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©JMC/JCC AB 2011
To frac2onate or not: dilemmas of the developing na2on John Curling, JCC AB Plasma Protein Biotechnology Mee2ng Paphos, Cyprus, 9-‐13 May 2011
©JMC/JCC AB 2011
▶ Developing countries
▶ Frac2ona2on climate
▶ Buy or contract
▶ Establish frac2ona2on
©JMC/JCC AB 2011
Who are the developing na2ons? Gapminder W
orld Chart 2010 Version May 2010b
Money GDP per person in US dollars (purchasing power adjusted) (log scale)
Healt
h Life
expec
tancy
at bir
th (ye
ars)
Low–income countries Middle–income countries High–income countries
500 1 000 2 000 5 000 10 000 20 000 50 000
50
45
60
7070
80
75
85
65
55
China
India
USA
Indonesia
Brazil
Paki-stanBangladesh
Russia
Nigeria
Japan
Mexico
Philippines
Vietnam
Germany
Egypt
Ethiopia
TurkeyIran
Congo, DR
!ailand
France
UK
Italy
South Korea
Myanmar
Ukraine
Colo- mbia
South Africa
Sudan
Argen- tina
Spain
Tanzania
Poland
Kenya
Morocco
Algeria
Canada
Afghanistan
Uganda
Nepal
Peru
Uzbe-kistan Iraq
Saudi Arabia
VenezuelaMalaysia
NorthKorea
Ghana
Taiwan
Yemen
Romania
Australia
Sri Lanka
Mozambique
Madagascar
Syria
Côte d'Ivoire
Cameroon
NetherlandsChile
Kazakhstan
Burkina Faso
Cambodia
Ecuador
Malawi
Niger
Guate-mala
Angola
Senegal
Zimbabwe
Mali
Zambia
Cuba GreecePortugal
Chad
Bel-gium
Tunisia
Belarus
Czech Rep.
Guinea
SerbiaHungary
DR
Somalia
Bolivia
Rwanda
Sweden
Haiti
Burundi
Benin
Austria
Azerbaijan
Tajikistan
Honduras
Switzerland
Bulgaria
El Salvador
Hong KongAndorra
Paraguay
Laos
Israel
Sierra Leone
JordanLibya
Papua New
Guinea
Togo
Nicaragua
Denmark
Slovakia
Kyrgyzstan
Finland
Turkmenistan
Eritrea
Norway
Georgia
Singa-pore
Bosnia & H.
Moldova
Croatia
Central African Rep.
Costa Rica IrelandNew Zealand
PalestineLeba-non
Puerto Rico
Congo, Rep.
Albania
Lithuania
Uruguay
Mauritania
Liberia
OmanPanama
Armenia
Mongolia
Jamaica
UAEKuwait
Kosovo
Bhutan
Latvia
Namibia
Macedonia
Slovenia
Lesotho
Gam-bia Botswana
Guinea-Bissau
Gabon
Estonia
Mauritius
Swaziland
Timor-Leste
Trinidad &TobagoFiji
Qatar
Guyana
Comoros
Bahrain
Solo-mon Isl.
Equatorial Guinea
Djibouti
Lux-embourg
Suriname
Cape Verde
Malta
Brunei
Bahamas
Iceland
BelizeBarbados
Vanuatu
São Tomé & P.
SamoaTonga
Kiribati
Micronesia
Grenada
Seychelles
Antigua & BarbudaDominica
Marshall Isl. Palau
Nauru
Tuvalu
St Kitts & N.
