CSL Limited (CSL) Earnings Call Transcript

Thank you for standing by, and welcome to the CSL Limited Full Year Financial Results Conference Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Mark Dehring, Head of Investor Relations. Please go ahead.

Good. Thank you, operator, and good morning, everyone, and welcome. I have with me here in the room, Paul Perreault, CSL's Chief Executive Officer; Joy Linton, CSL's Chief Financial Officer; and Paul McKenzie, CSL's Chief Operating Officer. As with past practice, Paul will provide an overview of the results and operations, and then Joy will provide some additional details on the financials. And we'll then move to Q&A. [Operator Instructions] Please note, this briefing is being webcast. And lastly, before we start, I draw your attention to the forward statement disclaimer contained in the slide deck. I'll now pass you over to Paul Perreault. Paul?

Thank you, Mark, and good morning, everyone, and thank you for joining the call today. Before I move into the results, I want to make a few comments on a very contemporary topic, our acquisition of Vifor Pharma. Look, it's a very exciting time for us. The ink is still wet on signing the virtual check. And already, we're in full swing of engaging with our new colleagues and starting the integration process. So what does this mean for CSL's shareholders? Early data indicates no change to our overall view of the financial contribution from the acquisition of Vifor Pharma Ltd. It remains a really good deal for CSL. In fact, it's quite unusual how often do you come across a biotech that's actually generating cash flows as well as having an exciting future for growth opportunities. We now have an amazing franchise encompassing renal disease and diseases of iron deficiency. All this and our balance sheet remains solid. In fact, it's in really good shape. We received strong support from both debt and equity investors in raising USD 11 billion, showing extreme confidence in the transaction. We've now paid for the acquisition, which incidentally Vifor came with $0.5 billion of its own cash. And we've kept our A credit ratings, the takeout being we are now a significantly larger company, have a broader strategic horizon and at the same time, we've retained our financial flexibility. I could go on, but we'll be talking more about the strategic merits of the deal at a dedicated CSL Vifor briefing in October, and I hope all of you can make it. So now turning to the results. CSL has delivered a good result at the top end of our guidance in a very challenging global COVID environment. And before I get into the detail, it would probably be remiss of me not to call out our 27,000 CSL employees. Over the last few years, since the emergence of COVID, our employees have displayed enormous resilience with an unwavering commitment to deliver on our promise to patients and the protection of public health around the world. We continue to invest in the business and remain focused on executing on our 2030 strategy, and I couldn't be any prouder of the CSL team than what I am today. So moving to the performance slide. Revenue was up 3% at constant currency, and net profit after tax came in at $2.25 billion, at the top end of our financial guidance provided at the half year result. In the CSL Behring business, our sales of immunoglobulin and albumin, the 2 major products we extract from every liter of plasma, have been constrained by the volume of plasma collected in the previous year, remembering that plasma products have a long manufacturing cycle of between 9 and 12 months. A constant topic since the emergence of COVID has been the growth rate of plasma collections. I'm pleased to say that plasma collections have grown strongly, up 24% over the previous year, which we anticipate will underpin strong sales growth this current financial year, and we aim to continue this momentum into the future. Supply chain challenges, inflationary pressures and higher plasma collection costs have all contributed to margin compression throughout fiscal '22. Over the last few years, I've really commended CSL Seqirus on delivering a set of impressive results, and fiscal year '22 is very much the same. We continued to execute on the innovation and strategy that we set forth for CSL Seqirus. We will continue to drive sustainable growth across the enterprise in fiscal year '23 and beyond, and R&D is a major component of that. As such, we continue to invest in programs that will deliver both mid- to long-term growth. And we formally, as I mentioned earlier, welcome Vifor, now CSL Vifor, to the CSL Group. We are not in a position, as I said, to discuss this today. However, CSL Vifor market briefing is scheduled for Monday, October 17, when investors will have an opportunity to hear from CSL Vifor management team as well as CSL execs as we discuss CSL Vifor's growth strategy, insights into its product portfolio and some of the key value drivers. So for CSL Behring, a very strong performance from IDELVION, our market-leading hemophilia B product, which was up 20%. This does remain the standard of care in all major markets where we've launched IDELVION. Our major specialty products continued to experience growth with KCENTRA up 18% and HAEGARDA up 5%. HPV royalty revenue exceeded pre-pandemic levels and was up 55% year-on-year. Our core franchise of immunoglobulins declined 3%, a