CSL Limited is engaged in research, development, manufacture, marketing and distribution of biopharmaceutical and related products. The Company operates in three segments - CSL Behring for plasma products, Intellectual Property Licensing (for IP generated by the company for consumption by third parties) and Other Human Health (for Bioplasma and Biotherapies). CSL operates in Australia, the United States of America, Switzerland, and Germany.
Total Revenue and Net Profit (Source – Company Reports)
The Company announced FY14 revenue of US$5.5 billion, up 8%; EBIT US$1,637 million, up 11%; NPAT of US$1,307 million, up 8%; Net Sales of US$5.3 billion; and Final dividend increased to US$0.60, unfranked (up 15%).
Earnings Per share and R&D Investment (Source – Company Reports)
Earlier, CSL reported a net profit after tax of US$646 million for the half year ended 31st Dec 2013, an increase of US$21 million (3%) on the same period last year. This includes the US antitrust class action litigation settlement announced in October 2013. EBIT grew 5% to S$818 million. On 16th October 2013, CSL announced an on-market buyback of up to A$950 million which is now more than 33% complete with around 4.57 million shares repurchased for ~A$313 million as at 18th Mar 2014.
In the half-year report 2013-14, CSL reported that CSL Behring sales grew 6% in constant currency to US $2.4 billion compared to the same period last year with increased sales of 7% for immunoglobulins, 7% for albumin, and 16% for specialty products. Haemophilia product sales declined 4%. This decline of the recombinant factor VIII product Helixate ® was influenced by various competitor clinical trials that resulted in product availability to patients at no cost. bioCSL sales of US$217 million declined 7% in constant currency terms. CSL’s intellectual property revenue for the period was US$101 million. CSL’s license agreement with Janssen Biotech Inc. to progress the CSL 362 acute myeloid leukemia product and royalties from Human Papillomavirus vaccines contributed to growth.
Group Sales by Region and Major Products (Source – Company Reports)
With respect to the US Immunoglobulin market, industry volume growth appears to be good, along with price. CSL’s product, Hizentra contributes to said portfolio; however, it faces threat from Baxter’s HyQvia. For other products, such as Zemaira (alpha-1) and fibrinogen also exist for which European medicine agency’s/ other regulatory approvals are still pending. Also, a 0% FY15 revenue growth is being forecasted for CSL's plasma derived product portfolio, in view of Average Selling Price erosion.
EBIT Margin (Source – Company Reports)
In the midst of strong competition from giant whales such as Baxter and Novo Nordisk, it is prudent to see how CSL sails. For instance, Baxter’s long-acting haemophilia A drug BAX 855 has almost cleared the path for the FDA approval in 2015 or so. Said drug provides prolonged although modest (2-3x/week versus typically 3-4x/week seen with Advate) intervals between infusions. This may or may not indicate a rapid market share swing and needs evaluation at the helm of competitive clinical profiles and pricing in view of potential risk to CSL’s Helixate until CSL 627 potentially hits the market (estimated to be in 2016).
CSL Daily Chart (Source - Thomson Reuters)
It is also noted that Baxter’s product, HyQvia is pending US FDA final ruling with regards to approval (expected in 3Q CY14). In line with the positive recommendation from the Blood Product Advisory Committee, a seamless approval from FDA is on the cards, which may affect CSL's Hizentra growth. It is understood that Hizentra revenues may translate to ~30-40% penetration among US Primary Immunodeficiency patients (Basis: CSL's FY14 results). CSL’s market share and penetration in the US may thus overweigh or under weigh depending on HyQvia’s approval status.
Additionally, there may be a price risk in view of the existing high US distributor Intravenous Immunoglobulin (IVIg) inventory; IVIg contracts vacated by Octapharma as a result of its product-recall of late 2010 due to roll early 2014; and easing out of Baxter’s capacity constraints.
In the US, CSL also reported a decline of -5.3% in its pd-coagulation portfolio in FY14 which may further decline in FY15 in view of continuous mounting up of competition. There exists a limited R&D update wherein CSL reported that majority of the growth is contributed by its R&D programs, particularly the recombinant haemophilia portfolio. Also, IP licensing terms have brought-in sundry success due to low royalties for the HPV vaccine.
During each of the last 5 fiscal years, the stock has increased in value. For the 52 weeks ending 5th Sep 2014, the stock of the Company was up 9.9% to A$73.41. During the 12 months ending 30 Jun 2014, CSL paid dividends totaling A$1.24 per share. As of Jun 2014, the company's long-term debt was A$2.00 billion and total liabilities (i.e., all monies owed) were A$2.99 billion.
In a way, the share price is subject to volatility depending on factors including but not limited to, any erosion of market conditions for plasma proteins, commercialization of new products, foreign exchange or tax rate movements, regulatory changes and/or potential acquisitions. Additionally, in view of prevailing high-rise competition and trading levels, it is prudent to stay vigilant. Therefore, we put ‘HOLD’ at this moment and would review the stock at a later date.
Note - The following report was covered on 19/09/2014
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