Rising blood pressure bodes well for CSL
History doesn't repeat, but it does rhyme: the next dip in the plasma cycle is here, and that's great news for CSL.
by Graham Witcomb
19 Apr 2017
‘History is a vast early warning system,’ wrote political journalist Norman Cousins. ‘Wisdom consists of the anticipation of consequences.’
In the mid-1990s, the world experienced a major shortage of antibodies, or ‘immunoglobulins’ if you favour extra syllables. These special proteins are extracted from human blood plasma and are used to treat a variety of infections and immune system diseases.
Between 1995 and 1997, several producers failed inspections by the US Food & Drug Administration (FDA), which led to widespread product recalls and a 30% dip in supply. Doctors were turning patients away unless they had the most serious illnesses requiring antibody treatments.
Key Points
Industry plasma collections inadequate for demand
CSL has largest, fastest-growing collection network
Well placed to increase sales, take market share
Not content to learn from its mistakes, the industry did it again in the mid-2000s – this time by being too conservative when forecasting demand following the approval of several new plasma-derived products. Plasma collections couldn’t keep up.
Ironically, it took the financial crisis of 2009 to get the industry back on track – rising unemployment in the US, where most of the world’s plasma is collected, led to a flood of paid donations. Donors typically receive $20–40 per visit.
A decade on and all signs point towards another plasma supply shortage. If history is anything to go by, that’s great news for CSL.
Mistaken forecasts
The plasma market is a classic case of supply and demand imbalance. Rarely is the market in sync.
Global demand for plasma currently runs at around 41 million litres, which is collected at 600 or so collection centres. Most are located in the US due to a quirk of regulations: donors can be paid, and plasma-derived products sold in the US must be sourced from US-based clinics. Throw in economies of scale and the fact that the US is the largest market, and what you get is 70% of the world’s plasma needs being met by US collection centres.
But here’s where things get tricky for CSL and other plasma companies.
It takes seven to nine months to collect the plasma, hold it for safety testing, transport it to the fractionator, then process it into an end product. Syringe to shelf takes the better part of a year, and getting a new collection centre licensed and operational can add another two years to that.
Plasma companies need to predict demand 9–24 months in the future to know how much plasma to collect today. Sometimes manufacturers overshoot, which results in too much being collected. Sometimes they undershoot, resulting in a rush to collect more. Recency bias being what it is, plasma forecasters tend to extrapolate current conditions into the future, so oversupply in one period can lead to a lack of investment in collections, which brings on the next period of undersupply.
Thankfully, the booms and busts are getting smaller and less frequent. The industry has consolidated significantly into a tight oligopoly: no new firm has entered the sector in 20 years (bless barriers to entry) and several mergers have reduced the number of plasma companies from 13 in 1990 to just six today — CSL, Baxalta/Shire and Grifols, which together account for roughly 90% of the market, and three small European firms that share the rest.
As far as collections go, there’s a high level of information sharing between the three lead firms. This makes gauging current industry production easier, but there’s no getting around the need for long-term forecasting. The supply-demand rollercoaster is here to stay.
Market share gains
Over the past two years, industry collections have grown at around 6%, while demand has increased at around 8%. However, collection growth has been heavily skewed in CSL’s favour: the company increased its count of collection centres by more than a third over the past two years, whereas Baxalta and Grifols increased collections by only 15% and 5% respectively. Smaller companies were in the red.
CSL is also increasing the rate of openings. The company recently said it would increase targeted collection centre openings from 24 to 30 per year. CSL is also part way through a $450m expansion of its manufacturing facilities in Melbourne and Kankakee, USA, and it began construction of a new fractionation facility in Switzerland in 2015. CSL intends to double fractionation capacity by 2024.
All this suggests that CSL is the best positioned of the big three plasma companies to take advantage of the next period of undersupply. And it may already be here.
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