% CER). For 2016 growth in the U.S. market, (v) deterioration in and 2017, we expect margins to improve operational efficiency, and (iv) currency volatility further on the back of restructuring and cost leading to potential forex translation losses. efficiencies. By end-2018, management hopes to achieve core EBITDA margin of 30%. f Our 12-month target price is kept at EUR80, reflecting 23.0x 2017 P/E. This is in line with its f With better margin prospects, we forecast 10-year average of 23.3x but above peers at quicker earnings growth in 2016 and 2017 (1H Source: Company reports.
20.7x. The premium, we believe is appropriate 2016: EUR1.72, +34% CER). Net debt was EUR1.4 given UCB's strong sales growth (projected billion in 1H 2016 vs. EUR1.8 billion in 1H 2015 2015-2017 CAGR of 7.1% vs. 3.8% historically due to stronger FCF generation. In 2015, a final Past performance is not an indication of future per-
from 2010-2015), especially from CVN coupled DPS of EUR1.10 was declared (+4%).
formance and should not be relied upon as such.
with promising drug pipeline like Romosozumab.
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Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
Business Summary 18-July-2016
CORPORATE OVERVIEW: UCB Group, founded in 1928, is a Belgium-based global biopharmaceutical company listed on the Euronext. Originally a chemical company, the success of Zyrtec (an antihistamine Allée de la Recherche, 60 drug) helped to establish its pharmaceutical business. The acquisition of Celltech for EUR2.3 billion along with the divestments of Specialty Films in 2004 and Chemicals in 2005 turned UCB to become a pure pharma company. Also, since the acquisition of Schwarz Pharma for EUR4.4 billion in 2006, UCB has shifted focus towards the central nervous system (CNS) and the immunology therapeutic areas. The company had previously expanded its reach to pre-clinical oncology through a strategic alliance in 2009 with Wilex AG, a company specializing in the development of drugs and diagnostic agents for cancer. However, the partnership was dissolved given the lack of clinical trial breakthroughs. In 2015, UCB's revenues of EUR3.9 billion (+9% CER) comprised of net sales (EUR3.5 billion, +12%), royalty income and fees (EUR176 million, +0%), and other revenues (EUR188 million, -27%). Geographically, North America accounted for 47% of 2015 net sales, Europe 33%, Japan 6%, and International Markets 14%. Due to the nature of UCB's therapeutic focus on CNS and Immunology, its Emerging Market exposure is much smaller than that of major pharmaceutical companies. To note, growth platforms (Cimzia, Vimpat, and Neupro or CVN) which generated more than 50% of sales rose 23% CER in 2015 - Cimzia makes up 28% of sales, Vimpat 18%, and Neupro 7%. Also, 19% of sales was derived from off patent anti-epileptic drug, Keppra (EUR737 million, +2% CER). CORPORATE STRATEGY: To mitigate generic erosion, UCB depends on the contribution from its three core brands - Cimzia (2015: EUR1.1 billion, +21% CER) for rheumatoid arthritis and Crohn's disease, Vimpat (EUR679 million, +26%), an adjuvant to Keppra for epilepsy and seizures, and Neupro (EUR258 million, +22%) for Parkinsons's disease and Restless Legs Syndrome. The company expects peak sales of EUR3.1 billion for these products (EUR1.5 billion, EUR1.2 billion, and EUR400 million respectively) by the end of the decade vs. their collective 2015 net sales of EUR2.0 billion. CATALYSTS: With the launch of Romosozumab (a treatment for bone-related conditions, including osteoporosis), we believe this will be the next key growth driver for UCB, after posting a positive set of Phase III results. On sales front, the label extension to Cimzia should help to maintain growth at a fast clip. Further, we observed increasing focus in Immunology and Neurology drugs, post divesting its generics unit, Kremers Urban Pharmaceuticals for USD1.2 billion to Lannett Company in November 2014. Thus far, the redeployment of capital from this divestment boded well for UCB where CVN have been showing strong sales growth. FINANCIAL TRENDS: UCB's financial performance has been fairly muted since 2009, where revenue and core EPS grew only at a 6-year CAGR of 4%. This was due to the patent loss of blockbuster drugs, Zyrtec (2008) and Keppra (2011). That said, hopes of high single digit organic top-line growth rest on their top 3 drugs (CVN) achieving their guided peak sales along with successful pipeline development. To note, UCB's gross margin of 70% is low given competition from generics but should recover as UCB becomes a pure play biotech company. We think net debt will continue to shrink in 2016 (2015: EUR921 million) on the back of a FCF generation of EUR400 million p.a. vs. EUR200 million of cash mobilized as annual dividends.
