CSL’s Monopoly Now Threatened

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-HyQvia may be more convenient
-Risk to Hizentra's market dominance
-Debate over extent of patient switching
 

By Eva Brocklehurst

Blood product competitors will tussle over market share in the next year. Baxter has received key US Food and Drug Administration approval, as was expected, for its subcutaneous immunoglobulin product, HyQvia, used for the treatment of adults with primary immunodeficiency. This is a rival to CSL's ((CSL)) Hizentra. Moreover, the product label for HyQvia appears non-restrictive, with possibly better pharmacological and economic value than Hizentra. It does not require the monitoring of patients for rHuPH20 antibody levels and this may prove an important determinant in uptake and patients switching to HyQvia from Hizentra, in CIMB's view. Baxter expects to launch HyQvia in coming weeks.

CIMB believes HyQvia puts Hizentra's market dominance at risk. While it remains difficult to determine the impact of HyQvia, as pricing is yet unknown, the broker is not making changes to CSL's forecasts. Nevertheless, downside risk for Hizentra's market share could be in the realm of 5-10% and CIMB retains a Hold rating.

WilsonHTM has a Buy rating and $81.80 target for CSL, and maintains this status, ahead of the AGM next month when a trading update and consideration of a new buy-back initiative are expected. Baxter's announcement does not worry the broker unduly. WilsonHTM believes Hizentra is the best in the market and CSL's incumbency matters.

The broker also highlights the pre-treatment step, required for administration of HyQvia, which has important risk factors which worried the FDA. The pre-treatment required is a recombinant human enzyme. HyQvia is Baxter's Gammagard product administered another way with more risk, in the broker's opinion, whereas CSL's Hizentra has been well accepted since its approval in 2010, on account of dosing flexibility, higher therapeutic intensity and room temperature stability. WilsonHTM makes modest allowances for the arrival of a competitor but does not anticipate a significant impact this year.

CSL was upbeat about the potential threat of HyQvia at its FY14 results briefing, not expecting patients already on Hizentra will switch products. Citi considers this stance to be a little optimistic. The installed base of patients is the most obvious target for HyQvia and Baxter is selling a more convenient product. This is because there are less frequent dosing requirements, and one injection site versus multiple injection sites with Hizentra.

If patients can easily try HyQvia and find it works they will keep using it. If not, they will switch back. That is Citi's argument. Furthermore, the broker notes Baxter has a good track record when it comes to marketing its products. Hizentra is a $500m per annum earner for CSL and the rate of growth is 19%. Citi calculates this growth is more important than the actual earnings impact as, relative to CSL's $5bn in sales, Hizentra is modest. A reduction in growth would reduce the overall immunoglobulin franchise growth and this should be of concern to investors, because CSL's product mix is skewed to immunoglobulins and these are, in turn, a driver of the company's expansion.

Citi observes CSL has enjoyed a virtual monopoly position in subcutaneous immunoglobulin in the US since 2006 and new competition will likely be a negative. The broker believes the stock is slightly expensive, given some of the risks which may affect the business in FY15, and retains a Sell rating. This is the lone Sell on FNArena's database, where there are one Hold (CIMB) and six Buy ratings for CSL. The consensus target is $75.23, suggesting 3.4% upside to the last share price. Targets range from $60.34 (Citi) to $85.00 (UBS).
 

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