U.S. Markets closed

Edited Transcript of BTG.L earnings conference call or presentation 13-Nov-18 9:30am GMT

Half Year 2019 BTG PLC Earnings Presentation

London Jan 4, 2019 (Thomson StreetEvents) -- Edited Transcript of BTG PLC earnings conference call or presentation Tuesday, November 13, 2018 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Duncan Kennedy

BTG plc - CFO & Director

* Louise Makin

BTG plc - CEO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Andy Smith

Edison Investment Research Limited - Analyst

* James Daniel Gordon

JP Morgan Chase & Co, Research Division - Senior Analyst

* Nicholas Keher

RBC Capital Markets, LLC, Research Division - Analyst

* Paul Cuddon

Numis Securities Limited, Research Division - Director for Healthcare Equity Research

* Richard J. Parkes

Deutsche Bank AG, Research Division - Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [1]

--------------------------------------------------------------------------------

So good morning, everybody. Welcome to our interim results for the 2018/19. I'm here with Duncan Kennedy. He's presenting his second set of results and the first in U.S. dollars, just to remind you. As usual, we are making some forward-looking statements during the presentation. So please note the disclaimer on this slide.

It's been a pretty transformational 6 months for BTG, delivered good results, had a fabulous start to H2. We've upgraded our pharma guidance for the second time in a month after a very strong October due to hurricanes in Florida. And really importantly, the Product business that's been growing around double digits is showing 37% operating profit growth. That's what we've been talking about when we've been talking about operating leverage and building this business. So I think that you can see now exactly what we've been talking about in terms of building a strong Product sales business.

We've also clarified the uncertainties that we openly highlighted 6 months ago. Varithena is a growth driver in our vascular portfolio. We're very comfortable with our ability to maintain leadership in CroFab. We've got the final piece of the puzzle now, which is the price of the competitor. And we're very comfortable that we will maintain our leadership position.

With ZYTIGA, we have clarity on the EU, where data exclusivity continues through September 2022. And in the U.S., we basically got an injunction to stop generics launching. Until that injunction is taken away, we'll be getting cash into the business. And we've got fantastic momentum across the business, not only in our own pipeline but in a pipeline of potential acquisitions. And as we look forward to 2019, we've got some significant near-term news flow with transformational TheraSphere data and multiple product launches.

I'm going to hand over to Duncan now to take you through the financial results and then come back and give you some more detail later.

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [2]

--------------------------------------------------------------------------------

Thanks, Louise. Morning, everyone. As Louise said, we are really happy with half 1 results. Before I get into the detail, let me just remind you of a couple of things. The first, Louise has already mentioned, which is that we're now reporting in U.S. dollars. So the comparative period has been restated into U.S. dollars.

The second is that as we trailed in May in our full year results, we've updated our segmental reporting. So we're now showing our Product business as a segment and the Licensing streams as a separate segment. And third is that I'll be talking to the adjusted numbers this morning. There's a full reconciliation between IFRS and adjusted numbers at the back of the statement.

So let me hit the highlights on this slide and then I'll provide some more color as we go through. So first up, 10% Product sales growth with good contributions from across the portfolio. Licensing revenues continued to benefit from J&J sales of ZYTIGA and show 18% growth in constant currency against prior periods, resulting in 12% overall revenue growth.

As Louise has mentioned, and you'll see it again later on the Product sales P&L, the most important thing for us at the moment is that really demonstrating that operating leverage. And you can see that just over $50 million of additional revenue has fallen pretty much straight through to the adjusted profit line on this slide.

Adjusted EPS is showing 32% growth. And just a reminder on the cash flow metric, we did pay the prior litigation settlement of $73 million in the period. And that's deducted from that $37 million of free cash flow. Underlying free cash flow was $110 million in the half.

So looking at the Product sales drivers. IO and Vascular grew at 14% half-on-half. IO finished at 12% against prior year, which was held back a little bit by a slightly softer September. We're pleased to say that October was strong. And we remain very confident in the full year outlook. With the addition of Varithena to the Vascular portfolio, this business again generated an impressive 20% growth over prior year.

Within this, EKOS has continued to show good growth. And we're seeing the first impact from the crossing devices that we acquired in October last year and were launched earlier this year. Varithena has ticks against all of the key criteria that we're tracking. And Louise will cover that in more detail. And finally, with the addition of the Novate Sentry devices, we're expecting to see continued strong momentum into the second half across the IM portfolio.