Maldives
Liechten-stein3
6
5 4
21
RichPoor
Sick
Healthy
Gapminder World Map 2010
Colour by region:
Size by population:
1000millions
100103
or less
www.gapminder.orghttp://www.gapminder.org/worldmap
1. San Marino2. Monaco3. Cyprus4. Montenegro5. Saint Lucia6. St Vincent & Grenadines
Data are for 2009 for all 192 UN member states and the other 5 countries and territories with more than 1 million people (Hong Kong, Taiwan, Palestine, Puerto Rico and Kosovo). Free to copy, share and remix but attribute Gapminder. For sources see:
©JMC/JCC AB 2011
Low development countries
▶ Local frac2ona2on is a long term goal ▶ Most blood is collected in hospital blood banks from family replacement
donors ▶ Very few countries are able to have plasma frac2onated ▶ Most low development countries cannot afford plasma deriva2ves and
cannot send surplus for frac2ona2on ▶ In reality most countries do not have the exper2se and structure to
regulate blood products ▶ Unable to meet financial, technical, tes2ng, GMP and infrastructural
standards ▶ There are very few Na2onal Blood Service organisa2ons ▶ Need to re-‐visit “voluntary non-‐remunerated dona2on” dogma ▶ “Developing countries will become developed countries”
Summarised from Emmanuel, J. IPPC, Lisbon 2011
©JMC/JCC AB 2011
Global plasma supply to 2015
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2000 2005 2007 2010 2012 2015
Litres, 1,000’s
22.4 M 21.4 M
26.5 M
30.5 M 31.7 M
38.9 M
Robert, P. (2009) Pharmaceu2cals Policy & Law 11, 359-‐367, WHO Sta2s2cs
RoW Europe USA USA 4.5%
Europe (EU) 7.3%
RoW 88.2%
Popula2on 2008, 6.7 billion Popula2on distribu2on, 2008
©JMC/JCC AB 2011
Number of frac2onators by region Number
Robert, P. (1987-‐2008) Interna2onal Directory of Plasma Frac2onators
0
10
20
30
40
50
60
70
1984 1987 1990 1993 1996 1999 2002 2004 2007
Europe N America Asia S America Oceania ME/Africa
Change from non-‐profit to commercial frac2ona2on from 1984 to 2007
Status 1984 1987 1990 1993 1996 1999 2002 2004 2007
Total number 95 99 102 95 86 86 80 71 65
Commercial 39% 37% 32% 35% 44% 53% 54% 60% 65%
Non-‐profit 61% 63% 68% 65% 56% 47% 46% 40% 35%
©JMC/JCC AB 2011
Plasma frac2ona2on distribu2on
Capacity Litres, M
Capacity U2lisa2on
CSL Behring 6.2 81%
Baxter 6.0 92%
Grifols/Talecris 7.8 86%
Octapharma 3.3 80%
23.3
*Capacity data from JP Morgan, 2010 and Goodsall, A. et al., UBS Q-‐Series, 2010
5 4 frac2onators control 85% of US source plasma and >70% of the global supply Global capacity (2009) ≈ 38 M litres, 80% usage ≈ 30 M litres
UBS Investment Research
Key Call: CSL Limited
And then there were 3; Grifols/Talecris deal
Industry consolidates with Grifols/Talecris deal; leaves 3 major US playersConsistent with our expectations (UBS note 27 Apr-11 refers); US FTC has agreed terms allowing Grifols/Talecris transaction to proceed; with limited divestments.Italian fractionator Kedrion gains interim intermediate Melville plant, 2 collectioncentres & TLCR Factor VIII business; & contracted IVIG/Albumin fractionation for its US volumes (UBSe ~350-400k litres). There appears to be no majordivestment of key IVIG/Albumin products or volume; post transaction UBSe thetop 3 fractionators BAX.N; CSL.AX & GRF.SM will control ~90% of US market.
Implications for CSL: consolidation been positive for supply & earnings UBS reference to parallels with the 2002-04 oversupply cycle where M&A was akey investment ‘milestone’ for industry earnings recovery. We recognise thatindustry consolidation has brought short and shallow over/under supply cycles, andrational supply decisions committing volume to the higher priced USA market.
Key plasma roadmap milestone for industry; more to follow Post transaction BAX/CSL/GRF will control ~65% of the global IVIG market.Fourth player Octapharma (currently absent from IVIG market), will join severalfractionators with less than 10% global market, including Kedrion & Biotest.
Valuation: $44.00ps Buy; PT uses NAV FY12E +DCF-HPV/R&D UBSe assume Octa obtain final EC approval in coming weeks (but with logistics &local authorisation steps, we rate Octa effectively a Jul-11 re-entrant); & we model & value CSL on ~15% ex-Octa 3rd party volume gains impacting FY12.
