Roy Davidson, 25 January 2018

CSL Ltd 250118

CSL is a leading Australian biopharmaceutical company. It primarily manufactures therapies derived from human blood plasma which are used to treat immune deficiencies, bleeding disorders, trauma, and a range of other diseases. The vast majority of revenues are derived outside Australia.

CSL Behring accounts for the bulk of CSL’s revenues and earnings and is a global leader in plasma derived and recombinant (lab engineered) products. CSL Behring’s main products are immunoglobulins used to treat immune deficiencies, clotting agents used to treat bleeding disorders such as Haemophilia, and a large number of other plasma derived products used to treat trauma, shock, and severe burns. Biotherapies are produced at facilities in Australia, Germany, the US and Switzerland, and plasma is sourced via a network of collection centres in the US and Germany. Seqirus, previously named bioCSL, manufactures vaccines, pharmaceuticals and antivenoms. Following the acquisition of Novartis’ flu vaccine business, CSL is now the second largest flu vaccine manufacturer in the world.

The company has a strong R&D capacity and spends around 10% of its revenue on R&D each year, ensuring CSL is able to bring innovative products into what can be competitive markets. CSL’s R&D pipeline is currently very healthy with a number of products which can make sizeable contributions. This includes a subcutaneous version of Berinert, which is used to treat HAE, a rare disease characterised by severe bouts of swelling, and a therapy which could help avoid the onset of a second heart attack (the largest area of health spending globally).

Following a period of investment, we see CSL as well positioned; its core products continue to see strong demand, it has a significant research and development pipeline, and has launched two new long-acting recombinant Haemophilia therapies this year, one of which has the potential to take significant market share. We see CSL’s growth drivers as well balanced across all its business segments, meaning the company is not overly reliant on any one product.

CSL is a high quality business and the company has in place very efficient infrastructure for the collection and processing (fractionation) of blood into complex biopharmaceutical products. CSL has demonstrated an ability to launch new products, and has several strong products on the market and in its pipeline. The underlying demand for the end-markets the company serves continue to expand with increased rates of diagnosis for rare diseases and emerging market demand. In the near-term, we expect CSL’s share price to be supported by a weaker Australian dollar.

Potential downside risks for CSL include 1) increased competition, 2) regulatory issues with key products, and 3) adverse foreign currency movements.