Pharma achieved a really pleasing 7% growth against a tough set of comparatives, if you remember the guidance we gave in May. Details in the appendix, but I will just pull out that VORAXAZE and DigiFab both showed great momentum with 29% and 14% constant currency growth, respectively. CroFab came in at 4% higher than last year, which was a high comparative period. And we are really pleased that, having seen strong demands for the product in October mainly due to the hurricanes that hit Florida during the month, we're today raising our full year guidance for the pharma business. So we're now expecting a low single-digit growth for the full year, which compares to previous guidance of flat to single-digit decline.

So looking at how that revenue growth flows through the Product business. I talked about the 10% Product sales growth, we've continued to maintain our track record of high gross margins, so 79% in half 1. And in line with our guidance back in May, we have delivered a half year-on-year reduction in OpEx. And that's without compromising the ability to hit top line revenue growth and hit our R&D milestones.

So overall, adjusted operating profit in the Product sales business has grown by a pretty impressive 37% over the prior year. And as I mentioned before, if you look at the gross profit increase half-on-half, it's about $22 million. All of that has flown through -- flowed through, not flown through, to the adjusted operating profit line, showing really good operating leverage in the period and a 5 percentage point increase in that adjusted operating margin.

For the full year, we still expect good operating margin growth. I will remind you, we are slightly half 1-weighted in terms of operating margin, just the seasonality of CroFab. But we certainly expect and show good operating margin growth against the 12% we showed you for the full year for financial year '18.

From a cash flow perspective, we're still in a very strong position. Free cash flow prior to the settlement of the legal dispute was $110 million in the first half. This is 15% above prior year, slightly lower than the profit growth just due to mainly the timing of royalty receipts, so the ins and outs of the payments from J&J and our revenue-sharing obligations.

But overall, we've been able to generate good strong cash flow in the first half. And we've been able to deploy around $40 million of that on 2 transactions. The first is one we've spoken about previously, which is the acquisition of Novate. It was a $20 million upfront payment, most of which went to settle debt that was in that business. And to update you on progress there, we've now made our first commercial sale in the month of October and paid a $10 million additional launch milestone. The remaining $120 million of milestones for Novate are all sales-based over the next 3 years to 4 years.

The second transaction is a strategic investment that we made in a U.S. commercial company called Veran Medical Technologies. They're a fast-growing company providing electromagnetic navigation for -- in the lung. Louise will explain more about how this forms part of the next focus for our Interventional Oncology business. The investment itself is in the form of a convertible loan note and provides us with an option which is exercisable from January 2020 on confidential pre-agreed terms.

Overall, we remain in a very strong cash position. We've got funds on the balance sheet, $285 million at period-end. We're a cash-generative business. And we do still have access to the credit facility that we've previously spoken about.

So to wrap up, I'll just focus on our outlook for the rest of this financial year. As you will have seen in the close period announcement in early October, adding Varithena to the Vascular portfolio has enabled us to increase the combined Interventional Oncology and Vascular guidance for the year to 15% to 17% growth. As I mentioned previously, a great first half performance and a particularly high month of CroFab demand in October have also allowed us to increase pharma guidance for the full year. We're now expecting this business to show growth year-on-year, a really fantastic performance against very high comparatives last year.

Gross margin guidance remains unchanged, so high 70s for the Product business and 50% on royalties. Operating costs are expected to come in flat to low single-digit decline, which is a tightening of the previous guidance range. And the effective tax rate is now expected to come in at 3 percentage points better than the original guidance in a 15% to 18% range, really due to the increased levels of royalties compared to our first expectations for this financial year.

So to summarize, great set of first half results, delivering on all of the financial objectives that we set out in May. And we're looking forward with confidence to the second half of the year. I'll pass it back to Louise to give you an update on the operational performance.

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Thanks, Duncan. So a lot has changed in BTG in the last 6 months. So I'm going to start by describing the key characteristics of the business that we now have.

We have a compelling vision and a clear path to get there. We've got a business that we create value from today, a solid foundation of category leadership positions, a scalable growth platform and a global business. But at the same time, we're investing for tomorrow to make sure that we keep that sustainable growth for the long term.

And as we look at how we invest and what we invest in, this is essentially the way we generate value in BTG. So through investments in innovation, commercial and geographic expansion, clinical data, M&A in line with our strategy, we deliver around double-digit Product sales growth, increasing operating leverage, which we can then feed back in and go around the circle again.