Highlights (A$m) 06/09 06/10 06/11E 06/12E 06/13ERevenues 4,787 4,586 4,243 4,784 5,117EBIT (UBS) 1,368 1,357 1,234 1,524 1,624Net Income (UBS) 1,077 962 996 1,185 1,275EPS (UBS, A$) 1.80 1.70 1.84 2.25 2.42Net DPS (UBS, A$) 0.70 0.80 0.84 1.00 1.08 Profitability & Valuation 5-yr hist av. 06/10 06/11E 06/12E 06/13EEBIT margin % 22.5 29.6 29.1 31.9 31.7ROIC (EBIT) % 24.1 32.1 29.6 35.7 36.0EV/EBITDA (core) x 14.1 12.2 13.4 11.1 10.2PE (UBS) x 21.3 19.3 18.9 15.4 14.3Net dividend yield % 1.7 2.4 2.4 2.9 3.1 Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of A$34.66 on 02 May 2011 19:42 EST Andrew Goodsall Analyst [email protected] +61-2-9324 3574
Dan Hurren Analyst [email protected] +61-2-9324 3575
Global Equity Research
Australia
Pharmaceuticals
12-month rating Buy
Unchanged
12m price target A$44.00/US$48.06 Unchanged
Price A$34.66/US$37.86 RIC: CSL.AX BBG: CSL AU
2 May 2011 Trading data (local/US$) 52-wk range A$37.99-30.55/US$39.00-25.18Market cap. A$19.1bn/US$20.8bnShares o/s 550m (ORD)Free float 100%Avg. daily volume ('000) 1,877Avg. daily value (m) A$66.6 Balance sheet data 06/11E Shareholders' equity A$3.62bnP/BV (UBS) 5.1xNet Cash (debt) A$1.95bn Forecast returns Forecast price appreciation +26.9%Forecast dividend yield 4.1%Forecast stock return +31.0%Market return assumption 9.9%Forecast excess return +21.1% EPS (UBS, A$) 06/11E 06/10 UBS Cons. ActualH1 0.94 - 0.93H2E 0.90 - 0.7706/11E 1.84 1.8206/12E 2.25 2.07 Performance (A$)
04/0
8
07/0
8
10/0
8
01/0
9
04/0
9
07/0
9
10/0
9
01/1
0
04/1
0
07/1
0
10/1
0
01/1
1
04/1
1
0.0
10.0
20.0
30.0
40.0
50.0
0
50
100
150
200
Price Target (A$) (LHS) Stock Price (A$) (LHS)Rel. All Ordinaries (RHS)
Stock Price (A$) Rel. All Ordinaries
Source: UBS www.ubs.com/investmentresearch
This report has been prepared by UBS Securities Australia Ltd ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 6. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
©JMC/JCC AB 2011
. There are NO major frac2onators yet in developing countries Import, contract manufacture from domes2c plasma or frac2onate?
©JMC/JCC AB 2011
The import alterna2ve
▶ Regulated and approved products available (FDA/EMEA etc.) ▶ Plasma-‐derived coagula2on factors are cheaper than recombinant versions ▶ Coagula2on factor concentrates are adequate in many seongs ▶ Developed countries have less need for albumin, developing countries need HSA
▶ The “West” has a zero risk mentality – stringent regula2ons for small popula2ons ▶ Developing na2ons may have lower safety expecta2ons in order to serve very
large popula2ons
▶ Consider the effects of lower cost manufacturing in e.g. China with improved regulatory standards
▶ Short term solu2on is to import ▶ Import of plasma products does not contribute to the na2onal development
©JMC/JCC AB 2011
Contract/Toll manufacturing
▶ WHO and WFH contract frac2ona2on texts tend to be nega2ve to establishing domes2c frac2ona2on
▶ Documents cite investment as barrier (US$ 50-‐100 Million, 100,000 – 300,000 L*) ▶ Plasma quan2ty, quality and safety as an issue ▶ Domes2c blood donor pool insufficient for plasma supply to meet FVIII, IVIG needs
BUT
▶ Contract frac2ona2on and a domes2c plant (an agreement between state and private enterprise) alterna2ves require the same commitments except for capital
▶ Exis2ng guidances do not encompass long term financial/economic calcula2ons ▶ Exis2ng/published documents do not consider long term na2onal benefits
*Source: WFH Contract Frac2ona2on Third Edi2on, April 2008, Facts and Figures No.5
©JMC/JCC AB 2011
Make or buy? Price paid or revenue in?
