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When announcing disappointing drug trial results, most drug developers adopt the Bing Crosby approach of emphasizing the positives, eliminating the negatives, and not messing with Mr. In-Between .
So this week, we applaud CSL (ASX:CSL) for getting down to the nitty-gritty and declaring its long-awaited heart attack megatrial failed its primary endpoint and there are “no plans for near-term regulatory filings.” I want to.
CSL stock fell 4.8% after Monday’s announcement, reflecting broker estimates that a successful drug could be worth perhaps $50 per CSL share.
The next day, sellers erased another 2.75% following CSL’s strong half-year results. The figures showed “outstanding” performance from the core plasma business, but below-par revenue from Sekyrus’ influenza division and the acquired Bifor iron, kidney and heart business.
Chief executive Dr Paul McKenzie was unfazed, smiling: “CSL is in a strong position to deliver double-digit annual profit growth over the medium term.”
Ve has come for your blood.
Although CSL has expanded its scope, its business remains centered around its core Bering plasma division. The company specifically collects plasma from centers in the United States where donors are compensated and manufactures specialized products.
This treatment is associated with diseases such as hemophilia, primary immunodeficiency, hereditary angioedema, and hereditary respiratory diseases. CSL’s primary immunoglobulin products are intravenous Privigen and subcutaneous Hizentra.
Clotting products include Idelvion, an albumin fusion protein for hemophilia B; CSL’s albumin product line includes Albrux and Albuminar, which are used for purposes such as replacing blood loss after trauma and surgery.
Specialty products include Haegarda, an esterase inhibitor for hereditary angioedema (severe swelling of the face and throat), and emergency warfarin reversal drugs (that is, patients taking blood-thinning drugs die from blood loss). For example, Kcentra for
Timeless CSL
CSL was founded in 1916 as the government-owned Federal Serum Institute. CSL administered influenza vaccines and penicillin to Allied soldiers during World War II. And it helped stop the Spanish Flu after World War I.
The Hawke government privatized CSL, and the company went public in 1994 at $2.30.
CSL underwent a 3-for-1 stock split in 2007, so its shares are now worth approximately $870, an increase of 3,760% since going public.
The Seqirus division, formerly known as Bio-CSL, manufactures influenza vaccines.
When CSL went public, CSL was led by CEO Dr. Brian McNamee, who handed over to Paul Perrault in August 2013, with Dr. McNamee returning as chairman.
Mr. Perrault resigned in March last year and was replaced by former chief operating officer Dr. McKenzie.
In its most innovative deal to date, CSL acquired German plasma rival Aventis Behring in 2004. Five years later, the company tried to buy major rival Talecris Biotherapeutics, but U.S. competition regulators said there was “no bloody way” to do so.
Sekyrus’ business expanded in 2015 with the acquisition of Novartis’ influenza treatment division.
At the end of 2021, the company paid $17 billion for publicly traded Swiss-based Before Pharma Group, a global leader in nephrology and iron deficiency.
With a market capitalization of $140 billion, CSL is the second-largest ASX-listed company after Commonwealth Bank, and at one time was the largest.
Financials and performance
CSL said revenue rose 12% to a record half-year record of $8.05 billion ($12.333 billion) and net profit rose 17% to $1.92 billion ($2.94 billion). This was also a half-year record.
Part of the revenue is due to blood collection costs “trending downward” (see below). With this, the company aimed to raise its gross profit margin to 55.8%, returning it to the pre-COVID-19 level of 57%.
Bering giant Bering’s plasma division posted revenue of $5.238 billion, up 14%. This was driven by a 23% increase in Immunoglobulin products revenue to $2.757 billion, driven by strong sales in all regions.
Sales of Hizentra, the “clear market leader” for subcutaneous immunoglobulin products, increased 18%. Similarly, sales of Idelvion, the hemophilia market leader, increased by 7%. CSL also “successfully” launched HemGenix, the world’s first hemophilia gene therapy, in the United States.
Sekyrus, meanwhile, saw a modest 2% increase in sales to US$1.804 billion, although growth slowed due to factors such as lower vaccination rates.
Weak demand has created an oversupply of “flu vaccines,” leading to suppliers discounting doses in order to move stockpiles of the vaccine before it is discarded.
Broker Wilsons opines that Sekyrus appears to be missing an opportunity with its new quadrivalent vaccine, Furcellvax, “sacrificing market share and margins”.
Over the past year, CSL stock has traded between $308 (mid-June of last year) and a low of $232 (late October). It peaked at $336 in February 2020.
Shareholder dissatisfaction with CSL’s weak share price was evident at last October’s general meeting, when investors nearly distorted the remuneration report and voted 25% against the proposed issue of performance shares to Dr McKenzie.
some problems to solve
While management was clear about the future, or non-future, of the cardiac program, they were even more vague about the headwinds facing Vifor.