We spent 10 years building a company that's able to have the core characteristic of knowing what portfolio of investments to make to maximize the value of a particular product. Every company has to have its core competence. And one of our core competencies is in the blue boxes here, that ability to take good products in attractive markets and really maximize their potential. Our portfolio is very simple. We have multiproduct portfolios, 3 products -- life-saving products in Pharmaceuticals, and in IM, an Oncology portfolio and a Vascular portfolio.

And we have a very valuable Interventional Medicine business. The principles on which we've built this business have remained consistent through the time. It's built on really close customer intimacy. That means, we stand by the side of our customers. We work with them to identify what their needs are and how we can overcome that. And most importantly, we work with them on the opportunities. They see the new technologies coming. They have an idea of what's going to be the future in Interventional Medicine. And by being very close to them, we are able to work with -- bringing new products to market.

By doing that, we've been able to build a portfolio of highly differentiated products. Our brand is very strong with our customers as each time we bring a product, it's highly differentiated and really helps them treat more patients. We invest in clinical data, not just pharma-style, randomized trials. But we know how to do real-world data, open-label studies, IIS funding, research grants. And again, we're very good at knowing what is the combination of that data generation that we need to get a particular outcome. Whether it's expanding the dataset or supporting reimbursement or exploring new indications, that flexibility to be able to go from a pharma-style trial to an IIS or a medical device is again unique and built into our Interventional Medicine business.

We're committed to innovation, bringing through new improved products, using digital support, software as an integrated part of those products and value-added services. And at the very heart of our business is we're standing by the customers to enable them to treat more patients. So our growth in Interventional Medicine is mainly volume growth. And each time we grow, we're treating more patients with Interventional Medicine therapies.

Our Oncology portfolio is truly unique. It's unique in 2 ways. We are the only company to have the interventional alternatives to conventional radio, to conventional chemo and invasive surgery. And we're also the only company to take a therapy approach, to really work with our physicians and give them the high-quality data that they need to work in the field of oncology.

You can see from the slide, we've made great progress. I'll pull out a couple of things there. We're really pleased to have finished recruitment of EPOCH, our study in the second line treatment of mCRC. We get data next year. And that could open up a new market of 60,000 new patients in the U.S. and EU5. That's multiple times the number of patients that we treat today.

We've got new sizes of LUMI introduced in 3 geographies. And we've got our little ICEfx Cryoablation system, highly intuitive, great user interface, launched around the world and getting great feedback. And in our pipeline in ablation, we've got flexible needles. And now we're announcing for the first time that by the end of 2019, we'll have our own microwave ablation system, developed by the same people that developed the cryoablation systems and will be highly differentiated and allow us to bring to our customers the final modality in ablation.

I said that 2019, we'd get EPOCH data. But we get STOP-HCC data as well. So 2019 is a big year for TheraSphere data. You can see here the endpoints. And we also get TARGET data as well. And TARGET is a study that really underpins one of the core differentiators of TheraSphere. TheraSphere is able to have a versatile dose, a high dose and is able to be optimized in precision dosing. This is very different to its only competitive product.

So that ability to deliver the optimal dose is expanding TheraSphere use. We showed you in previous presentations the gory pictures of how you can take an invasive segmentectomy on the bottom right into being a simple TheraSphere procedure and get the same results. Pioneered by Dr. Riad Salem at Northwestern, that's getting traction. That's opening up another market of 18,000 Americans diagnosed annually with early-stage liver cancer. And excitingly for us, it's potentially curative. We're also using the characteristics of TheraSphere, which are minimally embolic, precision and versatile dosing, to be exploring new indications not only in liver but in other tissues. And that precision dosing capability is allowing us to do that.

Moving on to cryo. We announced in our AGM statement the results from our MOTION study in bone metastases and our SOLSTICE study in lung metastases. These are classic medical device trials and have provided us with great data to be able to take out to the community. We're expecting publications on this. Lung metastases is on label, so our salespeople will be able to promote to that. And the bone metastases gives us the opportunity to have conversations with the regulators.

So how are we going to accelerate even further the future growth in Interventional Oncology? Well, the next 2 areas are things that we're very excited about. I've talked to you over the years about the possibility of combining locoregional therapy with immuno-oncology drugs. The thesis is that if you pretreat with an interventional technique, you will wake up the immune system and increase the number of patients that might respond to immuno-oncology.

