This reviled pharmaceutical firm holds promise of a healthier future

livemint.com:

This column is part of the eighth annual Heard on the Street stock picking series. Pharmaceutical firm Grifols is wounded. The bleeding can be stopped. Between the time it first listed on Spain’s stock market in 2006 and the onset of the Covid-19 crisis in 2020, the Barcelona-based company outperformed the S&P 500 almost fivefold thanks to its role as a supplier of blood-plasma-based medicines and its geographical diversification.

Half of its revenue comes from the U.S. Ever since, though, the stock has become reviled and lost more than 70% of its value. During the pandemic, Grifols invested in research on the use of antibodies derived from the plasma of patients newly recovered from the coronavirus as a treatment.

The results were disappointing, but that wasn’t the pandemic’s worst impact on the company. Lockdowns prompted blood-collection centers to close, resulting in a plasma shortage that contributed to a 69% drop in the company’s net income in 2021. At the start of this year, the company suffered an even deeper cut in the form of a report released by Gotham City Research, the short-seller fund responsible for sinking Gowex in 2014.

The Spanish wireless-network provider ended up admitting that it had falsified its accounts. In the post-Theranos era, leveling a similar accusation against a blood-related company tends to make investors a little jumpy, and Gotham did raise some reasonable concerns. One is that Grifols’s acquisition spree of the past decade and a half now looks ill-advised.

Debt went from amounting to about three times earnings before interest, taxes, depreciation and amortization, to eight times at the end of 2023. During that time, operating margins went from 25% to 11%. Another is that Grifols has an