reflection of the lower plasma volumes collected last financial year, continued investment in our plasma collection supported by digital enhancements and marketing initiatives. And we saw plasma collections, as I just mentioned, grow. Our new plasmapheresis platform was approved during the year and is being rolled out during fiscal year '23. And today, I'm also pleased to announce, you may have seen a press release on the receipt of positive top line data for garadacimab for the treatment of hereditary angioedema, very exciting progress for us on that Phase III trial. And for CSL Seqirus, our influenza vaccines business has delivered another exceptional performance. U.S. sales exceeded $1 billion for the first time with seasonal influenza vaccine sales up 16%. This was primarily driven by exceptional growth in FLUAD, which was up 41%. CSL Seqirus distributed a record number of 135 million doses of influenza vaccine during the year. And to support this growth, we continued to invest in process innovation and our manufacturing facilities and also with fill and finish capacity projects having been completed at both Holly Springs and Liverpool. Turning to Slide 5 and CSL Behring sales by therapeutic area. Overall, the Behring revenue was up 2% at constant currency. Ig, our core franchise, declined 3%. Albumin was down 1%. Hemophilia was up 8%. And specialty products were up 3%, including strong performances, as I mentioned, by KCENTRA and HAEGARDA. The 37% growth in other largely reflects HPV royalties and the contribution from COVID vaccines. Of note, we have now completed the manufacture of 50 million COVID vaccine doses for the Australian government, and these contributions will not repeat in fiscal year '23. In terms of the geographic split of CSL Behring revenue, North America continues to be our largest market, accounting for 49% of total CSL Behring revenue, up 1%. Our next biggest market, Europe, declined 5% in revenue, and this is where we really felt the impact of Ig supply tightness. Asia Pacific was up 21%, primarily as a result of the strong albumin demand in China. Moving on to Slide 6 in immunoglobulins. As I mentioned earlier, sales have been constrained by plasma collected last year, and supply is the core limiting factor. We are optimistic that we are seeing improved momentum evidenced by a strong second half performance in Ig. Our product HIZENTRA remains the clear leader in the subcu market with approximately 60% market share in the U.S. Supporting HIZENTRA growth has been the demand for CIDP treatment following an update to the Peripheral Nerve Society treatment guidelines as well as Medicare Part B reimbursement approval. The guidelines recommend subcutaneous for the maintenance treatment in CIDP and enhanced label dosing and long-term efficacy information from the PATH extension data update. And most importantly, HIZENTRA will now offer an improved patient experience with faster and easier administration option of a prefilled syringe. Patients want the convenience of home-based treatment, an offering that HIZENTRA has been the leader in and is able to provide. I will say, COVID has presented challenges for patients. They have had limited access to treatment and diagnosis. There has also been an environment of constrained supply. However, as the global supply recovers, we are anticipating a strong growth rebound in the Ig portfolio with opportunities in core indications of primary immune deficiency, secondary immune deficiency and CIDP. Turning to Slide 7 in albumin where sales were down 1% despite the increased competition in China. We have maintained our market leadership position with sales up 10%. The change in our operating model in China is paying off. The 10% growth comes from being able to extract greater effectiveness from having increased channel transparency and greater reach to hospitals and health care providers. Having said that, China remains a competitive market as our competitors increase their investments in China. Looking forward, we anticipate volume demand to continue to grow at mid- to high single digits. However, pricing pressures may continue due to the increased supply from importers. Outside of China, it has been a bit more challenging. Volume declined in Europe and emerging markets following increased competition from local manufacturers who have access to some local plasma sources. In the U.S., volume also declined as supply constraints continued, a direct effect of the lower plasma collections in the previous financial year. More broadly, across the markets, clinicians are using albumin in preference to other colloids as well as increased usage of albumin in sepsis and liver patients. Now to hemophilia on Slide 8, where we start to talk a little bit about CSL products not impacted by plasma collections with sales up 8%. IDELVION was a standout performer, up 20%. It is the clear market leader for hem B patients with a compelling clinical profile that continues to drive patient demand and market share. IDELVION does remain the #1 Factor IX prophylactic product in markets where we've launched with the highest patient shares in major European countries. We continue to explore further opportunities with IDELVION having completed an extension study, which evaluated patients for up to 4 years confirming the long-term efficacy and safety profile of IDELVION. We have also gained 