Ord Minnett has reviewed the recent results of most of CSL’s rivals and it is clear that the Australian company has increased its lead in market share. CSL benefited from atypical conditions, but it was also better-positioned than its competitors to take advantage of the opportunities, a position it has maintained into 2017.
Collection infrastructure is a clear advantage for CSL. After three years of investment in its already leading collection fleet, we estimate CSL now collects nearly one-third of all US-sourced plasma. CSL should further extend its lead in 2017 as it rolls out centres more quickly than its rivals.
Capacity is a looming constraint for some of CSL's competitors. Larger players such as Shire and Octapharma are in the midst of capacity expansion programs and while they are expected to grow plasma product sales, they may be constrained if demand remains strong. We note that market immunoglobulin sales rose around 11% in the December half year.
CSL’s smaller competitors will face challenges. The closure of about 5% of FDA-approved capacity by Biotest and Kedrion highlights the challenges for smaller groups. These facilities could reopen, but scale is a clear disadvantage for the smaller players in the industry.
On the other side of the coin, there may be opportunities for savings may arise if demand slows. CSL’s first-half result was boosted by a lift in market growth, and it should benefit if this growth continues, given its leading capability to expand output. If conditions weaken, however, we expect CSL to wind back collections at its largest centres, reducing high marginal donor payments to lift margins. The key risks to our view on CSL are slowing immunoglobulin sales due to changes to US Medicare rates for home infusion products and news flow on competitors' R&D trial data.