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Speaker 1: Welcome to Fearing Greed Q and A where we ask

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Speaker 1: and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Sean Aylmer. Today's question has come from Michael who

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Speaker 1: contacted us through LinkedIn. He says, I quote, what in

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Speaker 1: the world has happened with CSL downgrading guidelines, some board

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Speaker 1: member transitions, vaccine business segment de merger and a huge

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Speaker 1: drop in stock price? Plenty in that question. It is

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Speaker 1: a good question because seas Sol's share price is down

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Speaker 1: about thirty five percent in the last twelve months, and

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Speaker 1: that's after it had been rerated anyway or derated anyway.

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Speaker 1: So what's going on with a company that actually, within

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Speaker 1: the last five years I think was the biggest company

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Speaker 1: on the AX. To help us out, and please remember

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Speaker 1: this is general information only and you should always seek

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Speaker 1: advice before making investment decisions. I welcome Steve Ween, head

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Speaker 1: of Healthcare and managing director of Equity Research at jard

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Speaker 1: And Steve, welcome back to I Fear in Greed Q

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Speaker 1: and a.

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Speaker 2: Thanks Sean, good to be here.

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Speaker 1: Quite the intro that what is going on at c itself?

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Speaker 1: So maybe you can give us a bit of a

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Speaker 1: one A one since the rerating began.

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Speaker 2: Okay, so there's a lot going on, as you correctly

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Speaker 2: point out, I guess the market has lost quite a

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Speaker 2: bit of confidence in the company, and that is sort

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Speaker 2: of multi dimensional. There has been a few exits, as

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Speaker 2: you pointed out, but I think it probably started to

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Speaker 2: some degree when one of their big R and D projects,

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Speaker 2: which was in the cardiac space, fell over, which was

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Speaker 2: I think in terms of how much they spent on

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Speaker 2: that particular R and D project was in excessive a

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Speaker 2: billion dollars, which then subsequently didn't quite meet its primary

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Speaker 2: endpoints in the phase three trial and so was disbanded.

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Speaker 2: So that was the start to a degree. They also

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Speaker 2: deployed capital to buy a company called V four V

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Speaker 2: four is. It was a step outside of their core competencies.

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Speaker 2: It was in the nephrology space, that's dialysis and the

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Speaker 2: drugs associated with dialysis. That has kind of not performed

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Speaker 2: up to expectations, and there's been a number of misses there. Certainly,

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Speaker 2: all the positive points that were outlined around that particular

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Speaker 2: acquisition really haven't come to fruition. It's not doing too

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Speaker 2: badly now. It's sort of found a fairly stable base

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Speaker 2: after declining for some point. There's a bit of a

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Speaker 2: concern around a generic that's going to emerge in the

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Speaker 2: US in twenty six but they seem to have done

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Speaker 2: pretty good job of staving off a generic in Europe,

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Speaker 2: so that was the next kind of impact, and then

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Speaker 2: probably fast track to sort of more recently. We saw

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Speaker 2: a big downgrade in terms of their outlook for the

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Speaker 2: company in August at their full year twenty five result,

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Speaker 2: and then no sooner than two months later we got

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Speaker 2: another one. So maybe that's a good place to start

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Speaker 2: to sort of delve down as to what the latest

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Speaker 2: downgrade is.

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Speaker 1: Yeah, so just explain why we did have those down grades,

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Speaker 1: how the plasma business is going. But then presumably after

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Speaker 1: all this it's a lot cheaper than it was before.

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Speaker 2: Yeah, sure, I think probably the better place to start

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Speaker 2: to explain it. And there's obviously a lot in every result,

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Speaker 2: given how big this company is, but quite simply the

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Speaker 2: most recent downgrade, which came two months after there was

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Speaker 2: two quite dramatic deteriorations that weren't anticipated at the time

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Speaker 2: of the result in August, and this is when they

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Speaker 2: set the outlook for the FI twenty six years, and

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Speaker 2: those were a massive deterioration in the injection rate or

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Speaker 2: the forward bookings for flu vaccines. And the second one

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Speaker 2: was a drying up of demand for albumen in China.

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Speaker 2: So both of those collectively okay. So albumen is one

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Speaker 2: of the key products that's made out of plasma and

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Speaker 2: it's quite often used in China on label. It would

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Speaker 2: be used for it's a bit of a blood volumeizer,

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Speaker 2: so anyone that's got in shock, had major burns, they

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Speaker 2: get administered with albumen. But it also gets used in

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Speaker 2: China for sort of more recreational is not the right word,

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Speaker 2: but it's used by the elderly as a bit of

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Speaker 2: a tonic to make them feel better, and so it

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Speaker 2: has quite a huge popularity within the Chinese market. Roughly

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Speaker 2: sixty percent of CSL's albumen is sold into China. And

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Speaker 2: what happened there was the Chinese government suddenly said, well,

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Speaker 2: we're not happy paying for that anymore, and we are

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Speaker 2: going to restrict that and only restricted to on label use,

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Speaker 2: and that saw a reduction of about one hundred and

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Speaker 2: fifty million dollars in sales. I mentioned earlier the flu impact.

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Speaker 2: So the flu impact was just we've seen a lot

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Speaker 2: of vaccine hesitancy in the US, particularly RFK Junior is

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Speaker 2: doing a fabulous job talking everyone out of vaccines and

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Speaker 2: aligning it with crazy suggestions that it causes ADHD, causes autism,

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Speaker 2: or manner of completely unfounded accusations around it. But it

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Speaker 2: seems to be resonating to some degree that people are

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Speaker 2: just sort of bypassing their annual flu injections. So they

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Speaker 2: were the two big sort of surprises that we weren't

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Speaker 2: We knew the flu was weak, but we didn't know

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Speaker 2: it was this week. We had no idea about this

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Speaker 2: kind of albument sort of demand drying up.

