Baxalta: What Industry-Specific Risks Does It Face?
Baxalta (BXLT) is exposed to various industry-specific and company-specific risks. Industry-specific risks it is exposed to include the following:
- business concentration risk
- R&D (research and development) failure
- market share loss following new entrants
- political risk
- exchange rate risk
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In this part of the series, we’ll discuss the industry-specific risks. In the next part of this series, we’ll detail political and company-specific risks of the Shire-Baxalta merger.
Business concentration and exchange rate risk
Baxalta generated almost 59% of its total revenue from hemophilia drugs. With increasing competition from new entrants, it lost some of the market share to Biogen’s (BIIB) Eloctate and Alprolix and Pfizer’s (PFE) Xyntha.
It derived ~54% of its total net sales from the United States in fiscal 2015. The remaining 46% is generated from international operations. Internationally, the company has a presence in Latin America, Canada, Europe, the Middle East, Africa, and Asia-Pacific. With such high revenue flowing in from international operations, it is susceptible to exchange rate movements.
R&D failure and market share loss risk
The pharmaceutical and biotechnology industries are growth-driven and depend on the success of pipeline products for sales growth. This is why BioMarin (BMRN), which hasn’t yet crossed $1 billion in sales, had a market capitalization of ~$15.5 billion on April 4, 2016. The future earnings growth is judged by the potential opportunity for pipeline drugs. The industry is driven by innovation and the companies continuously thrive to launch new drugs in the market to maintain their share. The entry of any competitor drug results in market share loss. Along with this, these companies are exposed to risk due to patent expiry, which leads to the availability of generic versions or biosimilars for blockbuster drugs. The launch of innovative drugs can help to offset the falling blockbuster drug revenues. Risk-averse investors could opt for the iShares Russell 1000 Value ETF (IWD), which holds 0.1% of its portfolio in Baxalta stock.