Company Reports

CSL is one of three Tier 1 plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however, CSL is well positioned having invested significantly in plasma collection centers, owning roughly 30% of collection centers globally.

Narrow-moat CSL reported fiscal 2024 revenue of USD 14.8 billion and net profit after tax before amortization of USD 2.9 billion, up 11% and 15% in constant currency, respectively, close to our expectations. Strong underlying performance was driven by immunoglobulins, or Ig, revenue growth of 20% to USD 5.7 billion on strong patient demand and improved global supply. The firm provided fiscal 2025 NPATA guidance of USD 3.2 billion-USD 3.3 billion, implying 10%-13% constant-currency growth, but roughly 3% lower than our prior fiscal 2025 forecast. The guidance factors in continued gross margin recovery in CSL Behring and constant-currency group revenue growth of 5%-7%, largely driven by Ig.

We maintain our narrow moat rating for CSL after reassessing the moatworthiness of peer Grifols. Grifols is one of three companies dominating the USD 30 billion plasma-derived therapy market, along with CSL and no-moat Takeda. Grifols has long been admired for its engineering expertise, but poorly run and sprawling collection centers have weighed on returns. The company is rebounding from pandemic pressures, but we think its long-term competitive advantages in the plasma industry, which drives more than 80% of Grifols’ revenue, are weakening. Despite cost-control efforts, we see significant pressure on Grifols’ ability to improve returns, and we’ve lowered our moat rating to no-moat from narrow.

CSL is one of three Tier 1 plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however, CSL is well positioned having invested significantly in plasma collection centers, owning roughly 30% of collection centers globally.

Narrow-moat CSL reiterated fiscal 2024 guidance for constant-currency group net profit after tax before amortization of USD 2.9 billion to USD 3.0 billion, implying 13%-17% growth on fiscal 2023. The guidance factors in continued gross margin recovery in CSL Behring and constant-currency group revenue growth of 9%-11%, largely driven by immunoglobulins, or Ig. We keep our estimates broadly unchanged and maintain our AUD 310 fair value estimate. Shares remain slightly undervalued.

Narrow-moat CSL announced top-line results from its Phase 3 clinical trial evaluating the safety and efficacy of CSL112 versus placebo in reducing the risk of major adverse cardiovascular events, or MACE, in patients following a heart attack. This was CSL’s largest study to date, and while there were no major safety or tolerability concerns, the study failed to meet its primary efficacy endpoint of MACE reduction at 90 days. The company plans to fully analyze the complete data and determine potential further development. But there are no current plans for a near-term regulatory filing. Accordingly, we decrease our likelihood of approval for CSL112 to 0% from 60% previously and lower our fair value estimate by 6% to AUD 310. With CSL’s Hemgenix product recently launched, CSL’s remaining product pipeline is fairly immaterial in our view, contributing just 1%, or roughly AUD 3 per share, of our fair value estimate.

CSL is one of three tier one plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however, CSL is well positioned having invested significantly in plasma collection centers, owning roughly 30% of collection centers globally.

The pandemic has driven record demand for narrow-moat CSL’s flu shots, boosting first half NPAT 44% to USD 1.8 billion. However, reduced plasma collections remain a headwind with CSL reaffirming its fiscal 2021 NPAT guidance of USD 2,170 million–USD 2,265 million. CSL is currently rationing immunoglobulin orders to existing customers and higher expenses are expected in the second half as R&D projects resume. While sales volumes are constrained near-term, we think the current headwinds are likely to be temporary as product demand is largely driven by chronic indications and CSL is on track to open 29 new collection centres in fiscal 2021. We leave our overall estimates broadly unchanged but decrease our fair value estimate by 4% to AUD 244 mostly due to the weaker USD.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however CSL is well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now own over 30% of collection centres globally.

We maintain our AUD 254 fair value and earnings estimates for narrow-moat CSL. It has agreed with the Australian Government to not progress the University of Queensland's COVID-19 vaccine candidate, known as v451. As we called out previously, we had not factored any revenue related to v451 into our forecasts given the sheer number of candidates worldwide in clinical development and v451 still being early in a Phase 1 clinical trial. Although this is likely to save CSL on planned R&D investment, we expect any reduction to be modest and for the funds to be redirected to other candidates across its six therapeutic areas. Moreover, CSL does not anticipate any impact to its previously provided fiscal 2021 revenue guidance of 6%-10% and NPAT growth guidance of 3%-8%. Our forecast revenue growth of 10% and NPAT growth of 6% for fiscal 2021 are unchanged. CSL shares screen as overvalued, trading at a 15% premium to our fair value estimate.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is the most significant constraint in production. The plasma sourcing market is currently in short supply, however CSL are well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now and own over 30% of collection centres globally. Lead times run between two and five years to expand plasma collection and seven years to add fractionation capacity. The consolidated market, long lead times and high costs of entry dissuade new market entrants.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is the most significant constraint in production. The plasma sourcing market is currently in short supply, however CSL are well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now and own over 30% of collection centres globally. Lead times run between two and five years to expand plasma collection and seven years to add fractionation capacity. The consolidated market, long lead times and high costs of entry dissuade new market entrants.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is the most significant constraint in production. The plasma sourcing market is currently in short supply, however CSL are well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now and own over 30% of collection centres globally. Lead times run between two and five years to expand plasma collection and seven years to add fractionation capacity. The consolidated market, long lead times and high costs of entry dissuade new market entrants.

