A week ago today, CSL Limited (ASX: CSL) held an analyst briefing to discuss the company’s half-year results. Unlike so many companies these days, CSL deserves credit for making it easy for any investor to listen in.
Managing Director and CEO Paul Perreault spoke like a man who has nothing to prove: he wasn’t trying to hint that CSL is a fantastic business, but he was comfortable in reiterating the company’s most obvious competitive advantage: large scale cost efficiencies. He also spoke quite a bit about two of CSL’s newer products, Hizentra and Kcentra. I believe investors sometimes focus on sales and potential sales without bothering to actually understand CSL’s products, so I’ll give you a quick rundown of these two.
Hizentra is subcutaneous immunoglobulin (also called immune globulin). Immunoglobulin is a substance made from human blood plasma that contains antibodies that protect people from diseases. Hizentra is therefore used to treat people with immune diseases. The innovation is that Hizentra can be administered by the patient at home.
Kcentra is prothrombin complex concentrate (PCC), also prepared from human blood plasma. Basically, it is a combination of proteins and blood clotting agents. Kcentra is now used to counteract the drug Warfarin. Warfarin was originally developed as a pesticide but it is now commonly used as a treatment for the most common kind of heart arrhythmia. The drug is an anti-coagulant and if someone who has been taking Warfarin is injured or requires surgery, they need to take a PCC such as Kcentra, so that they do not bleed uncontrollably.
Back to the investor presentation, the MD mentioned that Hizentra sales have just started in Japan and Kcentra sales have commenced in the USA. CSL has a patent on Kcentra, so will be free from competition from imitators for seven years. The company is hoping to get Hizentra cleared as a treatment for chronic inflammatory demyelinating polyneuropathy (CIDP)… shall I explain that one a little?
CIDP involves the loss of the fatty covering that insulates and protects nerve fibres, probably because immune cells are attacking the nerves in the body by accident (ok I’m personifying immune cells now; sorry.) The disease causes pain, muscle weakness, loss of reflexes and fatigue. It gets worse over time, and sounds quite unpleasant, so fingers crossed Hizentra can help. If Hizentra can be used as a treatment, the company believes they can double sales.
Regarding Kcentra, I found it interesting that the company is taking care not to allow distributors to stockpile the product. “The main thing is you want hospitals to have access,” said the MD. “No hospital who needs the product has gone without. But I don’t want distributors stockpiling it.” To me this indicates that there is high demand for Kcentra; the risk of stockpiling indicates that distributors would potentially try to take advantage of spikes in demand. This further reinforces my view that; a) CSL is an ethical company, making the world a better place, and b) the company’s products are so important that politicians would be crazy to make life difficult for CSL. These are two of the reasons I think CSL is one of the best long-term plays available on the market. I’m even considering buying shares at these prices!
Investors should also note that the company said they would commence buying back shares a couple of days after the presentation, and indeed, that process has already begun. Although I do think there are better value shares on the market, it’s hard to beat the quality of CSL’s business and if you want to buy and hold some shares forever, then it’s really hard to go past a superstar stock such as CSL.