Bioverativ: Spin-Off Targets Hemophilia

04/14/2017 2:50 am EST


George Putnam

Editor, The Turnaround Letter

Bioverativ (BIVV), spun off from biotech giant Biogen (BIIB) in February, focuses on treating hemophilia, a relatively rare genetic disorder that prevents blood from clotting, notes George Putnam, editor of The Turnaround Letter.

The company’s two products, Eloctate and Alprolix, treat different types of hemophilia in the $10 billion global market that is growing at about 7% annually.

Hemophilia affects 185,000 people worldwide. Until recently, medication was primarily taken “on-demand,” when treatment was required to stop post-injury bleeding.

However, Bioverativ’s two products represent a new generation of therapy that is longer-lasting and can be taken regularly to prevent bleeding. In addition to potential life-saving benefits, it improves quality of life by reducing internal bleeding that can damage joints and soft tissue.

This feature could greatly expand the market.  The company’s products were launched in 2014 and 2015, and have rapidly gained strong market shares, representing a new quality standard.

While not strictly speaking a turnaround, Bioverativ looks quite cheap relative to its potential. This is often true of spinoffs once they are freed from the corporate shackles of a larger parent.

A newly incentivized management team can focus on a promising product or technology that was formerly obscured from investor view by the parent’s other more prominent products.

Bioverativ has many of the key traits of a successful spin-of — healthy revenue, profit margins and cash flow, a solid capital base and an impressive leadership team.

In addition, Bioverativ has one positive attribute that is unusual for a spin-off: the highly-regarded, long-term focused activist firm ValueAct has recently taken a 7.5% position in the company. ValueAct will make sure that management stays focused on enhancing shareholder value.

Bioverativ trades at a considerable discount to its peers and to what we believe is a reasonable price given its attractive positioning.  With a revenue growth rate of 15% or more, new products, new business development deals and a better tax rate, earnings could be 50% higher in three years. 

Another source of upside: following its two-year post-spin waiting period (to preserve tax benefits), Bioverativ could be an appealing acquisition target for larger pharmaceutical companies looking for quality franchises.

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