Mending Broken Hearts

CSL’s recent R&D briefing largely confirmed expectations, as the plan to undertake the group’s largest ever clinical trial had been well telegraphed. Strong demand conditions have continued into FY18 and new therapies are running ahead of plan. We surmise that only constrained access to plasma could hold CSL back from delivering stronger profit growth. We maintain our Accumulate recommendation and have raised our target price to $160.00 from $148.00.

 

  • CSL112 – The US$500m trial of CSL112 is to proceed subject to US Food and Drug Administration approval. The drug is being developed to rapidly remove cholesterol from the arteries and stabilise lesions at risk of rupture to prevent early recurrent cardiovascular events that may occur following a heart attack. This opportunity represents a potential block-buster plasma-derived therapy, but it will require the largest-ever investment in a clinical trial undertaken by the company, with a positive outcome far from assured.
  • Immunoglobulin (Ig) demand – Demand for Ig, which is used to treat various immunodeficiency diseases, remains above the historical norm. This has led to some spot shortages and a modest lift in prices, most notably in tender markets outside the US. CSL cautioned this level of demand was not sustainable, but given limited plasma supply growth the group is clearly well positioned to benefit, in light of its investment in plasma centre expansion, and we believe it is on track to report solid Ig sales in the December half.
  • Haegarda and Idelvion – Sales of both Haegarda (used to prevent hereditary heart attacks) and Idelvion (a coagulant used to treat or prevent bleeding in people with haemophilia B) are running ahead of internal projections, providing us with confidence in our above-guidance net profit forecast for FY18.
  • Transplant R&D – CSL has added transplants as a new R&D platform. This represents a large unmet clinical need that the company hopes to address with some of its already approved specialty therapies, along with other novel therapies, and is potentially a lower-risk, nearer-term opportunity.

Management guided for R&D expenditure to remain at 10–11% of sales. This allows for the US$450–550m cost of the CSL112 Phase 3 trial over four years, the new product pipeline, and seeking broader indications for existing products in the transplant segment. Our current estimates assume R&D costs equivalent to 10% of sales per annum.

Ord Minnett Research Trial

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Ord Minnett Research Trial
 

We invite you to sign up for a three month trial of our Ords Monthly investment newsletter. This report includes our latest opinions, research and share market insights that may enhance your current portfolio structure.