Earnings Injection

CSL Ltd conducted an R&D briefing that provided insights into the group’s large and complex pipeline of clinical programs, most of which are progressing in line with Ord Minnett’s expectations.

 

Management commentary indicated the strong demand conditions for immunoglobulin (Ig, which is used to help patients suffering from primary and secondary immunodeficiency disorders and to combat viral and bacterial infections) have continued into FY19 and key new products are delivering strong growth.

 

CSL faces a leaner period with respect to product launches, although we remain comfortable that the growing contribution from recent launches will allow the company to maintain robust earnings growth over the next few years. We maintain our Accumulate recommendation with a $215 target price.

 

We note the following key points from the presentations:

 

  • Flucelvax – New data indicates the superior effectiveness of cell-based vaccines such as Flucelvax over egg-based vaccines. This ‘real world’ evidence is promising, although it is not held in the same regard by the regulators as data from a randomised controlled trial, and therefore cannot be included on the product’s label. As a result, CSL is unable to use this data when promoting Flucelvax in the US. In time, however, we are confident it will ensure the Seqirus business is able to boost sales of cell-based vaccines and charge a premium.
  • Fc multimer versus anti-FcRn therapies – The potential for anti-neonatal Fc receptor (FcRn) therapies to be used to treat autoimmune conditions was discussed and compared to CSL’s own Fc multimer program with US-based Momenta Phamaceuticals (CSL730). The potential mechanisms of action for Fc multimer therapies are broader than for FcRn, suggesting such an approach has greater potential to be an effective treatment for a broader range of autoimmune diseases, including chronic inflammatory demyelinating polyneuropathy segment (CIDP, an inflammatory disorder of the peripheral nervous system).
  • Transplant opportunity – CSL did not put a dollar figure on the opportunity from its emerging transplant franchise, but it was deemed by management to be significant. Based on an assessment of the number of transplant recipients suffering from organ rejection, we estimate an addressable market of US$1.0–1.8bn. We view transplant therapies as an ‘earnings filler’, as CSL has few material new product launches in its near-term pipeline and faces a number of potential threats to established market segments over coming years.

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