Product Yield/L Price, US$ Revenue US$/L
Albumin 25g 4/g 100
IVIG 5g 73/g 365
Factor VIII 180 IU 0.35/IU 63
Factor IX 210 IU 0.26/IU 54.6
Total revenue US$ 582.6/L
IVIG USA Europe RoW China India
Use g/1,000 105 40-‐80 -‐ 2-‐3 -‐
Price ≈ $67/g $48-‐61/g $42-‐61/g $12-‐22/g $22-‐40/g
Growth 5-‐6% 2-‐4% 4-‐5% Slow Slow Sources: Turner, A. (NBA), 2006, Biotest, 2010
Source: Compiled by Goss, NH (2011) from MRB reported tenders
©JMC/JCC AB 2011
Contract frac2ona2on costs: Iran
Product Yield Total (avg.) Cost/g or IU* Total cost
Albumin 22.3-‐26.0 g/L 1,811 kgs $2/g $3.6 M
IVIG 4.2-‐4.6 g/L 330 kgs $ 60/g $19.8 M
FVIII 142-‐153 IU/L 11 M IU $ 0.32/IU $ 3.5 M
Factor IX (210 IU) 16 M IU $ 0.32/IU $ 5 M * Calculated from Brazilian data $31.9 Million
Source: Cheraghali AM, Aboofazeli R. (2009) Transfusion Medicine, 19, 363-‐368
▶ Iran sends 75,000 litres of plasma for frac2ona2on in Germany ▶ Iran’s import costs are $ 31.9 M annually from Iranian plasma
©JMC/JCC AB 2011
Contract frac2ona2on/import costs: Brazil
Product Imported amount Cost/g or IU* Total cost, US$ M
Albumin 24,630 kgs $2/g 49.3
IVIG 2,120 kgs $ 60/g 126.5
FVIII 276 M IU $ 0.32/IU 87.8
Factor IX 59.4 M IU $ 0.32/IU 18.9
*Calculated from Iranian data US$ 282.5 Million
Source: Farrugia A, Evers T, Falcou P-‐F, Burnouf T, Amorim L, Thomas S. Biologicals (2009) 37, 88-‐93
▶ Brazil collects 4 M blood dona2ons ▶ Brazil sends 200,000 litres of plasma for frac2ona2on to France ▶ Brazil’s import costs are $ 282.5 M annually ▶ US$ 141.25/litre frac2onated
©JMC/JCC AB 2011
Costs of frac2ona2on excl. fill/finish
Cost distribu2on per litre plasma. PPTA costs adapted from Bult, J. IPPC, Warszawa 2008. Cohn from Biokine2cs model, 2005. BioPharm Services model for chromatography, January 2009. * Goss, NH and Curling JM. To be published (Wiley-‐Blackwell) 2011/2012.
0
50
100
150
200
250
300
PPTA Biokine2cs Biopharm Grifols 2005 Grifols 2010 Goss 2011*
Frac2ona2on Plasma
US$/litre plasma Average cost of frac2ona2on = $ 105/litre
©JMC/JCC AB 2011
Standard frac2ona2on revenues and costs
0"
50"
100"
150"
200"
250"
300"
350"
400"
450"
500"
550"
600"
HSA, FVIII, IgG, F IX" HSA, F VIII, FIX" HSA, FVIII, IgG" HSA, FVIII" HSA"
HSA" F VIII" IgG" F IX"
Rev
enue
/L p
lasm
a, U
S$"
Plasma"US$ 130"
Direct fractionation US$ 94"
Goss, NH and Curling JM. To be published (Wiley-‐Blackwell) 2011/2012
©JMC/JCC AB 2011
Developing na2on scenario?
