Why are plasma collection volumes so vital to revenue targets for CSL ((CSL))? Over the period from February, when the coronavirus pandemic commenced, to June, the company’s plasma collections were heavily affected by mobility restrictions as donors were less likely to front up to collection centres.
Citi, which recently upgraded CSL to Buy, assesses demand for plasma products will remain robust, so an imbalance will continue over the short term as collections are disrupted by restrictions related to the pandemic. The broker assumes collections return to normal from October 2020.
Macquarie has taken a look at foot traffic at 100 US-based collection centres to get an indication of plasma collection volumes. While foot traffic has improved from the lows of late June, current levels still appear below average.
Macquarie assumes a recovery in plasma-derived earnings in FY22 but believes collection volumes present a risk in relation to the near-term outlook. Given the lag between plasma collection and the manufacture of immunoglobulin, collection trends over September quarter will be significant in terms of the effect on FY21 revenue, while trends over the December quarter will affect the first half of FY22.
Why? UBS explains that there is a 6-9 month lag from plasma collections to the recognition of revenue from finished product and, therefore, at the end of FY20 there should be visibility over a large proportion of FY21 revenue.
Hence, reaching the top end of the company’s guidance for 6-10% revenue growth implies a US$114m revenue uplift in immunoglobulin (finished product), or about a 3% increase on FY20. At the lower end of guidance this implies a decline of -US$252m in immunoglobulin revenue, or -6%.
UBS is bearish in terms of the plasma shortfall and estimates collections declined -32% in the final quarter of FY20. A -20% decline in immunoglobulin and albumin volumes is calculated for the second half of FY21 and a -7% decline in the first half of FY22, before a normalisation from the second half of FY22.
While no data has been provided for plasma collections in August, Morgan Stanley suspects there was as much as a -10% shortfall relating to access limitations as a result of the pandemic. The broker calculates a shortfall in 2020 of around -6m litres of plasma which equates to around -24m grams of immunoglobulin, but highlights there are potential strategies to deal with a shortfall, such as prioritising diagnoses.
CSL has also led the way in the number of new collection centres being opened in the US and Citi calculates the company should be able to process over 20m litres of plasma over the next few years. Typically it takes around three years for a collection centre to “mature”.
In FY21, Citi expects immunoglobulin revenue growth of 4%, implying a decline of -5% in plasma volumes, to be offset by a combined 9% increase in pricing/mix. Also, it is likely some substitution of product in certain circumstances will occur while supplies constrained, although the broker suspects this will not have a long-term impact.
UBS agrees there are multiple levers that can be used to achieve growth in immunoglobulin volumes, including drawing down inventory. The broker is also forecasting flu vaccine revenue to be a counterweight, up 17% in FY21, along with an average immunoglobulin price increase of 5.3%.
Awareness of flu vaccine and demand for such is expected to be higher because of the risks associated with co-infection of coronavirus. Hence, a sustained period of robust demand for flu vaccine is considered likely and CSL’s Seqirus is well-placed to benefit.
Citi expects there will be a Covid-19 vaccine available by the end of 2020 and the vaccination of healthcare workers and the elderly will allow the economy to normalise in 2021. CSL has two Heads of Agreement, along with a funding deed with the Australian government, to manufacture potentially up to 81m doses of Covid-19 vaccine.
The total value equates to around $21 per dose or $42 per patient, as two doses are required. Citi ascribes no value to any of these partnerships at this stage given the uncertainty of clinical trials and expects the impact on profit to be neutral or marginally positive at best.
First doses from the University of Queensland vaccine candidate are scheduled for release from mid 2021, assuming successful clinical trials. The second agreement with AstraZeneca for supply of the Oxford University candidate to Australia is scheduled for early 2021, assuming successful clinical trials.
The funding deed with the Australian government will be used to establish those components required to produce commercial quantities of recombinant vaccine including specialised equipment, recruitment, training and redeployment of personnel.
FNArena’s database has three Buy ratings and four Hold. The consensus target is $310.39, suggesting 9.5% upside to the last share price. Targets range from $282 (Morgan Stanley) to $346 (UBS).