Officers
CEO & Dir
Frédéric Doliveux
CFO & EVP of Finance
Detlef Thielgen
EVP of Global Operations
William Robinson
Senior VP of US Operations
Board of Directors
Karel Boone
Frédéric Doliveux Countess de Bergendal Redistribution or reproduction is prohibited without written permission. Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
Key Growth Rates and Averages
Past Growth Rate (%)
Expanded Ratio Analysis
Ratio Analysis (Annual Avg.)
% LT Debt to Capitalization Return on Equity (%) Avg. Diluted Shares Outstg. (M) Figures based on current price.
For further clarification on the terms used in this report, please visit http://www.spcapitaliq.com/stockreportguide/
Company Financials Fiscal Year ending 31-Dec
Per share data (EUR)
Tangible Book Value Income Statement Analysis (Million EUR)
Revenues
Operating Profit (EBIT) Capex/Depreciation (%) Balance Sheet & Other Fin. Data (Million EUR)
Cash
Current Liabilities Shareholder Funds Capital Expenditure Return on Assets (%) Return on Equity (%) NA- Not Available. NM- Not Meaningful. E- Estimated. Source: S&P Capital IQ Equity Research; Company Reports Company financials data are based on figures as reported, except for EPS and EV/EBIT, which are S&P adjusted. DPS, BVPS and related ratios (e.g. dividend yield and ROE) are based on consensus estimates.
Redistribution or reproduction is prohibited without written permission. Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
Month-end Price Performance as of 31-Aug-16 The healthcare area comprises industries which sales of biologics (biotech drugs) will outgrow the supply a range of medical goods and services to overall pharmaceuticals market (currently hospitals along with other providers of dominated by chemical molecules) due to its healthcare, like pharmacies and other drug predominance in high-growth therapeutic areas retailers. These industries include the (oncology & immunology), by generating a larger manufacture and provision of Healthcare proportion of new drug launches. Besides, we Equipment & Services and the manufacture of expect more JVs and bolt-on acquisitions with an Pharmaceuticals, together with the Biotechnology increasing exposure to consumer health and and Life Sciences industries. Essentially, we see emerging markets rather than diversification into rising demand for healthcare in the U.S. and generics. However, we remain cautious on the Europe from favourable demographics (i.e. ageing knock-on impact of the ‘patent cliff' (major patent populations) and a growing demand for expiries) lingering through to 2018, accompanied healthcare provision in emerging markets driven by generic competition, prompting large-branded by economic growth. That said, we have a neutral pharma to accelerate pipeline developments. view on the overall European healthcare sector. -- Jit Hoong Chan For the Healthcare Equipment & Services sub-industry, it is made up of suppliers of medical technology equipment, patient aids and other healthcare supplies. The sector is characterized by product innovation with a focus on specific treatment areas but with a lower R&D cost as a percentage of sales (at typically mid-single digit) S&P Europe 350 Index vs. the pharmaceutical industry. Product areas S&P Europe 350 - Health Care Index include ostomy and continence care markets, the aesthetic treatment care segment (e.g. dental Past performance is not an indication of future per-
implants), eye care, cardiovascular surgery formance and should not be relied upon as such.
consumables, and the orthopaedic implants area. Nevertheless, we observed tepid sales expansion in this space due to rising price-based competition and limited scope to acquire inorganic growth - we expect these to persist into 2016. Also, we see trends of patients' preference for fewer doctor visits and the increased use of minimally invasive surgery helping to reduce treatment time. Whereas for Pharmaceuticals, Biotechnology, and Life Sciences sub-sectors, we believe global Peer Group: UCB SA - Peer Group
Peer Group
Stk. Mkt. Ret. on
1.8 12,958 (M)
NA- Not Available. NM- Not Meaningful. Source: S&P Capital IQ Equity Research.