21-day dosing approval in the EU, Switzerland, Japan and Canada and have seen strong uptake in France since we launched with approximately 30% patient share. AFSTYLA declined 4%, primarily driven by the continued competitive market pressures in the hem A market. Despite the challenges, we've made some good gains in key markets. Competitive market pressures have also negatively impacted on our plasma-derived hemophilia products. This was offset to some extent by HUMATE growth in the United States. Overall, we're seeing ongoing movements towards new-generation products within the hemophilia space and expect this trend to continue going forward. Etranacogene is one such example. On to Slide 9 and specialty products, which nearly tripled over the last decade to $1.8 billion, now our second largest therapeutic group. HAEGARDA, our transformational therapy for treating patients with hereditary angioedema, or HAE, continues to perform strongly and up 5%. Recent launches in EU and Australia have exceeded our expectations with Europe recording 60% growth and market share in the Australian prophylaxis segment quickly surpassing competitors to gain 70%. We continue to add new patients despite increased competition as the treatment paradigm further shifts from on-demand to long-term prophylaxis. In the U.S., HAEGARDA continues to have the largest share of on-demand prophylaxis switches and remains the only therapy indicated for patients 6 years of age and older and with special populations data such as pregnancy now contained in the label. BERINERT was down 6%, primarily reflecting patients shifting to HAEGARDA. And KCENTRA, commonly known as the gold standard for warfarin reversal, was up 18%. In the U.S., where the bulk of the sales originate, KCENTRA has grown significantly since launch, driven by both penetration within existing large hospitals and expansion into smaller regional accounts. The small volume and fast infusion profile appeals to the target market. And lastly, Alpha-1 sales were down 17% following the supply interruptions at Kankakee. We've now resolved these issues and have provided consistent supply to the channel over the last 6 months with commercial now focusing all of their efforts on regaining ZEMAIRA users. Just a comment on specialty products. Some years ago, we indicated a target of $800 million to $1 billion for this category, and we've now reached $1.8 billion of sales, illustrating the benefit when you have a differentiated product portfolio. Turning to Slide 10 and plasma collections. As has been well documented, COVID has presented the plasma industry with many challenges, and plasma collections is one such area of our business that has been greatly impacted by the pandemic. A return to growth just doesn't happen via one response effort. It requires a team that's in sync, driving and executing multiple innovative measures. The CSL Plasma team has worked tirelessly and have implemented a number of targeted initiatives with a core focus on growing plasma collections. The team's resilience and dedication has been outstanding, and we have seen a volume improvement of 24% from fiscal year '21 to fiscal year '22. The following slide graphically illustrates this performance. But before we get there, I'd like to share some of the initiatives we've undertaken to support collections growth. We have enhanced our operating and marketing efforts to attract new donors but also lapsed donors, both of which are an important source of future donations. For example, our revamped brand positioning and advertising via the Do the Amazing campaign has been delivering compelling brand positioning, surpassing industry benchmarks and ultimately driving new applicant donor prospects and importantly, raising brand awareness. The donor app-enabled digital marketing initiative has reached approximately 2 million people and is one of the key levers for the increased level of donations leading to collections now exceeding pre-pandemic weekly average run rates. Self-serve initiatives and the ability for donors to register online are other components of our digital offering, all of which are dedicated to ensuring a best-in-class donor experience. Our investment continued in opening new plasma collection centers with 27 new plasma collection centers opened last year. Not only have we invested in increasing the size of our network, but as many of you already know, we've made investments in the new plasmapheresis platform being rolled out during the fiscal year 2023. This platform will improve the donor experience by reducing average donation time by more than 30%, improve donor safety and comfort by reducing the amount of blood outside the donor body at any one time. It delivers material sustainable benefits, specifically waste management, with a significant reduction in onetime use of plastics. It improves the employee experience with ease of use in advanced diagnostics for maintenance and operation. More broadly, across the industry, as donor fees have increased, we have redesigned donor fee structures, and that has assisted us in capturing more new donors and help retain those donors. We continue to gain momentum. However, there are some industry-wide issues that remain. The pandemic is ongoing. New variants continue to emerge. Staffing centers to remain open and to operate at optimal levels is a challenge for the industry. As you