This started as a very small thing a couple of years ago. And momentum is building. You can see here, this is our set of trials. We've also been pulled into a number of trials that the big pharma companies have been doing. And we're expecting to see some results, some early results in this in 2019. This could be a really, really exciting area as interventional techniques get pulled into combination therapy with immuno-oncology agents.

The next area Duncan has already referred to. TheraSphere beads take us into liver. Cryoablation take us into lung -- sorry, cryoablation takes into kidney. And now we're looking at how do we get the same position in lung cancer as we have in those other organs? It goes without saying, lung cancer is a massive unmet need, leading cause of death from cancer, 235,000 patients diagnosed annually in the U.S. And the shift towards the detection of early-stage smaller lung nodules and the improvements in imaging and endoscopy are really opening up this market for minimally invasive therapies.

So our goal is to bring together an integrated set of opportunities and really take a leading position in this market. So we have a multipronged approach. We have an internal approach, where we've clearly got that foundation data from ECLIPSE and SOLSTICE 5-year follow-up that will be coming through. We're extending our cryoablation system so that we develop a flexible cryoablation catheter that can go into the lung. And as we develop our microwave ablation system, we'll be able to do the same with a microwave catheter as well.

And in parallel, we're building a set of external collaborations. Duncan talked to you about our investment in Veran. This is a fast-growing commercial stage company. And we're very pleased to be associated with that and have the potential option to acquire that in future years. We're also working with Edinburgh University as to how we can combine characterization and treatment of lung nodules in a single flexible catheter, so you see it and treat it. And we're also in discussion with a robotics company, Auris Health, how do we develop the flexible cryoablation catheter in combination with their robotic bronchoscopy.

So move on to Vascular now. A year ago, this had one product in it. It had EKOS in it. I'm really pleased to show that we've now got a multiproduct Vascular portfolio. I'm going to talk more about Varithena and Sentry. So I'll just pull out some news on EKOS. So we've got our new control unit, which is optimized for PE, launched in the EU. And we've got recruitment progressing in the KNOCOUT registry study, again a real-world data study to continue the growth of EKOS as the leading PE treatment. And as Duncan said, the crossing devices are starting to make an impact as we get them out to our customers.

Having a portfolio allows us to have an integrated strategy. Going back to that core competence that I talked about earlier, we are able to identify what are the particular near-term focus of investments that we need to make in each of these products. Together, they give us a powerful approach to expanding the dataset. And crucially, they leverage our U.S. sales and marketing expenditure as they're all sold through that integrated Vascular business unit.

So I'll talk a little bit about Sentry. This comes from our acquisition of Novate. And this is a highly differentiated inferior vena cava filter. And you use these to reduce the transient risk of PE. There's been a number on the market. And there's been a number of problems with those, such that there's been some FDA mandates about needing to retrieve them. So that allowed the market to go down from 250,000 procedures to 100,000.

Sentry has been specifically designed to address the problems with those existing filters. I don't know if you can see on the photograph, but on the top, that's what the filter looks like as it goes into the body. And it's -- the little arms in the middle are held together by a bioresorbable filter. After 60 days -- not a filter, sorry, filament. After 60 days, that dissolves. And you're left with just a straight pass-through, which gets integrated into the vessel wall. No need for retrieval.

So we guided to tens of millions of dollars from the existing market, taking a share of that 100,000 annual U.S. procedures. Of course, the upside potential here is if this particular differentiated filter can actually start the market growing again back to those 250,000 patients that are not getting the filters that they need.

We've got great data at the end of last week presented in VIVA in Las Vegas. So this was the 2-year data, highly reinforcing of the 1-year data, shows that it continues to perform, no side effects, no device-related symptomatic PEs and really giving us the foundation for that potential step-change. We have got it launched. We've got great feedback. We are going step-by-step, so we don't expect that it's going to make much of a difference this year. But the feedback that we've had from our physician customers has been really, really exciting.

Going to move to Varithena now. And I think some of you will understand if I say it gives me great pleasure to present these next 2 slides. So we relaunched Varithena in January 2018 with its own dedicated CPT codes at a level that we thought was competitive, that it was going to be able to compete in the world of vein clinics and established technologies. We set predefined stage gates.

We were very prepared to stop this product if it didn't meet those stage gates. And we wanted to make sure that the high-volume clinics, the ones that we could build a powerful business on, that they reengage with the product. They did. They got great clinical results. They got paid. They reordered. They treated again, got great results, got paid again. And that's been round a few times, enough to make us think that we've got a product now that meets the need.