Redistribution or reproduction is prohibited without written permission. Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
S&P Capital IQ Analyst Research Notes and other Company News
S&P GLOBAL MAINTAINS HOLD ON UCB - 1H 2016 RESULTS BEAT S&P CAPITAL IQ MAINTAINS SELL ON UCB – STRONG CVN FRANCHISES EXPECTATIONS, CORE EPS SURGED 34% (UCB BB, CURRENT PRICE: EUR70.94 RESULTS BUT FURTHER SHARE APPRECIATION HINGES ON CLINICAL DATA AS OF 27-JUL-2016, ***) IN Q1 16 (UCB BB, CURRENT PRICE: EUR72.20 AS OF 04-AUG-2015, **) We retain our 12-month target price at EUR80, implying 23.0x 2017 P/E. This is We raise our 12-month target price to EUR66 (EUR58.00) which is a FY 15 in line with its 10-year average of 23.3x but above peers at 20.7x. The premium, we believe is appropriate given UCB's strong sales growth (projected 2015- 33x PE ratio, against a 5-year average of 22.3x, justified by the future higher 2017 CAGR of 7.1% vs. 3.8% historically from 2010-2015), especially from revenues thanks to UCB ramp-up of its 3 main drugs and pipeline. We Cimzia, Vimpat, and Neupro (CVN) coupled with promising drug pipeline like nudge up our sales estimate for FY 15 by 1% and for FY 16 by 3% to account Romosozumab. In 1H 2016, UCB's results were ahead of expectations. Hence, for stronger growth of the CVN franchises. We keep our EPS estimates we raise our 2016 and 2017 EPS forecasts to EUR3.16 (EUR2.95) and EUR3.48 unchanged as UCB continues to spend high levels in R&D. H1 15 key features (EUR3.28) on higher margin assumption. At constant exchange rates (CER), were the continuing outperformance of the CVN trio, now representing 55% of revenue (EUR2.0 billion) rose 5% while core EPS (EUR1.72) surged 34%. This product sales at EUR942 mln, up 40% or 23% at constant exchange rate (CER). was due to cost efficiencies, which boosted profit margins. With the good Cymzia sales rose 31% CER to EUR 490 mln, thanks to broadened patient set of performance, UCB kept its 2016 outlook unchanged where it expects access in the US (sales up 25% CER). Vimpat sales rose 27% CER to EUR 323 revenue and core EPS to grow by 3-6% and 34-47%, respectively. However, mln while Neupro sales rose 18% CER to EUR129 mln. Even Keppra saw sales we see share price upside being capped by its premium valuation and low growth of 2% CER despite generics pressure. We are now waiting for the dividend yield ( 2%). /J. Chan phase III data for Romosozumab. A positive release is needed to justify the share price, we believe. /J. Jarmoszko, CFA S&P CAPITAL IQ MAINTAINS HOLD ON UCB - 1Q 2016 SALES ROSE 9%, GUIDANCE KEPT AS BRIGHT OUTLOOK INTACT (UCB BB, CURRENT PRICE: S&P CAPITAL IQ MAINTAINS SELL ON UCB – PHASE III FAILURE EUR72.31 AS OF 22-APR-2016, ***) TERMINATES HOPES OF EPRATUZUMAB AS A BLOCKBUSTER (UCB BB, Our 12-month target price is kept at EUR80, reflecting 27.1x 2016 P/E. This is above its 5-year average of 26.0x and its peers at 18.4x. In our opinion, the CURRENT PRICE: EUR69.50 AS OF 27-JUL-2015, **) premium is fair considering UCB's strong sales growth (projected 2015- We maintain our 12-month target price of EUR58 on UCB, which is a FY 15 2017 CAGR of 7.1% vs. 3.8% historically from 2010-2015), especially from 29x PE ratio vs. a 5-year average of 22.3x. This is explained by the future Cimzia, Vimpat, and Neupro (CVN) coupled with promising drug pipeline higher revenues thanks to UCB ramp-up of its 3 main drugs and pipeline. UCB like Romosozumab. With UCB's 1Q 2016 