EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Grifols Valuation Following Solid 2018 Results; 20% SCIG Filed With FDA

Grifols reported fourth-quarter results that were slightly ahead of our expectations on the top line due to Bioscience division outperformance but slightly lower than our expectations on the bottom line due to more aggressive investments in R&D and business development, and we don't expect any significant changes to our EUR 22.50/$25.50 fair value estimate. The 9.2% constant currency growth for the Bioscience division in fourth-quarter 2018 (8% for the full year) reflected very strong demand for Grifols' products in North America and Europe, which outweighed a decline in its rest-of-world business in the quarter, partly due to a delay in China albumin sales related to product license renewals. On a product level, immunoglobulins, albumin, and alpha-1 antitrypsin all drove growth in 2018, countering pressure on factor VIII, which is seeing decreased use for inhibitor patients (likely with the launch of Roche's Hemlibra). Grifols' adjusted EBITDA margin of 27.2% in 2018 was lower than our estimate around 28.5%, but we see a rebound 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. Grifols acquired control of several collection centers in 2018 (Haema has 35 centers outside the U.S., Grifols has the option to acquire the remaining 51% stake in Interstate Blood Bank in 2019, and Biotest has 24 centers in the U.S.) to secure long-term plasma supply. 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.

Immunoglobulins saw double-digit growth in 2018, and Grifols has already filed for approval of a new 20% subcutaneous version of immunoglobulin after completing its clinical study in primary immunodeficiencies. Its key competitors already have 20% subcu products (CSL's Hizentra and Takeda's Cuvitru), and we think this is likely to help Grifols see further growth in pricing and volume. Grifols expects to apply for European approval of Gamunex in myasthenia gravis in 2019, and the firm also has two phase 3 studies in progress testing albumin in liver cirrhosis and acute-on-chronic liver failure.