Dr McKenzie says Vifor’s short-term growth ambitions have “slowed down”, but insists that in the long term the business remains as promising as it was at the time of acquisition.
Space constraints prevent us from going into detail, but the issues relate to reimbursement in the US, loss of exclusivity in Europe, and the need for lower-margin products over higher-margin products. Certain products in Vifor’s late-stage development pipeline did not meet clinical objectives.
Dr McKenzie said the business “continues to generate strong revenues, profits and synergies”. [cost savings] Exceeded expectations.
“While our strategic vision remains compelling, [achieving it] It’s taking longer than expected,” he chimed.
Vifor contributed $1.06 billion (13% of the group’s total) of half-year revenue, with total profit of $670 million (15% of the total).
Like ResMed, CSL has also grappled with concerns that the emergence of “fat-burning” drugs such as Ozempic could undermine Vifor’s performance.
What is the basis? Diabetes and kidney disease are also reduced.
Unlike the sleep disorders agency, the issue was not mentioned during Tuesday’s earnings call. Last October, Dr. McKenzie said he did not expect the obesity drug to have a material impact on business.
arrested development
The $1 billion cardiac clinical trial, the largest in CSL’s history, enrolled 18,200 patients at 850 sites in 49 countries.
CSL112, a plasma-derived infusion therapy, targets about 10 percent of heart attack patients who have a second attack within 90 days of the first attack.
Unfortunately, CSL112 did not prove to be better than a placebo in preventing secondary heart attacks, as the results of the trial appear to be binary – either the drug works or it doesn’t. Ta.
Because the results are topline only, we won’t know how big the mistake was until it’s aired at a U.S. heart gathering on April 6. However, there is no suggestion that the drug has any future in certain patients, for example. cohort.
Stubborn Dr. Bill Mezzanotte, CSL’s head of research and development, says the learnings from the carefully structured trial will help CSL in its other development pursuits.
“While we are disappointed in the results, we are not disappointed in the efforts of our employees.”
Over the past six months, CSL has spent $669 million (8.3% of revenue) on research and development, and other drugs are bubbling up in the cauldron.
Dr. McKenzie points to a pending Phase III trial of clazakizumab in end-stage renal disease. The company hopes to win approval for galadacimab (hereditary angioedema) by the end of 2024, but investors should also expect Phase III data on Hizentra’s use for the rare disease dermatomyositis.
And lest we forget about the coronavirus, “What is Corona?” The company plans to roll out its enhanced vaccine in four regions between 2024 and 2026.
CSL’s Eureka moment?
CSL’s improved profitability contributed to a 10% reduction in donor blood collection costs.
During the pandemic, the company was forced to increase blood donation costs as people in the U.S. were reluctant to go out. Low unemployment rates also made America’s working poor more likely to let go of Claret.
CSL’s weapon is Rika, the long-awaited plasma exchange collection system. The system has been rolled out in 30 collection centers and is expected to be installed in all 300-plus centers in the U.S. within 18 months.
The project has been plagued by technical delays.
CSL is also seeking regulatory consent to collect 10% more blood from donors. This involves extracting blood based not only on the donor’s weight, but also on other factors such as red blood cell count.
In the words of one flamboyant analyst on a beige earnings call, “We’re siphoning 10 percent more out of their veins than before.”
Asked whether CSL would increase donor fees to reflect this, Dr. McKenzie pointed out that Rika has reduced donor chair time by as much as 30 percent.
We take that as a “no” but the pie and sandwiches for the party remain.
Broker Jarden said CSL’s current collection system (Nexis) costs an average of $7 to $8 per donor per dollar, but Rica can bring that down to $1.
Dr. Boreham’s diagnosis:
At face value, this week’s drop in stock prices looks a little harsh, given that management has reaffirmed its outlook for full-year earnings of $2.9 billion to $3 billion (up 9% to 11%).
But investors fell on deaf ears, and the company may have revealed plans to start operations on the moon.
And while the heart disease news is shocking, it’s also worth remembering that most of CSL’s analysts didn’t factor the results of heart drugs into their valuations in the first place.
CSL stock has always looked expensive, as we hypothesized after last year’s interim numbers, but the company’s performance has always justified a high trading multiple.
CSL used to be aggressive with share buybacks to improve its earnings per share, but it doesn’t currently have a ton of unused cash. In fact, S&P Global Ratings has complained about his CSL’s “increased financial leverage.”
CSL may have bled this week, but our Mr. Between is that a steady supply of new products should heal the wound in the short to medium term. With a little iron will, Vifor’s problems seem solvable.
Disclosure: Dr. Boreham is not a licensed medical doctor and does not hold a doctoral degree of any kind. That’s the perfect excuse for him to say that his musings in no way constitute investment advice, and that you can’t suck blood from a stone.
This column first appeared on Biotech Daily
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