would know, there are labor shortages in many countries, including Australia. The U.S. employment environment is very competitive. And whilst we have introduced retention schemes to enhance compensation for staff, attracting and retaining employees remains a challenge in this space. Turning to the next slide, the donors per week graphic, which is a good proxy for liters collected. The red line is calendar year '22; gray, '21; and black, '20. You can clearly see the improvement on prior period, which was plus 24% overall. And as I mentioned before, the plasma team have left no stone unturned when evaluating and executing initiatives to grow plasma volumes. The growth has been extremely positive and gives us confidence about sales growth in fiscal year '23. I'd like now to bring the key elements underlying our outlook for CSL Behring together. Fundamentally, the business is well positioned for growth post-COVID with more collection capacity, more manufacturing capacity and good demand indicators. With regards to increasing collection volumes, through the continued investment, CSL Plasma has opened 73 new centers since the beginning of the pandemic. That's more than a 30% increase. As some state and local county executive orders were rescinded in mid-'21, plasma collection centers are progressively now returning to pre-pandemic operational design. Of the 10% of beds that we temporarily removed during COVID to meet social distancing requirements, 5% of the beds are still to be returned to the center. So there is latent capacity available to have more donors in the center. Our new plasmapheresis platform brings with it a number of benefits, including a more than 30% reduction in average donation time. And that means faster bed turns, lower staff-to-donor ratios, fewer new centers needing to be opened. With regards to manufacturing capacity, as you know, at CSL, improving Ig yield has always been and is always a core focus. We continue to invest in our pursuit of yield through maximizing data analytics. Collecting plasma, albeit an important part of the process, is only one part of the jigsaw. We recently completed modules 5 and 6 at Bern, which has added 8 million liters of additional Ig capacity. Investments in these types of projects are costly but absolutely necessary. Demand has and will continue to remain robust. It is the only reason why we continue to invest in our facilities. And there are some driving forces supporting this type of growth, including leading indicators of disease diagnosis that are now returning. These include bronchitis, ear infections and respiratory infections. Many patients even in Tier 1 markets remain undiagnosed. Patient groups in the U.S. have run awareness campaigns as multiple primary immune-deficient patients are unaware that they have the disease and continue to live unnecessarily with ongoing infections. Ongoing preference for the convenience of home treatment will continue to drive demand for HIZENTRA, and approximately 3/4 of targeted physicians are now using HIZENTRA to treat CIDP patients. These patients not only come from PRIVIGEN but also from other intravenous products. Demand for treatment of secondary immune disease continues to grow. Many new cancer treatments require suppression of the immune system prior to treatment. Patients then need to rebuild their immune system. Ig is usually the only answer. Even though incidences of diseases are similar across geographies, I want to remind you that the rates of Ig consumption are not. Ig in the U.S. is still consumed at almost 3x the rate per head of population when compared to Europe, and we are currently seeing strong growth opportunities outside the U.S. The world needs Ig. Before I leave CSL Behring and move to CSL Seqirus, I just want to say this. At CSL Behring, we are the leading plasma collection company with capabilities and continue to innovate to be the industry's largest and most efficient. Operationally, we could not be better placed for capacity both on a collections and manufacturing front. We are doing everything we possibly can to ensure patient demand and make sure that, that patient demand is satisfied with our products. Now changing gears and moving on to Slide 13 and our influenza vaccines business, CSL Seqirus. As I said from the outset, CSL Seqirus has delivered another exceptional performance in fiscal year '22. Total revenues were just short of $2 billion, up 13% at constant currency with seasonal influenza vaccines up 16%. The increase reflects an ongoing shift to CSL Seqirus' differentiated products, particularly FLUAD, our adjuvanted product, which was up 41%. The Northern Hemisphere continues to be the dominant market for CSL Seqirus with the EU and U.K. delivering particularly strong growth, up 42%. Continuing with CSL Seqirus on Slide 14 and some of the operational highlights. CSL Seqirus continues to achieve significant growth in seasonal influenza vaccines, which, as I mentioned earlier, saw a record volume of 135 million distributed doses globally in fiscal year 2022. In the U.S., CSL Seqirus delivered vaccine revenue in excess of $1 billion for the first time. They were also awarded a new pandemic contract by the U.S. government, BARDA, for the development of 2 influenza A virus vaccine candidates using both our cell-based adjuvanted combination technology platform and our self-amplifying mRNA