Vectura Share Discussion Threads

[polaris] 18/3/2021 12:20

Back to 116 p - £691 M

Cash return £115 M - 19.3 p
Cash on books post return £80 M - 13.4 p (ignoring the other major milestone payments expected in next 12 months)

That leaves the actual business valued at 83 p or so (just below £500 M).

2020 sales £190.6 M
Gross profit margin 53.2 %
Adjusted EBITDA £61.5 M

Given the average P/S ratio in pharma is approaching 6 and P/Es are in the 15+ area, VEC is under-valued to peers, even in the UK. It is ludicrously under-valued wrt US peers.

Even a 3x sales or an adjusted P/E of 10, you'd expect the current business to be in the £600-620 M region, around 20 p higher than current share price

The base business (Flutiform and major long-term royalty earners) is very solid - £160 M or so in revenues and £40+ M in adjusted EBITDA. Seems the market is completely ignoring any value for the other parts of the business.

VEC is increasingly packaged as a clean bolt-on to another business. Let's see if anyone takes a shot while the cash remains on the books. By this i mean a generics business or major CDMO player.

[boadicea] 18/3/2021 11:26

I find the lack of ideas of what to do with the cash pile worrying, but not as worrying as the possibility of spending it unwisely. I would much prefer to see the company taken over by an entity with greater ambition and emergent products requiring the cash for expansion. Better still if it's a company with therapies capable of inhalation development where VEC's existing expertise could be applied. An ambitious outfit like OXB, perhaps, springs to mind.

I certainly feel that a return of capital, however done, is unwise until the company has gained a market value which enables it to be done without causing to exit the '250'.

[a1ord53] 18/3/2021 10:52

According Vec presentation they have now 27 molecules in CDMO development and they very optimistic to raise this number to 300 and beyond very fast, which imo give them huge diversification and potential to hit one or two blockbusters !!!
Guys, do you understand , that this molecules each can worth hundreds of millions $,€,£.
Vectura has royalties contracts plus milestones and development costs for each molecule!
Elipta royalties for 5-8 years ?
End of April after petition expiry of GSK , Advair final approval share price straight up sky rocket !
Pacira 32m$ soon!

[polaris] 18/3/2021 10:39

My takeaway from the results presentation is that VEC have positioned themselves into the new markets and expanded capability/capacity to match projected needs. VEC will continue to 'right-size' production and research capacity in 2021, a.k.a. wind down the CH site. That means most work will be in the UK, with production plant capacity available in Lyon.

Ellipta development will progress in 2021 with Hikma. Remains to be seen what the timeline will be for trials and submission. I'd refer to Hikma presentations for updates, they are the drivers.

Nothing said about generic Advair - that is also in the hands of Hikma and the FDA. VEC will just be a beneficiary of royalties once the product is finally relaunched. Not a lot to say but declining in potential additive value, IMO.

VEC appear to have built everything they need - capacity/capability and team. Now it is just a question of whether 'they will come' or not for CDMO.

The base business will provide a safety-net to the emerging CDMO business, but progress is relatively slow. Tripling the CDMO revenues in 2021 will still be less than 10 % of overall revenue generation. There may be M&A in this arena if a potential target meets the two criteria expressed by WD.

I'll stick with my low 130s valuation pre-cash return, assuming generic Advair is launched in H1 2021.

[polaris] 18/3/2021 10:26

Well that was an interesting question - the SKP legacy Ellipta IP has a valid license for a few more years apparently (no specific year mentioned). Fry/Downie were cautious when stating whether GSK would honour that. This probably relates to the UK litigation in 2019-2020. Must admit that i thought the SKP Ellipta IP had expired, maybe not. That's worth a capped £9 M p.a. Need to look at H1 results for that.

[polaris] 18/3/2021 09:57

Will Downie is a good, clear speaker. The scotsman in him always makes any talk about money seem a bit 'what you looking at, laddie?' (clear but with undertones of ask a question and i'll give you a tup!)

[polaris] 18/3/2021 09:56

It's a one-off return of cash to shareholders. You cannot talk about yield. It is not a regular dividend. Regular dividend yield is 0 %.

[vecturaking] 18/3/2021 09:53

Dividends yield above 10%
Depends if the share price is below £2
Or under £2

[elsol] 18/3/2021 09:50

Presumably if the special dividend goes through in 2021 the divi yield will be above 10% isn't it??

[dlem] 18/3/2021 09:48

Just broken even after many years of holding, before special divs with £33k to be paid to my ISA and SIPP shortly. I would prefer Polaris to be appointed CEO, but with the lack of ambition of the current board, they are low in the water and I expect a takeover to be my exit.

[a1ord53] 18/3/2021 09:23

Presentation and q&a with analysts at 9:30 am :
www.vectura.com/investors/presentations-and-webcasts

[vecturaking] 18/3/2021 09:11

Gentlemen

The Rerating will come Swiftly

We will be at 130 pence very soon

150pence Soon After. 200pence by the Ebd of this year


Now that the facts are Out.

[polaris] 18/3/2021 08:55

Read the last sentence, the important phrase is there.

[rogerrail] 18/3/2021 08:53

After the string of negatives you have just listed, why are you surprised at the muted response?

[polaris] 18/3/2021 08:25

Volvo - you also need to look at the negatives cf. last year. Royalties from GSK for non-litigation side will stop, legacy products winding down, no more Exparel annual royalties, failure of various developments to get through stage II and III trials. It is not all rosy.

