Grifols Earnings: Lowering Fair Value Estimate on Price Concessions and Additional Investment

Grifols reported 2023 revenue growth of 8.7% (10.9% at constant currencies), in line with our expectations, but the firm's profitability was lower than we had anticipated. This was largely due to additional restructuring costs and efforts to improve manufacturing efficiency at Biotest, but also due to rising interest rates on the firm's floating rate debt. We're lowering our fair value estimate to EUR 10.90/$11.80 from EUR 12.20/$13.40 after updating our model for these results as well as the firm's 2024 guidance, which reflects continued strong demand for Grifols' plasma-derived biopharma products, but also potential price concessions and investments in commercial launches and manufacturing. We now model roughly 7% top-line growth in 2024, in line with management's guidance, as well as a relatively steady EBITDA, after factoring in Biotest-related investments and efforts to regain contracts lost during the pandemic. Longer term, we're encouraged by the potential for Biotest's fibrinogen product, which should be filed with regulators by the end of the year and launch in 2026, although competition to the firm's alpha-1 business is looking increasingly likely, with Sanofi's pending acquisition of Inhibrx. Overall, we continue to see Grifols' strong position in the plasma market as warranting a narrow economic moat. The firm's ability to maintain this moat will likely depend on whether its own innovative launches can counter novel, non-plasma-derived product launches from competitors.