The Greatest Wealth Creator in Australian Biotech: The CSL Story

So yesterday, after I published my CSL take, I got a call from my old man.

Dad was a broker for 30 years and explained that in the biotech sector, there is no wealth-generating company greater than CSL.

A 500-bagger in 25 years… he’s not wrong.

I asked him to put together some of his thoughts on the company and his experience following one of the greatest stocks ever to hit the ASX.

So enjoy, my second-ever guest post, the CSL story from someone who lived it.

Hi, David here, the father of The Armchair Analyst.

There are many great biotech stories I witnessed as a broker throughout the 80s, 90s, and early 2000s, but in terms of pure wealth creation in the Australian biotech sector, there is no greater story than CSL.

A very good friend of mine managed to secure a parcel of shares in the 1994 float, which was part of the government's (Keating at the time) privatisation program. 

My friend bought 5,000 shares (I’ll claim it was on my advice) at a cost of $11,500.

A modest sum, which, as a long-term investor, he was happy to put into his superfund. 

In subsequent years, he watched it grow, split 3-for-1 in 2007, and reach a peak of $342 in 2020, making his passive investment, at the time, worth in excess of $5,000,000. 

Even allowing for inflation and opportunity cost, that’s a pretty amazing return over 25 years. 

(I could also tell you about all of the duds he invested in too… but that’s not what history will remember)

A true 500-bagger.

The CSL float was the second in a series of privatisations that occurred during the 1990s, seen as an economic necessity as the government wrestled with rising debt and rampant inflation.

(an all-too similar to today, actually…)

After a decade dominated by a group known as the debt kings of the 80s, the Australian financial system was under significant pressure and needed recapitalisation. 

There was a major increase in mortgage defaults, and the rising interest rates seemed to make matters worse. 

The Commonwealth Bank, which had absorbed the State Bank of Victoria, was the first of the government floats in 1991 at $5.40 (trading at ~$169 today).

And in June 1992, Westpac and ANZ had critical capital raises to shore up their balance sheet.

The float of Commonwealth Bank was a huge success, and by the time CSL was floated in May 1994, their shares were trading at around $8.50.

Which, in the context of the economic turmoil, was quite good. 

There was an appetite for public floats of government assets, and CSL’s was overwhelmingly supported. 

Other privatisations in the 90s included QANTAS and Telstra.

CSL has an incredible history… at least I like to think so.

The Commonwealth Serum Laboratories was formed in 1916 in response to Australia’s reliance on imported medicines during the First World War.

Later in the decade, the global Spanish influenza pandemic occurred. 

In 1918, CSL developed its first vaccine as a response and produced approximately 3 million doses within months.

In the 1920s, CSL developed an antivenom for snakebite, and in the 1940s, it produced penicillin. 

By the 1950s, its blood-collecting service began through the Red Cross Centre in Sydney. 

As a blood donor for 50 years, I can attest to the constant innovation and development of blood collection in the 70s, 80s, and 90s, with the most significant change being the shift toward Plasma donation.

Plasma increased the availability of blood products because donors could donate every two weeks rather than having to wait 3 months between donations.

When the government floated CSL in 1994, it had a turnover of $156 million and a pretax profit of $21 million, but under the guidance of CEO Brian MacNamee, it had grander ambitions.

Before I go into the company acquisition strategy, I wanted to mention that one of the secrets to CSL’s incredible share price growth was that it was an established business when it floated, with solid earnings.

CSL was able to grow its business on internal cash flows and avoid the typical dilutive capital raisings that most other biotechs endure. 

In their almost three decades of corporate life, there were only two capital raisings:

Even though these capital raisings were massive, they were not particularly dilutionary because the size of the raising relative to the company’s market capitalisation was modest.

This lack of a need to raise capital at the early stages of the company’s growth is a unique characteristic of many other companies in the biotech sector.

It allowed CSL to adopt a growth-through-acquisition approach, leveraging free cash flow to pursue strategic acquisitions.

In 2000, CSL acquired ZLB BioplasmaAG, a Swiss plasma facility, through its purchase of Haemacure.

In 2003, it acquired the Behring unit of the European Company Aventis, a move that consolidated CSL as the world's largest producer of plasma products.

In 2013, MacNamee stood down, but the CSL expansion continued.

In 2015, it paid US$275 million to acquire Novartis's vaccine production assets, making it the second-largest producer of influenza vaccines.