VEC have flagged lower revenues for Flutiform this year. This is the engine room for revenues and cost covering. CDMO is still only a weak contributor to revenues. Advair generic is delayed and so no-one really knows what it will finally be worth to VEC/Hikma (note other generic submissions to FDA).

It's all about weighing pros and cons.

Must say i am a little surprised by the muted response so far this morning. On balance, i quite like these figures.

[volvo] 18/3/2021 08:18

Last point today re valuation.....before VEC won the appeal with GSK, which could easily have gone the other way, and before Hikma had got Advair approved with mid teen royalties to VEC for years to come, the share price on average 115p....simply must include these events, minimum 25p, target 140p in the coming weeks.

[volvo] 18/3/2021 08:13

jeevs GSK appeals to the US Supreme Court....chances are nil repeat nil

[polaris] 18/3/2021 08:13

Sorry mate but that is BS. GSK has lost all of its appeals and will be laughed out of the SC. However, VEC have to wait the prescribed period. If you are going to look for holes in the VEC results, at least talk some sense!

[jeevsje] 18/3/2021 08:07

Risk is that GSK appeals and this will gap down by 15% to 20%.

[justiceforthemany] 18/3/2021 07:59

So a 20p special dividend coming but could lead to FTSE 250 ejection - no final decision yet - amount should be reduced IMO and add buy back.

[polaris] 18/3/2021 07:56

Note 9 shows there is still a fair bit of goodwill carried on the books. However, the recognition should be much more predictable going forward...but read the sensitivity comments on the CH CGU.

Same for the amortisation of intangible assets, note 10. Seems things are now much more predictable.

New risk added to the register re CDMO but that is only prudent.

All done.

[polaris] 18/3/2021 07:49

Don't split hairs on the GSK side. VEC must now wait until it is 100 % sure that GSK do not petition before paying proceeds to shareholders. That is only prudent. I assume that the period was extended due to Covid situation, as i thought the period had lapsed for SC petition. The money is now with VEC!!

Litigation award

As announced on 19 November 2020, the United States Court of Appeals for the Federal Circuit denied GlaxoSmithKline's (GSK's) motions for judgment as a matter of law, a new trial on infringement and for a new trial on damages in litigation concerning Vectura's US patent 8303991, which is infringed by GSK's US sales of three Ellipta(R) products. On 28 December 2020 the Court issued a mandate obligating GSK to pay Vectura the damages for patent infringement, associated interest and ongoing royalties. An amount of GBP121.1m relating to damages and associated interest thereon has been recognised as exceptional income in 2020. Payments relating to royalties earned in the fourth quarter 2020 have been assessed as meeting the IFRS 15 requirements for revenue recognition, as will any future similar payments. This revenue has been earned pursuant the decision of the United States District Court for the District of Delaware and was upheld by the US Court of Appeals, which, amongst other damages, awarded Vectura ongoing royalties of 3% on US sales of three infringing GSK Ellipta(R) products.

Legal fees of GBP0.9m (2019: GBP3.0m) relate to the costs associated with these legal proceedings.

And:

GSK litigation - US

As announced on 19 November 2020, the United States Court of Appeals for the Federal Circuit denied GlaxoSmithKline's (GSK) motions for judgement as a matter of law, a new trial on infringement and for a new trial on damages in litigation concerning Vectura's US patent 8303991, which covers three of GSK's Ellipta(R) products sold in the US.

GSK did not subsequently petition the US Court of Appeals for a re-hearing and paid GBP121.1m to Vectura in January 2021. This amount reflects damages, associated interest and royalties accrued up to the period ending Q3 2020.

Within the 2020 financial results, Royalty and other marketed revenues include a total of GBP6.5m royalties recognised for Q4 2020 in respect of this award and the cash settlement for these royalties was received in February 2021. Additional royalties are payable for Q1 and Q2 2021, and amounts will be received in the quarter following reported sales.

Amounts received are subject to taxation in the UK. Vectura expects to pay tax at rate of approximately 10% on these proceeds.

GSK may petition the US Supreme Court to review the decision. Such a petition would not impact the timing of GSK making payments on the award. The Board consider that the likelihood of the US Supreme Court overturning the previous decisions is remote, based on the average acceptance rate of cases petitioned to US Supreme Court and the merits of the case.

[polaris] 18/3/2021 07:45

The proposed cash return is £115 M as that is the maximum allowed looking at the retained earnings line - this relates to our discussion last year on whether VEC was allowed to pay dividends. In the end, an internal transfer allowed the retained earnings to be released (the merger reserve release).

Cash generated from on-going activities was well ahead in 2020 cf 2019, at £31.5 M. A lot of that was used to return value to shareholders in the buy-backs and to pay off various liabilities. That meant cash in hand only went from £74.1 to £78.6 M. There will still be a good £80 M+ on balance books after the proposed cash return to shareholders, even before any further one-off royalties such as that from Pacira, likely end 2021 or early 2022.

The GSK money was indeed added to trade and other receivables post judgement. That allowed the one-off to be included fully in 2020 to offset the amortisation and write-downs that we usually see from VEC/SKP merger.

Note 5 is amusing this year for how to get back to the adjusted EBITDA...having to refer to a whole load more notes! Not there yet...