Markets: CSL's antidote to excitement

The drug developer's chief has sought to dampen expectations for the company's 2014 performance despite continued demand for its products.

If the 2013 financial year was challenging, CSL chief executive Paul Perreault says 2014 will be even worse. The pharmaceutical company reported a 19 per cent increase in net profit to $US1.21 billion in 2013. CSL says 2014 net income growth will more than halve to 10 per cent.

Perreault may be just dampening expectations. But it points to nervousness about the health of the US economy and the uncertain regulatory environment facing many companies in and outside the pharmaceutical sector.

Perreault points to such matters in a footnote that accompanies CSL’s market statement. CSL is worried not only about potential changes in drug regulation but also changes in reimbursement policies, as well as any changes that may affect royalty payments on its drugs.

In an effort to keep investors loyal to its stock Perreault has announced a potential share buyback on top of the current $900 million program.

But it’s hard to see investors dumping CSL stock barring a scandal or an inability to discover and manufacture new drugs. CSL develops drugs for a range of viral and bacterial diseases as well as snake and spider bite antidotes.

Global demand for such products is increasing. A CSL drug is used during heart lung bypass surgery. Another company’s product is used to prevent hepatitis B infection while another drug is used to treat acute bleeding episodes and yet another to treat acute influenza.

As global income levels rise and hospital facilities are built or improved, the demand for CSL’s products, if they are price competitively and do their job, can only increase. The stock, up 31 per cent since its 2013 low on January 14, may suffer with the CEO’s downbeat forecast, but it remains one of the few globally competitive Australian businesses outside the mining sector.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free