In 2021, CSL bought Vifor, which had a drug for treating iron deficiency, cardio-renal and kidney diseases.

The chart of CSL's share price has been a virtual straight line up until a recent pullback about 6 months ago. 

It first reached $100 in 2007, then $200 in July 2018, and $300 in January 2020. 

It reached a peak of $342 in February 2020, just a month after the first Australian died of Covid and the government was determined to manufacture, develop and distribute vaccines to all Australians. 

After trading between $250 and $300 for the next few years, CSL has seen a sharp decline, falling more than 50% from its 2020 highs and to the lowest point in eight years.

After being so good for so long, this is perhaps CSL's greatest test, turning around its fortunes from what appeared to be an unshakable pillar of the Australian market.

My son wrote a good summary of the CSL investment today, so I won’t dive too deeply into it: Why I'm not catching the CSL falling knife.

First, sometimes it’s a good idea to ride your winners.

Traders will notoriously sell their good shares and hold on to their duds, hoping they will somehow recover.

It’s human nature, but history says do the opposite. 

Second, if a share price has stretched on fundamentals, a slowdown in growth can cause a significant fall in the share price.

That’s what is likely happening to CSL today.

Companies with valuations above fundamental levels have to grow reasonably strongly just to stand still. 

The market has rightly punished CSL for its guidance downgrade, half-year results, and CEO exit.

Third, government privatisations have overall been a huge benefit for investors.

Fourth, biotech stocks that dominate a category or sector globally can reach exceptionally high valuations - like CSL with blood plasma.

Fifth, dilution matters. If companies can grow on the business's free cash flow, that is generally a signal of success.

CSL is a beacon of the Australian stock market, and I want to see it restored to its glory.

But businesses can’t live off past achievements; they need to grow, evolve, and adapt to the future.

There is only one thing that matters when buying a stock today: what it’s going to do tomorrow.

Looking back is useful for lessons, but the best returns are made looking forward.

Thanks, Dad, for the write-up.

See you all tomorrow,

The Armchair Analyst

Chimeric Therapeutics (ASX: CHM) is advancing its Phase 1 CAR-T cell therapy trial for colorectal cancer to “dose level 3”. (CHM)

🪑There were promising early signs from dose levels 1 and 2. I expect there to be even better efficacy data out of dose level 3, as the higher potency should be more effective.

Just how effective? We’ll have to wait for the trial results for that.

Disclosure: I own shares in CHM. 

BlinkLab (ASX: BB1) has now secured nine clinical sites (most recently Drexel University) for its pivotal FDA 510(k) trial to detect autism with its AI-powered mobile application. (BB1)

Entropy Neurodynamics (ASX: ENP) secures an Australian patent for TRP-8803, an IV-infused psilocin dosing method, targeting chronic pain. (ENP)

Pro Medicus (ASX: PME) reports a 230.9% increase in net profit after tax to $171.2 million and a 28.4% increase in revenue to $124.8M for H1 FY2025, driven by strong North American contract wins totalling A$278M. (PME, CEO Interview)

🪑The market didn’t love the results, down ~16% at the time of publication, but at least that 4DX investment looks good on the balance sheet. 

Maybe they should go into stock picking as a side hustle?

Oneview Healthcare (ASX: ONE) preliminary final reports a 21% increase in revenue to €12M, despite a widened net loss of €12.6M and reduced gross margins. (ONE)

🪑Slow grind for ONE, but these half-year results are likely to be baked into the current share price. 

It’s all about what happens next for ONE and whether it can deliver new customer logos for its land-and-expand strategy.

The first mention of Baxter is on slide 23, about halfway through the presentation… the partnership may be moving a little slowly.

Patrys (ASX: PAB) appoints Dr Samantha South as CEO. (PAB)

Neuren Pharmaceuticals (ASX: NEU) will launch an on-market buy-back program. (NEU)

🪑 Interesting comments from the chairman: “The board views the current share price as materially undervaluing Neuren’s assets”.

Neuren has been on a downward trend the last few months, and as a cash-up company from the sales of its DAYBUE drug, it has the power to put its money where its mouth is (literally).

This could break the negative sentiment for the company, not all at once, but over the next few months as new buying enters the market.

The FDA refused to review Moderna’s influenza vaccine filing. (STAT)

🪑 Vaccine stocks are like the nickel of biotechs. Hot in 2021, terrible since.

Evogene and Google Cloud expand their collaboration to integrate AI agents into the ChemPass AI platform. (Evogene)