Global biotech giant CSL is one of the largest companies on the ASX and one of AFIC’s largest holdings. Recently, we visited CSL’s operations in Europe and met with several industry contacts and competitors. Portfolio Manager David Grace shares his key takeaways.
CSL is a very high quality company, maintains a market leadership position, is run by a quality board and management team and has a strong balance sheet. These are all key qualities we look for in the companies we invest in.
CSL operates three businesses; CSL Behring is a global therapeutics leader developing medicines that primarily treat haemophilia and immune deficiency, CSL Seqirus develops vaccines to prevent influenza, and the recently acquired CSL Vifor with expertise in iron deficiency.
CSL has significant opportunities
We visited manufacturing and research facilities for CSL Behring where the company has spent significant capital upgrading manufacturing facilities in recent times seeking to improve profitability in the manufacturing process.
A key focus of the trip was the company’s recently completed $US11.7 billion buyout of Swiss pharmaceuticals manufacturer Vifor Pharma, a global leader in the areas of renal disease and iron deficiency.
The nephrology (treatment of kidney disease) market is growing rapidly, driven by an ageing population and an increased presence of chronic kidney disease risk factors such as diabetes and heart disease. Our visit provided a valuable update on the integration and operations of Vifor and the strong demand in key products it manufactures.
We met with consulting nephrologists familiar with both CSL Vifor’s products and those of competitors. This emphasised to us that CSL is extremely well positioned to maintain strong growth by addressing the growing demand for the treatment of renal disease and iron deficiency.
CSL is well positioned over the long term
In recent years, earnings growth for CSL has been constrained, linked to reduced patient mobility associated with the pandemic, leading to a reduction in blood plasma donations.
Thanks to a strong balance sheet and high levels of cash generation, CSL was able to maintain its investment program, investing in production facilities, research and development and enhancing manufacturing processes. With a strong management team and board, the company has a long history of value accretive capital allocation.
Blood plasma volumes are now returning and, combined with improvements to manufacturing processes, we believe sets the company up for strong earnings growth.
We’re comfortable and confident in all areas of CSL’s business and feel it’s well positioned to capture strong growth over the medium-to-long term. CSL remains a core holding in the AFIC portfolio.