technology. We've achieved pandemic-ready designation from the U.S. government for Holly Springs. In Europe and the U.K., CSL Seqirus continued to achieve heightened recognition of the benefits of our differentiated products, namely from the Joint Committee on Vaccination and Immunisation in the U.K. And we successfully launched FLUAD in Ireland. We continue to work with regulatory bodies and are pleased that the CDC adopted the Advisory Committee on Immunization Practices for FLUAD to be one of the preferentially recommended seasonal vaccines for adults aged over 65 in the U.S. Exciting opportunities for CSL Seqirus going forward and a great, great job by the team. Moving on to R&D on Slide 15. And just whilst we're here, the annual CSL R&D Day is to be held virtually on November 3. So with that in mind, I'll only provide some high-level comments as we move through some exciting developments in the CSL pipeline of assets. Starting with immunology. We are so excited to announce the positive top line data today for garadacimab for HAE. The study met its primary and secondary end points and also demonstrated safety and tolerability. These results underscore our belief that garadacimab has the potential to become a transformative first-in-class therapy for people living with HAE, a patient group that CSL has been serving for many years. CSL aims to begin filing with global health authorities by the end of this fiscal year for approval in the U.S. In hematology, the primary end point was achieved for etranacogene, also known as EtranaDez, with submissions now made to European and U.S. regulators. Notably, it has been fast-tracked in the U.S. and, if approved, will be launched in 2023. Moving over to cardiovascular and metabolic. The Phase III trial for CSL112 continues to progress well with over 80% enrollment achieved and last patient in estimated to be the end of this calendar year of 2022 with primary completion date 12 months thereafter. Top line results will be released once the study has been completed and the data has been analyzed. In respiratory, beyond garadacimab for treating HAE, we have initiated a Phase II study for the treatment of idiopathic pulmonary fibrosis. Garadacimab has the potential to be another flagship molecule for CSL. And of course, it is a homegrown monoclonal antibody. In influenza vaccines, FLUCELVAX, with the most notable development, was achieving 6 months and older age indication in the U.S. and Argentina. And FLUAD Quadrivalent adults 50 to 64, the Phase III study enrollment is now complete. With that, I'm now going to hand over to Joy, who will provide some details on our financial statements and an update on our sustainability strategy. Joy?

Thank you, Paul, and good morning, everyone. As Paul said at the beginning, CSL has delivered a good result, in line with our expectations and at the top end of our guidance. Reported net profit after tax was $2.255 billion, a decline of 5%. On a constant currency basis, net profit after tax was $2.236 billion, down 6% after adjusting for a currency tailwind of $19 million. The main features of the result, which Paul has touched on, are the lower Ig sales due to the constrained plasma collections in financial year '21, offset to some extent by the strong performance of IDELVION and CSL Seqirus. We have seen an increased cost for plasma collections and higher fixed cost absorption this year, and that has caused downward pressure on the CSL Behring gross margin, as expected. With the strong increase in plasma collections over financial year '22, the fixed cost per unit will be absorbed over higher volumes, and this will start to have a beneficial impact on the gross margin over time. The FY '22 result also included at the NPAT line the costs incurred to date associated with the Vifor acquisition and a contribution from the manufacturing of COVID vaccines, which will not repeat in FY '23, and the net effect being a contribution of around $70 million. Looking at the financials in more detail. Our total revenue was up 3% to $10.7 billion. Gross profit of $5.8 billion was steady. EBIT was down 8% to $2.9 billion. The main factor driving this is our increased investment in R&D. And NPAT was down 6%. On a reported basis, EPS was down 8%, and this is due to the shares we issued as part of the capital raising for the Vifor acquisition in December 2021 and January 2021 (sic) [ 2022 ]. Cash flow from operations was $2.6 billion, down 27% from the prior year, and the single biggest factor driving this was the significant increase in inventory due to the higher plasma costs per liter and the improved plasma volumes we collected. Other factors impacting cash flow were the lower profit before tax and an increase in trade payables consistent with the increase in inventories as well as timing changes relating to rebates and influenza vaccine returns. Despite the lower net profit and the issue of shares in support of the Vifor acquisition, we have maintained our final dividend at USD 1.18 per share, bringing the total dividend for the financial year '22 to USD 2.22 per share. For Australian shareholders, the final dividend translates to approximately AUD 1.68, up 6% and is franked to 10%. Turning to the segment results on Slide 19. For CSL Behring, total revenue was up 2% at constant currency. The increase in other revenue was due to the significant increase in Gardasil