Over the past quarter, we acquired one new position, Baxalta (NYSE:BXLT).
Baxalta is the biopharmaceuticals business recently spun off from Baxter International Inc. We have followed Baxter for years, as it is a company that we have long admired. Spin-offs have always been an interesting source of ideas for Third Avenue, as they are often under-followed, yet historically tend to benefit from greater management focus and better capital allocation decisions as a stand-alone company. Recent volatility in the general market and healthcare stocks in particular, provided us the opportunity to initiate a position in Baxalta at an attractive valuation.
Baxalta is a leader in differentiated therapies that seek to address unmet medical needs across many disease areas such as hemophilia, immunology and more recently, oncology. We are attracted to the company due to its solid market position, the chronic use profile of its core drugs, opportunities for growth and solid financial position. The disease areas that Baxalta targets, such as hemophilia, primary immunodeficiency (PID), multifocal motor neuropathy (MMN), alpha-1 antitrypsin deficiency and von Willebrand disease (VWD), are under-diagnosed and under-treated. Baxalta is also enhancing its product portfolio with oncology assets, both via acquisition as well as through collaborations with other companies. Important for all healthcare companies is their pipeline and Baxalta’s is broad, with approximately 20 new products expected to be launched by 2020, a diversified and thus lower risk basket of compounds. We believe that Baxalta’s solid market position in these large and growing markets speaks volumes to the quality of the business and its ability to compound net asset value in the medium to long term. Baxalta is a well-financed company that is well-positioned to grow its businesses longer-term and should benefit as its newer products launch.
Further, the company could be a target for resource conversion. In fact, it received an unsolicited takeover offer from Shire over the summer. Baxalta management has so far rebuffed the offer, indicating the initial offer price as too low. Shire continues to publicly indicate interest in Baxalta. Our investment thesis certainly does not rely on a deal. Whether or not a deal transpires, we believe Baxalta is well-positioned to grow and compound value for shareholders over the longer-term.
From Third Avenue Management (Trades, Portfolio)'s Value Fund fourth quarter 2015 portfolio manager commentary.
