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Treasure Chest: Less Smooth Road Ahead For CSL

Treasure Chest | Aug 01 2023

This story features CSL LIMITED. For more info SHARE ANALYSIS: CSL

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea relates to CSL.

Whose Idea Is It?

Analyst at Morgan Stanley

The subject:

Following a share price decline of around -20% for biopharmaceutical company CSL ((CSL)) since mid-February 2020, Morgan Stanley has taken a deep dive into the company's growth engines and future potential, concluding the market might be too narrowly focused on the core Behring business.

While conceding the path forward for CSL may not be as smooth a ride as it has been at times in the past, the return of share price outperformance is seen as highly dependent on catalysts and news flow around the penetration of the company's new product pipeline.

The analysts note a share price return of around 240% over 2015-2019 was driven by earnings growth from Behring, which makes blood (plasma) products.

This period largely coincided with a transformation of scale thanks to an increase in the number of collection centres in the US. From 2015-21, CSL had a greater than 70% uplift in operating earnings, and a more than doubling of its collection centres.

This growth in collection centres has slowed in recent years to only around 2-3% per annum.

CSL's Behring business today is facing increasing competition around its chronic inflammatory demyelinising polyneuropathy (CIDP) products from Netherlands-based biotechnology company Argenx with an estimated 12% of group revenues potentially at risk.

But CSL spends more than US$1bn on new product development each year and this, together with the acquisition of Vifor Pharma, should provide the company with additional growth drivers from its burgeoning (potential) new products pipeline.

EtranaDez (Hemgenix) could be one potential source of growth upside for CSL. This a gene therapy treatment of Hemophilia B which acts as a cure and potentially removes the need for expensive lifelong treatment and care.

This treatment received Federal Drug Administration (FDA) approval last year and the analysts point out the growth potential becomes very material over time in a US$7.5bn total market, should it become a primary treatment.

More info:

Wilsons was surprised by the success of the recent Argenx Adhere study for Vyvgart Hytrulo in combating chronic inflammatory demyelinating polyneuropathy (CIDP), which is potentially new competition for CSL's immunoglobulin (Ig) therapy Hizentra.

Argenx has already achieved approval for Vyvgart in the much larger myasthenia gravis indication.

Yesterday, Macquarie released updated research on CSL noting the recent study showed efficacy for Vyvgart was in line with Ig, yet it was below the level required to switch from Ig, according to its neurologist survey.

This incentive to switch, along with pricing and additional trial data, are the key factors in influencing the use of Vyvgart in the treatment of chronic inflammatory demyelinating polyneuropathy (CIDP), explains the broker.

Morgan Stanley recently noted Vyvgart is 2.5-2.8 times more expensive than immunoglobulin and the broker felt overall risks to CSL from increased competition are "manageable".

While Jarden felt the data from the Adhere trial was compelling, it also suggested the relapse rate of patients with CIDP (relative to the placebo) was consistent with CIDP patients administered with CSL's Hizentra under the Path trial. 

A sensible comparison is thought to be difficult unless a head-to-head study is completed.

Despite potential displacement of Ig volumes in CIDP, Macquarie remains of the view growth for CSL is supported by ongoing base business recovery post covid interruption, with margins expected to recover gradually.

In line with Morgan Stanley's assessment, Macquarie analysts see potential contributions from pipeline products such as garadacimab (preventative therapy for hereditary angioedema) and CSL112 to prevent recurrent cardiovascular events, in addition to operational efficiencies from the Rika (plasma donation) platform.

FNArena’s daily monitoring consists of six brokers with five Buy (or equivalent) ratings and one Hold recommendation. The average target price is $328.17, which suggest around 23% upside to the latest share price.

Overweight-rated Jarden and Wilsons are not monitored daily. These brokers have an average target of just over $333.

CSL is scheduled to release FY23 financials on 15 August. Having tempered expectations for this year in June, management has guided towards 14%-18% growth in FY24 in constant currency terms.

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