royalties and the revenue we received from manufacturing the AstraZeneca COVID-19 vaccine. And as Paul mentioned, that contract has now been completed. Gross profit was down 4%. And as I've mentioned, the higher costs of collecting plasma and the fixed cost absorption underpinned the decline in CSL Behring's gross margin to 53.3%. The arrival of a new COVID variant at the beginning of the calendar year, together with challenges of attracting and retaining staff, has delayed the expected gross margin recovery. For CSL Seqirus, total revenue was up 13% and gross profit up 16%, an exceptional result, reflecting the strong demand for influenza vaccines and the continued success of our product differentiation strategy and improved manufacturing efficiencies. On the next slide are the group's expenses with the changes for the period shown on a constant currency basis. Our investment in research and development was up 17% to $1.16 billion and towards the top end of our guidance of 10% to 11% of revenue. We have continued to invest in innovation and have a number of exciting programs coming to fruition, as Paul has outlined. Despite an increase in our spend on etranacogene prelaunch activity, we have managed to hold sales and marketing expenses steady compared with the prior year, and this reflects our strong focus on managing costs. General and admin expenses were also well controlled, particularly after taking into account the costs we have incurred with the Vifor acquisition. And finally, the effective tax rate for FY '22 was down modestly to 18.9%, and we expect the tax rate to remain in the 18% to 20% range for FY '23. Moving on to Slide 21 and inventory. Here, you can see the various components that make up our inventory levels split between raw materials, work in progress and finished goods. While the graph gives the appearance of growing inventory volumes, which is accurate to some extent, it also reflects the increase in the cost per liter of plasma. By contrast, we've had to judiciously manage the tension between patient demand and supply chain needs within finished goods. And at the end of the year, we have continued to have a lower level of cover of finished goods than we need, particularly in today's supply chain environment. As plasma volumes continue to improve, we will need to rebuild our finished goods inventory levels over the next couple of years so that we have a more comfortable level of inventory on hand both to meet patient demand but also to be able to better manage our supply chain costs. Turning to the next slide and our debt profile. And here, you'll see the maturity of -- maturity profile of our debt. This has significantly and materially changed following the very successful $4 billion debt raising in the U.S. 144A market. This debt raising delivered an excellent outcome and gives us enhanced flexibility to fund future growth. We now have a diverse mix of debt with a full range of maturities out to 2062. The average weighted tenor is just under 12 years, and the weighted average cost of debt is 3.38%. Overall, our balance sheet remains strong, and our A-grade credit ratings have been maintained. Moving on to the next slide and our sustainability strategy. As you know, we communicated our sustainability strategy 12 months ago, which was focused on 3 key pillars of the environment, social and sustainable workplace. And as part of this strategy, under our environment pillar, today, we are announcing our new carbon emissions reduction targets. These will serve as a transparent road map to decarbonize our global operations by cutting both direct and indirect carbon emissions. By 2030, CSL is targeting a reduction of 40% of absolute Scope 1 and Scope 2 emissions against a baseline of the average annual emissions across FY '19 to '21. And we intend to ensure that suppliers who contribute 2/3 of Scope 3 emissions will set Scope 1 and Scope 2 target reductions aligned with the Science Based Targets initiative. CSL looks forward to achieving Scope 1 and Scope 2 emission reductions through a range of key initiatives, including increased energy efficiency, pushing towards more renewable power, switching fuels to less carbon-intensive energy sources and over time, redesigning our manufacturing sites. Aspects of this work are already well underway. Our facilities in Liverpool, the U.K. and in Bern in Switzerland today source renewable energy. Our new R&D complex in Marburg, Germany, our new headquarters in Melbourne and our new cell culture facility also in Melbourne will feature state-of-the-art sustainable design features. To achieve our Scope 3 target, we will be working with our suppliers through a range of initiatives, including revised procurement standards and award criteria through supplier enablement with advocacy and education and strategic partnerships to innovate and collaborate. As a scientific and data-driven company, we are undertaking these specific measures and analysis to ensure that we continue to set and to meet the right targets for the road ahead. At the most senior levels, our Corporate Governance and Nomination Committee of the Board will have oversight of these goals. And with the Executive Sustainability Committee that I chair, we are creating a culture of accountability across the CSL enterprise. And with that, I will hand back to Paul, who will finish up with some comments on the outlook.