Plasma donations collected by narrow-moat CSL reduced in March, despite demand for its products increasing. As the manufacturing lead-time is nine months, any impacts from lower available volumes will reflect in the 2021 fiscal year. Consequently, the company maintained its fiscal 2020 constant currency net profit guidance of USD 2,110 million to USD 2,170 million. However, the impacts of the strong U.S. dollar will likely result in greater headwinds on reported results, to USD 100 million from USD 70 million expected previously, and results in our USD 2,080 million net profit being slightly ahead of guidance. We make no change to our forecast for currency volatility and maintain our AUD 282 fair value estimate.

Narrow-moat CSL reports and transacts primarily in USD, and the significant weakening of the AUD relative to the USD, to 0.58 from 0.68 a month prior, translates into a fair value estimate of AUD 282 from AUD 236 previously. We make no changes to our forecasts for the company and assume the current exchange rate persists. We do not expect operational weakness from CSL as a result of the COVID-19 pandemic. The biggest risk is on securing plasma supply to feed into the nine-month manufacturing pipeline, and the company has commented that it is not observing COVID-19-related weakness to-date. Plasma supply is often countercyclical as donors turn to plasma donation for financial reasons in economic downturns. Following the global financial crisis of 2009, excess plasma supplies led to price weakness. However, we don’t expect this to recur due to the encouragement of social distancing, additional donor screening, and travel restrictions which may limit supply somewhat. In addition, there is a far higher demand for plasma products since 2009 due to new products and indications being approved in the interim.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is the most significant constraint in production. The plasma sourcing market is currently in short supply, however CSL are well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now and own over 30% of collection centres globally. Lead times run between two and five years to expand plasma collection and seven years to add fractionation capacity. The consolidated market, long lead times and high costs of entry dissuade new market entrants.

Narrow-moat CSL posted a strong first-half result and increased the full fiscal year 2020 guided net profit growth by 3% to an increase of between 10% and 13% on the previous corresponding period, or pcp, in constant currency. We make no change to our AUD 236 fair value estimate or outlook for the company other than including a once-off USD 30 million gain in fiscal 2020. The guided net profit range of USD 2,110 million to USD 2,170 million does not include an anticipated foreign exchange headwind as a result of the strong U.S. dollar, which management has quantified at USD 70 million should rates remain stable for the remainder of the fiscal year. Our forecast fiscal 2020 net profit of USD 2,080 million falls within the guided range after factoring in the currency headwind.

While narrow-moat CSL has not alluded to acquisitive growth plans, we speculate that the purchase of no-moat Momenta would be a good strategic fit for CSL and would allay some of the mid- to long-term risks to its plasma business. As recently published in our note on Jan. 16, 2020, “Positive Potency News for Momenta’s M254 Leads to FVE Increase,” Momenta has pipeline products which we forecast to make significant inroads into the key immunoglobulin industry over the next decade. CSL is the natural acquirer as it is partnered with Momenta on one of the three key pipeline drugs, M230 or CSL730. However, we see another product, M254, a high potency form of immunoglobulin, as the game changer in alleviating the supply constraints in the plasma industry.

CSL is well positioned in the plasma therapies industry and is benefiting from prior investments in plasma collection and fractionation capacity. However, approximately 50% of CSL Behring’s portfolio is at risk from emerging therapies in the next 20 years, which is why we award the company a narrow rather than wide moat rating. Within plasma, the physical scale and plasma expertise required to compete efficiently keeps entry barriers high, but the uptake of non-plasma-derived recombinant products and the emergence of gene and cell therapies introduce a number of new competitors. Recombinant products already dominate hemophilia treatment, and many companies, including CSL, have recombinants in clinical trials, which could affect the immunoglobulin, hemophilia, and specialty products portfolios. Gene therapy is a mid- to long-term risk to the plasma industry as it aims to cure some of the diseases currently being treated on an ongoing basis with plasma products. While CSL has invested in a gene therapy platform, its development pipeline lags other biotech companies, and its competitiveness is untested in this area.

CSL is one of three tier one plasma therapy companies who benefit from an oligopoly in this highly consolidated market. All the players are vertically integrated as plasma sourcing is the most significant constraint in production. The plasma sourcing market is currently in short supply, however CSL are well-positioned having invested significantly in plasma collection centres, expanding faster than peers to now and own over 30% of collection centres globally. Lead times run between two and five years to expand plasma collection and seven years to add fractionation capacity. The consolidated market, long lead times and high costs of entry dissuade new market entrants.