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Description
CSL is a leading Australian biopharmaceutical company. It develops, manufactures and markets biotherapies derived from human blood plasma or recombinant technologies (i.e. cultured products). CSL's main products are immunoglobulins and clotting agents used to treat immune deficiencies and bleeding disorders, with others used in critical care settings for shock, sepsis and severe burns, as well as vaccines. Around 90% of revenues are derived outside Australia.
Overview
CSL is a global player in the plasma business with a growing research and development profile. It is highly leveraged to ImmunoGlobulin (IG), a product of human blood that is derived from the plasma of thousands of healthy volunteers. The company spends 6-7% of revenues on R&D and looks to grow R&D expenditure by 10% pa.
CSL’s transition from traditional lyophilised (freeze-dried) intravenous IG to newer liquid intravenous IG and subcutaneous IG products (longer shelf-life; easier/cheaper to administer; higher selling prices) will continue to improve margins in the CSL Behring business for the next few years. Funding pressures in CSL’s major markets are evident as government budgets are cut or constrained. CSL is highly exposed to the higher AUD and CHF (Swiss Franc) given the majority of sales are made in US dollars and Euros, and CSL Behring has substantial production facilities in Switzerland.
Immunoglobulin sales grew by a solid 21% in constant currency, up 24% on a reported basis. The key drivers were the benefit from the Octapharma recall (the CEO estimated ~$60m), solid growth in subcutaneous IG (up ~20%), Privigen (up ~30%) while specialty IG product sales growth remained solid. Sales of Albumin into Asia increased by ~36% in the period, with the bulk of this being China. Operating cashflow grew a solid 27.8% to $522m, and the closing cash balance was A$1.3b. CSL has sufficient capital to undertake additional share buy backs after completing the current $900m program. Management guided to ~13% constant currency net profit growth.
CSL is a high-quality franchise with a number of growth drivers. The company has a very efficient infrastructure for the collection and processing (fractionation) of blood into complex biopharmaceutical products. The key drivers of earnings growth are growing blood supply and demand for immunoglobulin products, and extracting the highest yield from its raw material. Privigen (the first and only liquid IVIG which can be stored ready for use at room temperature) is a key vehicle for this. CSL's new product pipeline continues to offer longer-term opportunities. More broadly, the underlying demand for healthcare service continues to expand due to the demands of an ageing population and emerging market demand.
Risks to CSL include: 1) potential for continued weakness in demand growth for plasma products, particularly from the US and 2) persistent adverse foreign exchange movements.
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