results meeting expectations, our announced that the phase III study of Epratuzumab, a potential treatment forecasts were left unchanged. At constant exchange rates (CER), top-line for systemic lupus erythematosus, affecting up to 100,000 people worldwide, (EUR991 million) rose 9%. On a product basis, the good showing was driven by was discontinued due to poor data. While a setback due to peak sales CVN (+22-28% CER). However, this was mitigated by Keppra which registered expectations at EUR1.2 bln by 2025, the drug was the perceived highest risk weak sales performance (-10% CER). All in, the outlook for 2016 remains intact candidate in the pipeline. UCB has two crucial upcoming drugs: Brivaricetam where UCB expects its revenue and core EPS to grow by 3-6% and 34-47%, (expected peak sales of $600 mln), a follow-up to Keppra in Epilepsy and respectively - we believe the targets are achievable given that the sales Romosozumab, a treatment for Osteoporosis (expected peak sales of $2 ramp-up of CVN remains strong. /J. Chan bln). We do not cut our near term revenue forecasts but cut our FY 15 EPS by 10% (to EUR1.80) to reflect the upcoming impairment charge. We remain unconvinced by the safety data of Romosozumab (data expected Q1 16), S&P CAPITAL IQ MAINTAINS HOLD ON UCB - 2015 RESULTS BEAT hence our cautious rating. /J. Jarmoszko, CFA EXPECTATIONS, UPBEAT OUTLOOK FOR 2016 (UCB BB, CURRENT PRICE: EUR71.36 AS OF 25-FEB-2016, ***) We revise up 12-month target price to EUR80 (EUR71), representing 27.1x 2016 P/E. This is in line with its 5-year mean of 26.4x but above peers at 18.1x. We S&P CAPITAL IQ MAINTAINS UCB AS SELL – GOOD Q1 15 GROWTH BUT believe the premium is warranted considering UCB's strong sales growth VALUATION LOOKING STRETCHED (UCB BB, CURRENT PRICE: EUR64.00 AS (projected 2015-2017 CAGR of 9.8% vs. 4.2% historically from 2010-2015), OF 30-APR-2015 16:29 BST, **) especially from Cimzia, Vimpat, and Neupro coupled with promising drug UCB's Q1 15 sales were ahead of Capital IQ consensus, with 19% reported pipeline like Romosozumab. We raise our 2016 EPS forecast to EUR2.95 growth boosted by an 8% currency tailwind from the weaker EUR. UCB's (EUR2.55) on higher sales assumptions. Also, UCB's 2015 results beat newer "blockbuster" drugs (known collectively as "CVN" and aimed at expectations. At constant exchange rates (CER), both revenue (EUR3.9 billion) diseases related to inflammatory Tumor Necrosis Factor, epilepsy and and core EPS (EUR2.17) grew by 9%. However, core EBITDA accelerated at a Parkinson's disease) contributed 49% of the company's Q1 15 sales and grew quicker pace (+18% CER) due to under-proportional opex growth. A final DPS by around 20% at constant exchange rates, we estimate. Keppra (UCB's older of EUR1.10 was proposed (+4%). For 2016, UCB is guiding revenue and core epilepsy drug which is now off-patent) formed 21% of Q1 15 sales and grew by EPS to grow by 3-6% and 34-47%, respectively. While this is encouraging, 4%. UCB's remaining drug portfolio saw a sales decline at constant exchange we see share price upside being capped by its premium valuation and low rates, we estimate, although the company has its four key drugs in Phase 3 dividend yield ( 2%). /J. Chan testing or has filed for approval for new therapeutic applications. We lower our 12-month target price to EUR58 (EUR66), representing a FY 15E P/E of 29x versus UCB's 3-year average historic of 22.4x, and keep our Sell (**) with the