And crucially, we wanted to make sure that the reimbursement environment stayed stable. We've got good coverage for this product. And we wanted to make sure that as those policies were renewed, that the coverage was maintained. We got comfortable with that at the end of September. And we confirmed it as part of our Vascular portfolio.

We've guided to it being profitable next year. And that really equates to sales of around $30 million in the year. But we think its peak sales potential could be high tens of millions of dollars from the existing market. And this is a sticky market. That means that we can get to that level of sales without significant investment in SG&A.

Just looking behind the scenes a little bit. This is the number of customers. I think we can all agree there's an inflection point there at the beginning of January 2018. The numbers have gone from 80 to 350. And we've been targeting the high-volume vein clinics. And there's a 90% reordering rate. That's a very, very high reordering rate, very, very aligned with our view that this is a sticky market. On the right is the blobs. You've seen these for many years. And there's 420,000 patients treated in the U.S. with 1.4 million varicose vein procedures. So we've sized our high tens of millions of dollars of peak sales of taking a share of those 1.4 million procedures.

We go back to what the value proposition of Varithena is. It's a patient-friendly treatment. Already seeing the first signs of vein clinic owners taking in their own hands to market this to their own potential patients, a live procedure on daytime television in the U.S. The upside here is still there, that it could be Varithena that actually allows those patients that don't go forward for treatment because they don't like the treatment options, to do -- to go forward and have a Varithena treatment. Not guided to that, we've guided to sales in the existing market. But that upside potential is still there.

Going to change gear now. Snakebites are serious. You die. If you're lucky, you lose a limb if they're not treated properly. When we took this business over and sold our first product on the 1st of October 2010, we had a mantra. And our mantra was that every single snakebite was going to be treated optimally with CroFab. It's great business. It's a bounded market, so it's great business sense. But more than that, it was [established] that this market needed somebody to help understand what the optimal treatment was for a snakebite.

So I've talked over the years about things like treatment algorithm, copperhead studies, 911 apps, medical education initiatives. All of that has been focused on making sure that every single snakebite is treated optimally with CroFab. And every snakebite is different. Every snakebite is different. And the community experience of how you get initial control, how you make sure that you don't have the patient on a pathway to death or, as I say, the lucky ones, limb loss, that's something that we have worked with the community over all those years. And physicians do know how to use CroFab. They do know how to treat every bite optimally with CroFab.

So as we enter this period, where we've got a competitor, I said at the beginning that we're very comfortable that we're going to maintain market leadership. And I base that on 3 things. I base it on the fact that we've been preparing for many years with a set of initiatives that are designed to make sure that CroFab continues to have leading features and benefits. You've seen wave one that came out with mercury, shelf life, replacement policy. There's multiple waves lined up behind that.

The second reason is in terms of the positioning of the different products. So the positioning of the competitor is around having superiority in something called recurrent coagulopathy. That's basically late-stage bleeding. When you've got the venom under control, does that venom break through again and cause late-stage bleeding? First thing, they didn't show that in a clinical trial. They failed to show that in a clinical trial. But much more impactfully, much more impactfully, the rate of medically significant recurring coagulopathy is less than 1.5%. Compared to losing a limb or your patient dying, this is not a big issue.

And then the third piece and the final piece of the jigsaw is the price. We now know the competitor price. We know the price per vial. It is not an equivalent-priced vial. You have to look at total drug cost. And you need significantly more vials of the competitor to treat a snakebite. It's hard to say exactly how many because there's no real-world data on that. But from the limited data you can see in the clinical trial, where you're using up to the high 40s of vials -- and remember, you use the competitor in aliquots of 10 vials at a time, we feel very comfortable that it could be well more than 2, could be 3 when we get into the real-world data. And if that's the case, then our view and our experts' view is that our total drug cost could be potentially the same or less than that competitor. So ultimately, it comes down to the trust in the brand, the investment we've made in the community and the consequence of getting it wrong. But pharmas know all about CroFab.

VORAXAZE is doing really well. We've got -- we had some guidelines published about a year ago. And we've been able to get those in the hands of lots of clinicians. They highlight the need to treat early with VORAXAZE. That's led us to optimize the treatment with VORAXAZE. And it also -- as Duncan said, our partnership with clinicians is working very well. And we've been very pleased with the ex U.S. sales growth as well.

