Santander | Grifols could be facing a possible claim of 54-274 million euros, according to the newspaper El Economista.
On Friday, it emerged that the Spanish blood plasma manufacturer would be facing a class action on the part of 54.000 donors in the state of Illinois, in the United States. The plaintiffs are arguing that Grifols has not complied with the state’s Biometric Privacy Law, since they have demanded that donors provide their fingerprints, not destroy this information and exceed the specific objective for which it was registered.
A judge from the Northern District in Illinois has ruled in favour of the plaintiffs, turning a deaf ear to Grifols’ arguments.
Our colleague, stock market analyst Jaime Escribano, has spoken to the company to clear up some details about the class action suit presented by the donors: a) Grifols has an insurance policy which covers up to 50 million dollars; b) the company has decided not to make any provisions because it does not believe that the fine will exceed that amount; c) it has 600.000 donors in the US. And it does not expect the Illinois case to affect more than 50.000, given that it is a small state in terms of collection centres (figure of 100.000 donores cited by El Economista seems too high, as it represents 16% of all donors in the US); d) Grifols does not think this risk is going to extend to other states, given that it has to do with a specific law in Ilinois. That said, it has indicated that other states are introducing similar regulations for the future; and e)there are precedents with other plasma firms (CSL and Octapharma) which settled similar claims at the lower end of the range (namely, under 10mn USD in each case).
Grifols said on Friday that this matter had been duly reflected in its audited, consolidated account for 2021 and H1’22. We should flag that all the court’s decision does is to allow the donors’ suit to go ahead. The facts still have to be validated and the decision is not a final judgement. The company believes it has a good defence against the plaintiffs’ claims. The group has not made any provision in its accounts for the claim because, according to the evaluation made by its legal advisers, it has no substantial basis. To arrive at this conclusion, the company has also taken into account similar cases in the plasma industry, as well as the cover provided by the relevant insurance.
Research opinion: In our view, this headline does not significantly change Grifols’ credit history. In the worst case scenario (supposing that the published information is correct, which does not seem to be the case given that the company has flagged the number of donors in Illinois is much less than that given in the news), the cash impact would be 220 million dollars (probably within at least 5 years). Grifols had 539 million dollars in cash in June. In addition, it had room to manoeuvre thanks to its renewable credit line for 1 billion dollars (currently undrawn).
We maintain our Neutral stance, as we believe that the main problem from a credit risk point of view is the same as that observed in the last few quarters: the group needs to increase its EBITDA (and reduce leverage) in the coming quarters to avoid a possible rating downgrade from Moody’s at the end of next year. And it is facing maturities worth 2 billion euros in 2025 which it will have to take into consideration next year. The business is recovering slowly, with plasma donations over pre-pandemic levels. We see upside in EBITDA 2023E thanks to Grifols’ high operating leverage. There is also the good news that the court of the District of Colombia declared that Mexican citizens can cross the border to donate blood in Grifols’ collection centres near there.
