CSL’s recent bunch of announcements have got all our attention, specifically, with the latest update on its acquisition of Novartis’ influenza vaccines business for US$275 million.
The Company reported financials that indicated an 8% increase in revenue which was US$5.5 billion for FY14. EBIT was up by 11% to US$1,637 million and NPAT was up by 8% to US$1,307 million. CSL’s final dividend increased to US$0.60, unfranked (up 15%). Group Revenue FY14 US$5.5b (Source – Company Reports)
Under Recombinants, a new biotech manufacturing facility has been opened in Melbourne. Further, a new rCOAG manufacturing plant is to be constructed in Lengnau, CH. With regards to Plasma, commercial start-up of Broadmeadow’s Privigen facility is due for 2016. The Company also aims to expand its multisite albumin and base fractionation capacity. With regards to its Collections facilities, 23 more centers have been opened in the U.S. Other developments include laboratory expansion in Knoxville, TN; and transitioning to in-house NAT testing in EU.
Immunoglobulins Sales up 12% @CC (Source – Company Reports)
As per CSL’s normal IG product segment’s highlights, there is competitive pressure in the US for the IVIG. In Europe, new CIDP indication has been found to be positive for demand. Under SCIG, flexible dosing option has been introduced in the US, and there is strong demand for Hizentra® in US & EU.
For the Albumin product segment, strong demand has been noted in China with better prospects of penetration in Tier 1 & Tier 2 cities. Europe witnessed solid demand with a lift from cautionary HES statements by regulators.
CSL Behring Product Sales up 10% @ CC (Source – Company Reports)
For Haemophilia product segment, growth is seen in EEMEA markets for PdFVIII. For Helixate®, the Company reported a wave in sales mix.
bioCSL’s highlights depict a business turnaround being underway. The Company witnessed influenza sales of about A$125m. There was increase in US demand along with growth in US commercial operations. However, EU antigen sales suffered a blow after partner exits market.
Under the CSL’s specialty products segment, Kcentra® had strong demand in the US following approval & launch. For Zemaira®, launch of diagnostic testing program is of key interest. This segment appears to underpin CSL’s top-line growth and margin expansion.
Specialty Products Sales up 18% @CC (Source – Company Reports) As per the Company’s R&D Update, the Company has completed the Pivotal Phase III study enrolment for rIX-FP (rec fusion protein linking factor IX with albumin). Patient enrolment in pivotal Phase III paediatric study for rVIII-SingleChain has been initiated. Phase II/III trial are to be commenced in 2014 for rVIIa-FP (rec fusion protein linking factor VIIa with albumin). For Hizentra®, administration options in US and EU have been expanded to include flexible dosing, and approval is being sought in Japan for PID and SID.
From competitive standpoint, we were watching out for Baxter’s HyQvia which got an approval from US FDA recently. The product targets the US subcutaneous IG market. Although, the product does not look very strong in comparison to CSL’s Hizentra®, the same may marginally impact CSL’s market position. With regards to IG, which is having a strong global position in view of rising demands and volumes, CSL’s business will be substantially benefitted.
CSL Daily Chart (Source - Thomson Reuters)
The latest announcement of $210m expansion of CSL’s manufacturing site in Broadmeadows (Melbourne) to cater to the growing demand for global critical care therapy, albumin, is also of interest. The expansion is intended to add 200 tonnes over an estimated 12-year time frame with a potential increase in export sales of albumin by USD 600 million. In fact, the Victorian Government has partnered with CSL and has also provided an anonymous strategic contribution for the first phase of construction.
The deteriorating market conditions for plasma proteins, commercialization of new products including Cinryze’s Orphan Drug and BioCryst’s BCX4161, foreign exchange or tax-rate movements, and such other factors, may impose certain risks to CSL.
For capital management, CSL also, in recent times, announced a new on-market share buyback of up to A$950 million.
Nonetheless, the key positive that should be considered is the CSL’s acquisition of Novartis’ influenza vaccines business as this comes as an attractive opportunity for CSL to emerge as a global leader. This effort appears to bring noteworthy value creation prospective and heightened strategic optionality for bioCSL.
Key R&D Programs Well Advanced (Source – Company Reports)
The Company expects that fair value of net assets acquired will exceed consideration. Accounting gain will be accretive in FY16. The acquisition is estimated to be closed during second half of CY15.
Medium-term Product Portfolio Expansion (Source – Company Reports)
CSL reported that its recently revamped plants and portfolio of new products coupled with the above acquisition will steer sales of $1 billion within five years. The Company mentioned that the deal would create $US100 million in “integration costs” which is likely to fall in the 2016 financial year.
Given the entire gambit, we recommend a SELL for this stock at the current price of $77.38.
Note - The following report was covered in Kalkine Daily on 29/10/2014.
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