0"
50"
100"
150"
200"
250"
300"
350"
400"
450"
500"
550"
600"
HSA, FVIII, IgG, F IX" HSA, F VIII, FIX" HSA, FVIII, IgG" HSA, FVIII" HSA"
HSA" F VIII" IgG" F IX"
Rev
enue
/L p
lasm
a, U
S$"
Direct fractionation US$ 95"
HSA: $2/g F VIII: $ 0.17/IU IgG: $ 37/g F IX: $ 0.13/IU Revenues: $ 291.3/L
No plasma cost
©JMC/JCC AB 2011
Investment cost comparison for biosimilars, India
Source: Adapted from Crédit Suisse: Biosimilars 101, 21 August 2009
$140 M
$48 M $10 M
$410 M
$100 M $62 M
Bacterial/EPO Mammalian/MAb US$ M
©JMC/JCC AB 2011
Poli2cal will, poli2cal stability ▶ Poli2cal commitment must translate in to budget + support ▶ Frac2ona2on is a long term agreement
©JMC/JCC AB 2011
Two frac2onators
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1 2 3 4 5 6 7 8 1990 1993 1996 1999 2002 2004 2007 2009
Litres frac2onated (000’s)
Priva2sa2on
Acquisi2ons
©JMC/JCC AB 2011
Establishing frac2ona2on
▶ “A reliance on market forces is ill-‐advised if supply is not to become vulnerable to the effects of source scarcity and price differences.” (1)
▶ “In an interna2onal framework of recurrent plasma products shortage, it is surprising to consider the amount of plasma that is thrown out of the transfusion services due to a lack of quality or considera2on for its poten2al added value.” (2)
▶ “Experience shows that the ini2a2on of a plasma frac2ona2on program provides usually beneficial impacts on the blood supply quality when collec2on of Plasma for Frac2ona2on is intended to meet interna2onal regulatory quality standards and specifica2ons of established frac2onators. It is also a prac2cal incen2ve for implementa2on of GMP concepts by blood establishments” (3)
1. T Evers IPFA, 2. P-‐F Falcou LFB, 3. T Burnouf HPPS; Biologicals 37 (2009) 88-‐93
©JMC/JCC AB 2011
Effec2ve Culturally acceptable
Affordable Sustainable locally
Measurable Not over-‐dependent on external skills
Poli2cally relevant*
Cryo + Cohn/Kistler-‐Nitschmann Cryo + Fr I + chromatography
Chromatography base Mul2ple/single use
Integrated viral inac2va2on Integrated prion reduc2on
Technology
*Elliot, K. Appropriate technology BMJ 288 (1984) 1251-‐1252
©JMC/JCC AB 2011
“There is a much higher prevalence of infec2ous diseases (HIV, Hepa22s B and C) in developing countries” (Emmanuel J. 2011)
Downstream processing must fix product safety 104 + 104 = 100,000,000 -‐ fold viral reduc2on
10 -‐ fold reduc2on before and a{er processing
©JMC/JCC AB 2011
Product delivery in the developing world ▶ “The emerging frac2ona2on sector in the developing world demonstrates that
high-‐quality products may also be manufactured outside the tradi2onal sector”
▶ “Globaliza2on of the Chinese economy has s2mulated the frac2ona2on industry in that country”
▶ “The desirability of harmoniza2on in regulatory requirements is heightened through the need to allow a maximal level of cross-‐border traffic for such [plasma] products”
▶ “Collec2on of source plasma by apheresis has the poten2al to generate sufficiency in plasma products …………. The ability to collect large volumes of plasma repeatedly from well-‐accredited donors over a rela2vely short 2me interval offers significant safety advantages as well as facilita2ng sufficiency”
▶ “Despite what is apparently an adequacy and indeed a surplus of capacity in the developed world, the benefits of having a number of well-‐resourced plants in the developing world appear to make this op2on a�rac2ve.”
Farrugia, A. Haemophilia 10, Suppl. 4 (2004) 77-‐82.
©JMC/JCC AB 2011
Sustainability of frac2ona2on Long term agreement between state (blood authority) and frac2onator (BUT independent of poli2cal change) Plasma supply growth for growing needs Long term support and supply needs (Everything from Air to Zeolite) Growth of infrastructural support Emergency provisions R & D New product development and introduc2on Integra2on of new safety measures Integra2on of new technology Enter the interna2onal network
Start small (≥100,000 litres) and grow…… (“≥20,000 litres – contract frac2onate”)
©JMC/JCC AB 2011
Inven2ng a be�er future ▶ The world is changing at a rapid pace driven by science and technology ▶ Business-‐as-‐usual will leave an ever growing gap between “have” and
“have-‐not” na2ons ▶ The culture and values of science are cri2cal for building a global
community ▶ Investments in science and technology are increasingly important for
economic growth
▶ High income, industrialised na2ons spend 1.5% to 3.8% of GDP on R & D
▶ Our recommenda2ons represent universal needs for inven2ng a be�er future. Stronger science and technology capacity in the developing na2ons is not a luxury but an absolute necessity if these na2ons are to par2cipate as full partners in the world’s fast-‐forming, knowledge-‐based economy.
InterAcademy Council, Inven2ng a be�er future, Amsterdam, , 2004
Improve the access to plasma product therapies Drive the availability of quality assured plasma Start or plan for frac2ona2on now!
Sankai Juko Butoh Dance Company