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Speaker 1: What's interesting is the four reasons you've given that China

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Speaker 1: and US demand I was going to say cyclical kind

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Speaker 1: of government decisions VFA. It was probably just maybe that

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Speaker 1: didn't go off as well as he thought. The R

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Speaker 1: and D spend, well, you know, every company has to

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Speaker 1: have to spend R and D, particularly when you're a

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Speaker 1: healthcare co. I suppose how much of this is a

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Speaker 1: management issue or is it how much of it is

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Speaker 1: that CSLS has just found itself in this situation, which

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Speaker 1: is slightly unfortunate.

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Speaker 2: Yeah, I mean, there is definitely an element of this,

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Speaker 2: which is completely out of their control. One we haven't

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Speaker 2: talked about is the US government or Trump putting in tariffs.

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Speaker 2: I mean the supply chain from CSL in terms of

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Speaker 2: the way they collect plasma and then ultimately fractionate It

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Speaker 2: is done across a whole range of manufacturing plants spread

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Speaker 2: right around the world. It starts off in the US,

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Speaker 2: it gets sent to Marlburg in January, then it gets

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Speaker 2: to burn in Switzerland, and then it gets sent back

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Speaker 2: to the US. That's kind of the rough sort of

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Speaker 2: manufacturing flow. And now there's a risk that that gets

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Speaker 2: a tariff when it comes back into the US. So

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Speaker 2: that's another thing that again is to your point, is

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Speaker 2: government led which was completely unforeseeable, you know, twelve months

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Speaker 2: ago prior to the introduction of that tariff, and now

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Speaker 2: it hasn't come in, and it looks like they're going

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Speaker 2: to get an exemption, but that's not stopping the market

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Speaker 2: from starting to price that risk into the stock as well.

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Speaker 2: So in terms of the R and D side of things,

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Speaker 2: that is the government that is sorry. That is not

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Speaker 2: a government related issue. That's I mean, the company themselves

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Speaker 2: have kind of indicated they're not happy with the R

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Speaker 2: and D spend or the discipline around the allocation of

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Speaker 2: capital there, and they're going to correct that, starting with

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Speaker 2: reducing the number of R and D sites around the

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Speaker 2: world and also reducing the number of staff and opting

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Speaker 2: now not develop as much in house, but to pick

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Speaker 2: up attractive ip that they find or along the way,

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Speaker 2: which is a bit of a shift, because an internally

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Speaker 2: developed R and D project is far more profitable than

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Speaker 2: one that you're buying that's sort of partially developed.

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Speaker 1: Yeah, okay, so from an investor's viewpoint, CSL's valuation must

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Speaker 1: be a lot cheaper than it was a few years

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Speaker 1: back when there's momentum against the stock like CSL is

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Speaker 1: it hard to buy? I mean we again we rush

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Speaker 1: to say that if you are investing, get your own

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Speaker 1: advice on this. But is it hard to buy? Says

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Speaker 1: that when nothing seems to be going right.

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Speaker 2: It is and the sentiment is against it. I mean,

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Speaker 2: I'm actually positive on it. I think there's been an

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Speaker 2: overreaction to all of these things, and they're not unjustifiable

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Speaker 2: over reactions, like when you see the company reduce their

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Speaker 2: expectations for FI twenty seven and FI twenty eight, which

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Speaker 2: were sort of two months ago much higher than where

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Speaker 2: they are now. You lose confidence that what we're hearing

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Speaker 2: and seeing is perhaps not playing out as well as

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Speaker 2: in their minds, and they obviously get a better insight.

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Speaker 2: So it's leading to some conspiracy theories. There are conspiracy

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Speaker 2: theories everywhere on this stock at the moment, which is

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Speaker 2: kind of like the darkest before Dawn type scenario which

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Speaker 2: I think we're in. But what do we need to

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Speaker 2: see for the stock to actually re rate from here?

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Speaker 2: We need to see it in the numbers. No one

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Speaker 2: will believe it now until it's in the numbers. And unfortunately,

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Speaker 2: first half twenty six, which we will see in February,

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Speaker 2: is not the half that's going to placate everybody. Now

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Speaker 2: everyone knows it's going to be weak. There are you know,

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Speaker 2: Flues Week, our Women's Week. As I said, that's all

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Speaker 2: playing into this first half. There was a reimbursement change

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Speaker 2: in the US which also plays into this half, and

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Speaker 2: there was a loss of a contract in ig the

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Speaker 2: NHS in the UK which plays into this half. Now

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Speaker 2: second half is a bit of a different story, but

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Speaker 2: you know it's probably you know, I can see the

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Speaker 2: market or the investors that I speak to, indicating that, well,

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Speaker 2: my reader, is that they are deferring that decision to

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Speaker 2: go significantly overweight till they get that result behind them.

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Speaker 1: Steve, thanks for talking to Fear and Greed.

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Speaker 2: Thanks very much, Sean.

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Speaker 1: That was Steve Ween, head of Healthcare and Managing director

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Speaker 1: of Equity Research at Jarden. And a reminder to please

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Speaker 1: seek professional advice before making investment decisions. If you've got

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Speaker 1: something you'd like to know, then send it through your question,

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Speaker 1: just as listener Michael did via LinkedIn, Instagram, Facebook, or

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Speaker 1: at fearangreed dot com. Today you I'm shying on Matt

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Speaker 1: and this is Fear and Greed Q and a