And we're not done with pharma in terms of just looking at the products and the indications that we have. VORAXAZE is used to treat, in an acute sense, incidences of high-dose methotrexate toxicity. We're exploring both with [a doxin] and an investigator-initiated study and also with our own IND, could we give VORAXAZE prophylactically? Would that help and allow more patients to complete the regime? That's a game changer if we can make that happen. It's not going to be a long, complicated study. Again, we're in lifesaving medicines. But that's something that we think is worth exploring.

And we're very pleased to be supporting AMAG, who bought the rights to the digoxin immune fab ovine, it looks very similar to DigiFab, as a treatment for severe preeclampsia. They're going to take this forward on a Phase III. And we are going to be supporting them in that. Again, that could be a game changer for DigiFab.

So in summary, I think we'll all agree, our investors certainly would, that we've had a really tough 6 months as we've managed our way through some uncertainties, which we've now clarified. We've simplified the business. We've demonstrated great results, but much more importantly, the power of the business that we've created, the operating leverage from that Product business and the core skills that we've built within it. And as we look forward to 2019, we've got a strong pipeline of product launches, a really vibrant pipeline of acquisitions and some exciting data. So I look forward to sharing some significant near-term news flow with you about the progress we're making in our internal/external pipeline and our data.

Thank you for listening. And I'll now take questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [1]

--------------------------------------------------------------------------------

Richard. You need to wait for a microphone and say who you are and where you come from before you...

--------------------------------------------------------------------------------

Richard J. Parkes, Deutsche Bank AG, Research Division - Director [2]

--------------------------------------------------------------------------------

Richard Parkes from Deutsche Bank. First question on CroFab. You obviously seem a lot more confident now that you can defend that leadership position and you've got the pricing. And the feedback we have from physicians was that they were interested to try the product to see whether it would have a less late coagulopathy, sort of test it out in the marketplace. Is there an opportunity now that you know the price to go out to formularies and look to lock in long-term contracts? And would you take some hit to price in order to do that? And that would obviously stop physicians from being able to do that kind of experimenting if you're the only product on their formulary. So that's the first question.

And then the second question on Varithena. Now that's on track to be profitable, I'm just wondering how you think about that franchise in terms of capital allocation. Is that a business that you're still going to look to add new products to? And is there any point where you would consider still spinning out or selling that business once it's strong enough to stand on its own 2 feet, given that it is a little bit distinct and focused on vein clinics outside of the sort of hospital focus for the rest of your Vascular business?

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Yes. Let me take them in turn. I think there will be curious physicians. I mean, it's sort of natural, isn't it? CroFab has been the only game in town. People are going to experiment with it. There will be some advocates of it. So we're absolutely ready. And that's one of the reasons why we've not said we're not going to lose anything. We expect to lose some share as we get people to be curious with it. But we don't see that being more than curiosity. And rest assured, that we're looking at all angles in terms of making sure that we have got the right channels in terms of getting CroFab into the hospitals.

So those are some of the things, I'm not going to give you the details. But we are clearly very focused on making sure that we've got CroFab in all of the right spots. But don't get me wrong. I'm not saying that there won't be people who are curious and will use it. I'm just very, very comfortable in terms of the position of the CroFab we'll end up in.

In terms of Varithena, we've talked before. There's actually not a lot to add to that. But they are often the same doctors or linked with the same doctors in the hospital. And because it's such a lean P&L, it's such a sticky market, it really can sit by itself as a small sales team and then it leverages off the marketing and all of the rest of the back end of Vascular. So they don't really sell a lot of things. We've looked at that. But we're very happy to have it in our portfolio as an integrated part of Vascular because it's a lean P&L in terms of the sales you need. And it really does leverage off the rest of the marketing, et cetera.

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

James Gordon, JPMorgan. I've got 3 questions, maybe it's easier if I do them one-by-one. The first question was just on pharma. So we had strong performance today for the first half. But the guidance for the full year is a slower growth rate. So just why would we get such a deceleration or even an implied decline in the second half? Is it that you are anticipating CroFab having a significant fall? Or is it just you don't think you're going to sustain the momentum that you're seeing for ex U.S. growth for VORAXAZE and for DigiFab?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [5]

--------------------------------------------------------------------------------

So a combination. So if you look at where a lot of the growth came from, it was ex U.S. for VORAXAZE and DigiFab. And those products are supplied on a named patient basis. So for us to assume that named-patient supply continues at the same levels -- well, we can. But we're not. And then with DigiFab, as we've said before, we kind of point to that as a little bit of cyclical revenue stream. And in the second half, it's slightly weaker than the first half in terms of those batch expiries. But that's just the normal cycle of DigiFab.

