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Sobi – no bargain at this level

The Swedish biotech company Swedish Orphan Biovitrum (Sobi) works within specialty pharma. The company was formed in 2001 as Biovitrum, a spinoff from Pharmacia, and registered on the stock market in 2006. In 2009 Biovitrum acquired the company Swedish Orphan for 3.9 billion Swedish crowns, a price many analysts considered too high. The new company was renamed Swedish Orphan Biovitrum – Sobi. Sobi is unusual in the sense that they work within several different areas of the pharma industry.

The company has two approved medicines on the market and a number of potential drug candidates in development.They also produce medicines for other companies. To produce pharmaceuticals under contract for big pharma provides a steady cash flow to balance risky investments in R&D. This lowers the risk that Sobi will need to ask its shareholders for more money. The flipside to this strategy is a lack of focus. This applies both in the sense that management may experience difficulties in focusing on all areas of operations and also that the stock market generally prefers companies with a clearer strategy and puts a premium on conglomerates.

Orphan drugs are drugs that target rare diseases that pharma companies in general don’t develop medicines against. To provide incentives for research, regulatory agencies have given “orphan-status” to medicines with rare indications. This includes longer and more extensive protection for patents. Orphan drugs have become a hot area within the pharma industry. Clearly Sobi wants to stress that one works within the orphan field with the new name of the company. Swedish Orphan has a pipeline of several projects. Most important are two approved drugs; Orphadin (targeting hereditary tyrosinemia, a rare form of inability to break down the amino acid tyrosine) and Kineret (targeting rheumatoid arthritis where other drugs have not worked). The total sales of these two substances amount to approximately 800 million sek, which is close to half of Sobi’s total sales.


In addition to Kineret and Orphadin, Sobi produces medicines for other companies. The basis of this was the development and production of ReFacto, a coagulation factor against haemophilia. ReFacto was developed some years ago and has been sold by Sobi for Pfizer for several years. Sales amount to approximately 500 msek. Beside the drugs against haemophilia, Sobi also sells a number (close to 50) of other pharmaceuticals for other companies. In total, sales amount to approximately 500 msek for these. Sobi also has a number of drug candidates in the pipeline that it plans to introduce onto the market. One of these, against haemophilia (developed with Biogen), may be approved for sale in late 2012. Another substance in phase III targets growth
restriction in preterm infants and may be approved in 2013.

Sobi’s total sales amounted to 1.9 billion sek during 2011, with an operating profit of 53 msek and 282 msek before amortization. If one looks at the core business (and excludes known temporary payments), one can expect similar sales figures and rather stable margins during 2012. After a rough 2011 on the stock market, Sobi has outperformed the Stockholm stock exchange lately and the share price has more or less doubled in value since November 2011. Over the same period the Stockholm stock exchange in general climbed around 12 percent. At today’s shareprice of 23 sek, Sobi’s valuation is six billion Swedish crowns. We consider that to be a fair valuation. An investor in Sobi gets both a traditional, profitable, pharma business as well as several interesting late stage clinical projects. We find that mix attractive but at this valuation Sobi is no bargain and we recommend “hold”, but keep an eye on Sobi. Should stock fall to the level of 17-18 sek per share, i.e. a market cap of 5 billion sek, it is worth buying if nothing substantial happens. Approval of a substance against Haemophilia during the second half of 2012 is one of several potential share triggers.