25/02/2023

In the last year CSL went from fifth to third in the rankings of the world’s largest biotechs and its momentum is yet to slow in 2020.

Speaking to The Australian Financial Review, CSL chief executive Paul Perreault said he never intended for the company to be this big, but it happened naturally through continuing to innovate to improve the lives of patients using CSL’s therapies.
“You have to listen to the voice of the patients and keep moving. If you’re not innovating in our industry you may as well get out,” he said from the JP Morgan health conference in San Francisco.
“But looking at where we stand on the ASX, and the list of global biotechs… it’s been an amazing story for us to be able to take 100 years of bringing medicines to Australia to taking science out of Australia to the rest of the world.
“It hasn’t been without problems or challenges, but we’ve done it by keeping the focus and being stalwart to what we know and can focus on, and not getting distracted.”
Ready to lead the pack
CSL had a bumper year in 2019, with its share price jumping more than 50 per cent from less than $200 to nearly $300 by the year’s end.
If the momentum were to continue in 2020 – which analysts and investors alike expect – CSL would be well positioned to overtake Commonwealth Bank (market cap $149 billion) as the second most valuable listed company on the ASX.
But in order to one day rival the likes of Johnson & Johnson, Roche or Pfizer, Tribeca Investment Partners’ lead portfolio manager of the Alpha Plus Fund, Jun Bei Liu, believes CSL would need to make some sizeable acquisitions. This is something Mr Perreault has in the past indicated he’s not focused on.
“The company was asked about this previously and Paul Perreault had said it wasn’t really looking at many acquisitions given the price points in the market, but that could change if something becomes more attractive,” she said.
“CSL has demonstrated its ability to deliver to targets with acquisitions in the past, most recently with Seqirus, for which there had been skepticism over the price and it’s ability to deliver… so if they do make an acquisition the company will be given the benefit of the doubt.
“For now… it has a strong pipeline coming through which should underpin investor confidence for the medium term.”
Therapy pipeline
In early December CSL detailed the progress of its therapy pipeline, outlining investments it is making in products that were still in the pre-clinical trial phase, and nearer term therapies that are entering or going through phase three trials.
The company has projects underway targeting a diverse array of conditions. These range from a gene therapy treatment for sickle cell anaemia to subarachnoid haemorrhage (bleeding in the brain following the rupture of an aneurysm) and prevention and treatment of graft-versus-host disease.
One of the most advanced therapies in the pipeline is its CSL 112 therapy, which is a plasma-derived product it hopes could be used to prevent often deadly secondary heart attacks, which is currently in a phase three trial.
Given the lengthy commercialisation timelines for new therapies, Mr Perreault said he was already plotting the biotech’s 2030 strategy.
“We’re looking right now at how to ensure we have a robust pipeline of assets ranging from pre-clinical through phase one, two and three, that can deliver along that timeframe… not everything will work, but we have multiple shots on goal,” he said.
“Plus we’ll have organic growth driven by the immunoglobulins business, which is sustainable for quite some time.”
Priorities for Mr Perreault in the next decade included getting its new headquarters in Melbourne’s Parkville built, which he hopes will foster and support collaborations between academic biomedical research and industry.
He was also focused on demonstrating the value of new forms of therapies to insurers in order to get reimbursement for the costs of treatments, as well as continuing to diversify CSL’s workforce and embracing environmental and social causes important to its staff.
The big money maker
For the last decade immunoglobulin (IG) therapies have been CSL’s big money maker, with recent demand helping push the stock price along in 2019. IG (proteins produced by plasma cells also known as antibodies) therapies such as Privigen and Hizentra treat immunodeficiency diseases including Aldrich Syndrome, chronic inflammatory demyelinating polyneuropathy and Kawasaki disease.
CSL’s core business is the separation of human blood into components, which can be converted to therapies used to treat a range of diseases including immunodeficiency and autoimmune diseases, hereditary bleeding disorders and critical care.
Over time it is expected that demand for its IG products in western markets will dip as more gene therapies are developed, but Mr Perreault is confident the business still has plenty of runway ahead of it.
“We’re pretty well placed for the next few years. There are no disruptive therapies that I can see that will disrupt the current demand for the key products we’re manufacturing,” he said.
“Right now our plan is to continue to open more plasma collection centres. This year it’s 40 centres and we’re still assessing the demand, but next year will be less than 40 would be my guess.
“It will moderate over time, but we’re still seeing this underlying demand.”
High demand
CSL has been able to win market share on its IG rivals in the last few years thanks to its aggressive rollout of collection centres, which has positioned it well to capitalise on the current period of high demand.
Mr Perreault said its centres also collected almost double the amount of its rivals – Takeda and Grifols – because they run on one, paperless, operating system across all of the centres, unlike its competitors that were stuck dealing with multiple systems thanks because they had acquired collection centres.
“You can actually become more efficient with the scale of more centres… You can dial back centres that are pushing too hard and that have higher operating costs,” he said.
“While some indications will be replaced by disruptive new therapies, we will also still have the chance to launch IG in other countries where they haven’t had access to these therapies.”
Optimistic ratings
Of analysts on Bloomberg, the average 12 month price target for CSL is $289.33, but 64 per cent of analysts have a buy rating on the company.
Morningstar equity analyst Nicolette Quinn has a fair value price of $236 and a sell rating on the firm, but is still optimistic about its opportunities ahead.
Ms Quinn said markets like China would still offer a large opportunity for CSL’s core IG products, even when gene therapies become more prevalent.
“In China, IG therapies are hardly used. Instead they tend to use albumin which has a low concentration of IG, so there’s opportunities to improve the penetration of IG therapies,” she said.
Ms Quinn said the company could in fact get a boost from some of the new therapies being approved by US Food and Drug Administration, with cancer treatments (which weaken the immune system and can require subsequent IG therapies) the largest area of new approvals in 2019.
For the 2020 financial year, the company has forecast net profit after tax of $US2.05 billion to $US2.11 billion at constant currencies, representing 7-10 per cent growth.
Trading on a forward-looking price earnings ratio of 44.36, CSL looks pricey, but Ms Liu said for investors, a biotech’s value was dictated by its future growth trajectory and its sustained growth earned it a premium.
“When you compare it to an industrial company on current year earnings, CSL always looks expensive, but looking three to five years ahead it looks like far better value,” she said.
“With the halo effect of CSL, we’re also getting more biotechs coming through that are innovators in their own categories. In the next 10 years we’ll see a lot of changes in the market, given how quickly these businesses are growing and their enormous target markets.”