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

--------------------------------------------------------------------------------

So if I understand correctly on that one, it's less that you are allowing room for a big CroFab fall, it's more just it's the European business not being quite as strong as the first half?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [7]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

--------------------------------------------------------------------------------

And then a second question, Interventional Medicine, saw overall very strong growth, but Vascular grew more quickly than Oncology. Can you just break down a bit what the different bits of Oncology are doing? Because presumably Galil is providing you a bit of a boost and TheraSphere is still growing strongly. So does that mean the embolising beads are actually not really growing anymore? What are the different bits doing?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [9]

--------------------------------------------------------------------------------

Let me take it. Yes, so beads are growing along with the market. And I think in terms of sort of market leadership and market share, we're comfortable that we're maintaining that leadership position. The market for beads is more mature than TheraSphere and cryo, which are both still growing very strongly.

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

--------------------------------------------------------------------------------

And then final question was just about the outlook for next year as in you've now got a strong base on the top line for this year. And you've just demonstrated an operating margin expansion. But can you continue to drive even more operating margin expansion next year? And is there enough room that you might even be able to -- or can you have bottom line growth next year? Or if you've got some competition to CroFab and U.S. ZYTIGA probably going away and this year represents a higher base, does the business probably have a bit of a pause next year before there being growth again?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [11]

--------------------------------------------------------------------------------

Yes, lots of variables. So I'll put you back to the guidance we gave back in May for that midterm outlook. Clearly, CroFab is a variable, ZYTIGA is a variable. But as we look at that Product sales business, we still see the ability to drive double-digit growth on the top line. And with disciplined cost control, we can see more leverage coming through.

--------------------------------------------------------------------------------

Paul Cuddon, Numis Securities Limited, Research Division - Director for Healthcare Equity Research [12]

--------------------------------------------------------------------------------

Paul Cuddon from Numis. Focusing again on the Interventional Medicine business. And suppose as you were sort of running into this year, you had those uncertainties over CroFab, ZYTIGA, and you committed to maintain your kind of SG&A and R&D at a slight decline. Now you're through those and perhaps a stronger position than you thought, how do you think of kind of accelerating growth in the IM business with these new products coming through in Vascular, the new Galil approvals and also expanding into lung cancer?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [13]

--------------------------------------------------------------------------------

So overall cost guidance for the year is in line with where we were in the first half of the year. Some of the cost saving measures we've made have come through and will be seen in the second half. So we are allowing, Paul, to keep things moving. We've consistently said that we wouldn't do anything to hold back the top line. If we need to add sales reps, we'll add sales reps. I'm very clear on that. But I think the overall guidance for this financial year we feel comfortable with.

--------------------------------------------------------------------------------

Paul Cuddon, Numis Securities Limited, Research Division - Director for Healthcare Equity Research [14]

--------------------------------------------------------------------------------

And then secondly on Varithena, would you sort of consider doing just another smaller study just on the kind of rates of kind of closure -- to just close the gap to perhaps the SAPIENs and ClosureFast catheters without doing a massive study?

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [15]

--------------------------------------------------------------------------------

Yes, we've actually got a publication which is really useful, the Deak publication, that really looks at those closure rates. And again, a real-world publication, Andy can get it to you. And that's showing that those closure rates are up there with the sort of other alternatives. So that's been really useful as we're sort of engaged with reimbursement partners and things like that. So we think that we're okay. And actually, the product results are speaking for themselves at the moment. We are using sort of registries and investigator-initiated studies to look at the leg-ulcer market. We are still getting a lot of use in the leg-ulcer market in that scenario that's embedded within that guidance that we expect to see, Varithena continuing to sort of make an impact.

--------------------------------------------------------------------------------

Nicholas Keher, RBC Capital Markets, LLC, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Nick Keher from RBC. I just wanted to follow up on the CroFab points that you mentioned before in terms of pricing. So the competitor has come out about $1,200 a vial, you're around $3,000 a vial. And obviously, it's a different number of vials to obtain the same result. But if we look at the labels of both products, I don't think you get to your product being in line with pricing and actually theirs is cheaper by, what, 10% to 30%. So I'm just wondering, I mean, in terms of the trial that they had in their number of vials they used there, I can see where you could get to on the price. But in terms of the labels, there is a difference. So I'm just wondering if you can just explain to me how you get there on the price.

