CSL Ltd: “A perfect fit”

Author name:: By Dr Derek Jellinek
Job title:: Senior Analyst
Date posted:: 18 October 2022, 7:00 AM
Sectors Covered:: Healthcare

CSL Limited's (ASX:CSL) management remains "extremely confident" in its ability to drive long-term sustainable growth by better leveraging a much more diversified product portfolio and deeper pipeline.
Management remains “extremely confident” in its ability to drive long-term sustainable growth by better leveraging a much more diversified product portfolio and deeper pipeline.
Notably, management targets >10% revenue growth across Vifor over the medium term and reiterated profit accretion (low-to-mid teens ex-amortisation /one-off costs), including US$75m in cost synergies over the first 3 years.
FY23 guidance incorporated Vifor (NPAT US$300-380m), but will now be adjusted for amortisation and other costs going forward, with NPATA growth of 13-18%.
We adjust FY23-25 estimates, with our price target decreasing to (login to view). Add.

Event

CSL held an investor briefing covering the strategy, R&D pipeline and commercial activity of its US$12bn acquisition of Switzerland-based specialty pharmaceutical company, Vifor Pharma (closed 9-Aug).

Analysis

Vifor offers a leading portfolio across three core therapy areas (Iron deficiency; Dialysis; and Nephrology), with strong brands and a deep pipeline poised to expand the commercial opportunities and support chronic kidney disease patient across the treatment continuum (from preventing kidney damage, to chronic kidney disease treatment, to dialysis treatment to transplant).

Despite Vifor’s proforma FY22 results showing modest revenue growth (+1.3% to US$1,910m), given COVID-related impacts on Dialysis (-6%, US$693m) and Nephrology (-1%; US$128m), the main Iron deficiency franchise was solid (+11%; US$1,002m), with margins expanding (GPM +260bp, 72.6%; OPM +310bp, 50.5%; ex-amortisation).

Management expressed confidence in the product portfolio, targeting >10% revenue growth across each vertical over the medium term and reiterated overall profit accretion across the combined business (low-to-mid teens ex-amortisation/costs), including US$75m in cost synergies over the first 3 years.

Key Vifor catalysts include: Injectafer (iv iron replacement) for heart failure in the US; launches of Korsuva (for severe itching), Tavenos (for blood vessel inflammation) and Sparsentan (for protein in the urine); and SNF472 Phase 3 readouts in calciphylaxis (calcium buildup in blood vessels) and peripheral arterial diseases.

CSL has moved away from providing NPAT guidance to using NPATA (NPAT examortisation/one off costs), believing it is a better measure of the underlying business. FY23 cc NPATA is targeting cUS$2.7-2.8bn (+13-18%; FY22 NPATA US$2,381m). If we exclude amortisation (cUS$140-170m), we estimate FY23 cc NPAT between cUS$2.5-2.7m (+10-19%; vs prior guidance US$2.4-2.5bn, +6- 11%). Revenue is guided to 28-30% (in cc; prior 7-11%).

Forecast and valuation update

Our FY23-25 underlying earnings forecasts decrease up to 4.5%, mainly on adjusting FX assumptions.

Our blended DCF, PE and EV/EBITDA based price target decreasing to (login to view).

Investment view

While plasma inventories need to be rebuilt over time, strong plasma collections, with ongoing demand across both Behring and Seqirus, coupled with Vifor’s added breadth, portends strong growth and momentum.

Price catalysts

R&D briefing 3-Nov; CSL112 Phase 3 readout end CY23.

Risks

Slower-than-expected US plasma collections; COVID-19 impacts; market share loss; lower uptake of new products; Closing/integrating Vifor Pharma; FX changes.

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