S&P CAPITAL IQ RAISES UCB TO HOLD FROM SELL - STRONG 9M 2015 shares 10% above our target. UCB's current FY 15E P/E of 32x looks stretched, SALES, UPWARD REVISION IN 2015 GUIDANCE (UCB BB, CURRENT PRICE: in our view. /C. Short EUR71.52 AS OF 27-OCT-2015, ***) We raise UCB to Hold with a 12-month target price of EUR71 (EUR66), implying 27.8x 2016 P/E. This is in line with peer at 27.5x but above its 5-year average of 22.4x. In our opinion, the premium is fair, justified by its strong sales growth, especially from Cimzia, Vimpat and Neupro (CVN) coupled with promising drug pipeline like Romosozumab (a treatment for bone loss disorders). Our forecasts were left unchanged as UCB's 9M 2015 sales were within expectations. Top-line (EUR2.8 billion) surged 19% on positive currency impact while at constant exchange rates (CER), revenue rose 12%. Demand for CVN (51% of total sales) continues to be robust with sales growth of 24% CER. We note that management revised up its 2015 guidance: (i) revenue to come in at EUR3.75 billion (EUR3.65-3.75 billion), (ii) core EBITDA of EUR800 million (EUR710-740 million), and (iii) core EPS in the range of EUR2.00-2.10 (EUR1.90- Redistribution or reproduction is prohibited without written permission. Stock Report 1-October-2016 Ticker: UCB BB
UCB SA
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Abbreviations Used in S&P Capital IQ Equity Research Reports
CAGR- Compound Annual Growth Rate; CAPEX- Capital Expenditures;
CY- Calendar Year; DCF- Discounted Cash Flow; DDM– Dividend Discount
Model; EBIT- Earnings Before Interest and Taxes; EBITDA - Before
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EV- Enterprise Value; FCF- Free Cash Flow; FFO- Funds From Operations;
FY- Fiscal Year; P/E- Price/Earnings; P/NAV- Price to Net Asset Value; PEG
Ratio- P/E-to-Growth Ratio; PV- Present Value; R&D- Research &
Development; ROCE- Return on Capital Employed; ROE- Return on Equity;
ROI- Return on Investment; ROIC- Return on Invested Capital; ROA-
Quantitative Stock Reports:
Return on Assets; SG&A- Sel ing, General & Administrative Expenses;
The rankings for Quantitative reports have a fixed distribution based on
SOTP- Sum-Of-The-Parts; WACC-Weighted Average Cost of Capital
relative weightings as described in the Glossary section of the report.
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S&P Capital IQ Qualitative Risk Assessment. Reflects an S&P Capital IQ
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firm's ability to continue as an ongoing concern. The S&P Capital IQ Standard & Poor's Malaysia Sdn Bhd ("S&P Malaysia"). All of the views
Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS expressed in STARS Stock Reports accurately reflect the research
universe, and should be reflective of risk factors related to a company's analyst's personal views regarding any and all of the subject securities or
operations, as opposed to risk and volatility measures associated with issuers. Analysts general y update stock reports at least four times each
share prices. For an ETF this reflects on a capitalization-weighted basis, year. No part of analyst compensation and SPIAS' or S&P Malaysia's
the average qualitative risk assessment assigned to holdings of the fund. compensation was, is, or wil be, directly or indirectly, related to the
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Stock Report 1-October-2016 Ticker: UCB BB
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