EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Grifols FVE Following a Solid Quarter Driven by Immunoglobulin

We're maintaining our EUR 22.50/$25.50 fair value estimate following Grifols' solid first-quarter results. Grifols' bioscience segment (about 80% of sales) grew 13.4% (8% at constant currencies) in the first quarter to EUR 916 million, driven by immunoglobulin demand as well as some price increases in certain markets (likely including the U.S.). Grifols expects to launch its 20% subcutaneous immunoglobulin in the second half of 2019, and is ramping its marketing spend in preparation. Alpha-1 antitrypsin sales also remain strong as more patients are being diagnosed using a newly approved test. Together immunoglobulin and alpha-1 antitrypsin more than offset weakness in albumin (delays in renewal process in China) and factor 8 (continued hemophilia competition, particularly in the inhibitors market). Overall, we think Grifols’ narrow moat is stable, as the plasma business remains a stable oligopoly despite innovation that could compete with certain niches of the plasma protein market.

Grifols' gross margin improved 320 basis points quarter over quarter to 45.6%, partly due to improved pricing, and management is using this improvement to fuel R&D, prepare for the subcu IG launch, and invest in a collaboration with China plasma firm Shanghai RAAS. We expect Grifols' underlying EBITDA margin (excluding the sale of plasma to third parties), which was 27% in the first quarter, to improve slightly throughout the year, and we model a 28.1% EBITDA margin for the full year. Its key competitors already have 20% subcu products (CSL's Hizentra and Takeda's Cuvitru), and we think Grifols' entry into the subcu market is likely to help the firm see further growth in pricing and volume. In addition, we see a rebound in margins in 2019-20 as new plasma centers become more established, mature acquired collection centers are tucked under Grifols’ wing, and factor VIII competition declines become less severe.