Cancer Cures And Blood Money

Sun Herald

Sunday July 8, 2007

David Potts

CSL's high share price is tipped to rise yet further, David Potts writes.

MENTION the word plasma and you might think new TV, but I think blood, profits and CSL.

Don't be put off by the unfortunate word association, because pharmaceutical group CSL has cornered the market in life-saving liquid plasma, or what it calls intravenous immunoglobulin (IVIG), used to treat immune deficiencies.

It also shares royalties with Merck for Gardasil, the anti-cervical cancer breakthrough vaccine being given to schoolgirls in the developed world. No wonder its share price is close to $90 and expected to reach $100 before long.

CSL had been touted as the stock most likely to reach $100 for the first time since the Poseidon boom, but was beaten a couple of weeks ago by Rio Tinto.

Rio won on a technicality. The real winner was Soul Pattinson some 18 months ago. But because it had a one for 10 share split, the $11.35 price didn't have quite the ring as $113.50 even though the market capitalisation was the same.

This is a point to bear in mind with stocks such as CSL. You can't say they're expensive on the share price alone. Mind you, CSL is still expensive. It has a very high price-earnings ratio, making it expensive relative to most other stocks.

But then most other stocks don't have an anti-cervical cancer vaccine, or will have liquid IVIG, which is also a potential treatment for Alzheimer's, available next year.

CSL has been on the expansion path, buying up small biotech firms, although it is seen as a takeover target itself - all those royalties from Gardasil would be a private equity group's dream, especially as there is a global shortage of plasma, a far cry from four years ago when a glut savaged CSL's share price.

Mind you, for all its prospects, including the likelihood of being debt free within two years, CSL is vulnerable to a market correction because it is trading on a very high price-earnings ratio. Still, the main downside is the currency. The bulk of its sales of Gardasil are overseas and set in US dollars.

ADVANTAGES

* Huge demand for plasma products

* Brokers value shares above $100

* Potential takeover target

* Good track record

* High margins

DISADVANTAGES

* Gardasil controversy

* High p/e ratio

* Stronger dollar

* Heavy R&D expenses

* Low dividend