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [17]

--------------------------------------------------------------------------------

Yes. So the label has come, of course, from a 60-patient study. That's all there was, was the competitor product. And so you've got to look at how it's dosed. It's dosed in aliquots of 10. So at 10, if you don't get initial control, 10 and then another 10. So we, with our experts and the community have been looking at how it works together. And we're saying, "Well, first of all, we don't know." A bit scary because actually you should know how you get optimally dosed. But actually, we can't see a way that 2:1 is going to be a comfortable level for initial control. So that's why we're saying it's more than 2, could be 3, could be -- but we won't know until we get the real-world data.

You're talking about a product that's got data of 60 patients against 50,000 and extensive investment to say, "How do we really, bite-by-bite severity, how do we make sure that they know how to optimally treat with CroFab?" So that's why we're using a real-world perspective, Nick. You're absolutely right about the label. But I don't think there's enough data there to actually look at what total drug cost comparison is going to be in the real world. So what we've done is used our knowledge, looked at all of that and worked with the community to say, "Actually, we'll see." But we think it's about the same, could be a little bit, CroFab could be a little bit less, depends on the bite.

--------------------------------------------------------------------------------

Nicholas Keher, RBC Capital Markets, LLC, Research Division - Analyst [18]

--------------------------------------------------------------------------------

Just to follow up on that. Does that suggest then that the FDA have got the label wrong in terms of how much they need to dose the patients to get control? Is that what you're...

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [19]

--------------------------------------------------------------------------------

Well, if you look at the label, it's the same with every, I think. If you look at how they talk about it, they say, "Use 10 vials to get initial control, unless you don't, then use another 10 and then use another 10." So again, maybe I didn't get it across properly, but snakebite treatment is not like antibiotics or something. Each bite's different. And if you don't get initial control, you have lost the patient. So the focus on initial control is huge. And so that's their label. And that's -- if you read their marketing stuff, that's what they're saying: 10, 10, to keep going in aliquots of 10 until you get initial control. The current coagulopathy comes after that, once you've saved your patient.

--------------------------------------------------------------------------------

Nicholas Keher, RBC Capital Markets, LLC, Research Division - Analyst [20]

--------------------------------------------------------------------------------

Fair enough. Okay. So that's clear. In terms of the real-world data rates you suggest as well, is that from a mixed study including copperheads as well as rattlesnakes? Or is that just rattlesnakes?

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [21]

--------------------------------------------------------------------------------

I'm going to ask... .

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [22]

--------------------------------------------------------------------------------

We'll get back to him on that one.

--------------------------------------------------------------------------------

Nicholas Keher, RBC Capital Markets, LLC, Research Division - Analyst [23]

--------------------------------------------------------------------------------

Okay. And then just switching now to the tax rate actually. So for the year, obviously you're having a benefit from the higher royalty levels. Could you give it an underlying rate, if it was just the Product sales business? And what kind of rate you would have there instead?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [24]

--------------------------------------------------------------------------------

Yes, I'll kind of refer you back to where we were with that midterm outlook in May, which was sort of the 22% to 26% range is an underlying Product sales tax rate, which is really based on a combination of U.K. and U.S. rates, which is most of our tax.

--------------------------------------------------------------------------------

Andy Smith, Edison Investment Research Limited - Analyst [25]

--------------------------------------------------------------------------------

Andy Smith from Edison. I want to drag you away from CroFab, if that's okay, to go back to Interventional Medicine. You mentioned that much of your growth or most of your growth was volume-driven. I wonder if you could give us some commentary on Interventional Medicine pricing U.S. and ex U.S.

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [26]

--------------------------------------------------------------------------------

Duncan, do you want to take that?

--------------------------------------------------------------------------------

Duncan Kennedy, BTG plc - CFO & Director [27]

--------------------------------------------------------------------------------

Yes, I mean, there isn't too much to tell. The pricing is relatively flat. Most of the growth we've seen over the periods and going back in time as well is volume-based. So there really isn't much on price.

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [28]

--------------------------------------------------------------------------------

Okay. Any questions on the phone?

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) We have no questions coming through.

--------------------------------------------------------------------------------

Louise Makin, BTG plc - CEO & Executive Director [30]

--------------------------------------------------------------------------------

Okay. Thank you very much, ladies and gentlemen.