Well, thank you, Joy. And now on the outlook for fiscal year 2023. So let's look specifically at CSL Behring. We see a continued improvement in plasma collections, and that is expected to underpin strong future sales growth for our marginal leader products, Ig and albumin. The higher cost of plasma is still evident and expected to prevail in fiscal year '23, and we are looking to replenish inventory to a level that gives us more confidence on our ability to meet the patient's needs and the demand that's coming and in a more cost-effective way. For CSL Seqirus, product differentiation will continue to drive strong demand for our influenza vaccines, particularly FLUCELVAX. And across the enterprise, we expect to continue to be faced with challenges in the external cost environment, whether that be inflationary pressures, staffing constraints or the logistics and supply chain challenges. In terms of guidance for fiscal year '23. We expect revenue growth to be in the range of 7% to 11% over the fiscal year '22 at constant currency with net profit after tax expected to be approximately in the range of $2.4 billion to $2.5 billion at constant currency. On a like-for-like basis, this represents a growth of between 10% to 14%. This all excludes CSL Vifor earnings and costs associated with the acquisition as well as the nonrecurring COVID vaccine contribution. Guidance for the CSL Group will be updated to include CSL Vifor at the first practical opportunity. Of course, our forward-looking statements are subject to the usual disclaimers, as mentioned at the start of this presentation. I guess to close, I am absolutely certain, absolutely certain, that the fundamentals of our business are strong and the diversity of the pipeline is rich and that we are really set up at CSL to build on our track record of sustainable growth for years to come. And with that, we'll now be happy to take your questions.

Good. Thank you, Paul. Operator, if I could ask you to open the lines up. Our first question comes from Andrew Goodsall at MST Marquee.

Just the results got a lot of noise in it, obviously, with nonrecurring items, Vifor acquisition, et cetera. I guess just on a ballpark level, just trying to get a sense of where you think you landed on an organic basis with regards to the EBIT or NPAT or even just your exit rate. Just trying to get a sense of where your sort of base level trading was.

Thank you, Andrew. I think what we tried to do here and acknowledge that closing the acquisition of CSL Vifor on the 9th of August when you announce your results on the 17th of August is slightly tricky. So we are -- we will come back to the market as soon as we are able. As you know, we need to also do the acquisition accounting work and get a good look at how we think intangibles will be valued or the fair value of the whole balance sheet really for Vifor. And that's just going to take us a little bit of time. So what we've tried to do here today with our forward guidance of $2.4 million to $2.5 million (sic) [ $2.4 billion to $2.5 billion ] at NPAT is very much the legacy company, the underlying performance of the business we've outlined today being CSL Behring and CSL Seqirus. And I think we've tried to be transparent on just making sure we're clear that we're -- the COVID vaccine contribution doesn't repeat in FY '23. The notes of the financial accounts are very clear on what Vifor costs sit in the FY '22 numbers. I'd point you to Note 2 of the accounts. And then we've excluded anything to do with Vifor in that forward guidance of $2.4 billion to $2.5 billion, including interest costs, any contribution, any acquisition or integration costs. So an underlying performance sort of guidance of sort of that 10% to 14% on a go-forward basis.

Okay. That's great. So 10% to 14% is your sort of underlying business before we think about Vifor, if I...

Yes. That's correct. Yes.

And perhaps my second question just for Paul, just in terms of the plasma business. It does look like the exit rate for the second half gross margins were ahead. And I think that's probably a reasonably sort of clean number just looking at Behring. Just to ask you to sort of -- I guess sort of the green shoots you might be seeing across the markets that you're in and the -- I guess the opportunity. We know that European price is up quite considerably just, I guess, as more volume comes on. Is that an amplifier sort of effect?

Look, I would say, Andrew, that the exit rate in the second half is a good indicator. I mean, we're slower starting in the second half than we would have expected with Omicron, some of the massive weather issues they had in the U.S. in the wintertime, et cetera. But these variants continue to come up, and that affects staffing. It affects donors. It affects kind of everybody that's out in the business. But having said that, as we look at the exit rates, we feel very confident that things have been improving quite well. The costs are up, we know that. We've had to retain and acquire new staff, thousands of people actually. And you look at the centers we opened last year, that's all staffing as well. And the cost of that staffing is high because you're not getting throughput in those centers. They're brand new, right? And we normally say it takes 1 to 3 years to get a center up and running with COVID. We've opened 73, since the start of the pandemic, centers. And I'd say that, that rate of ramp-up has been closer now to 2 to 4 years just because it's longer during the pandemic to get them up and running. So I would say that, that's really something where we're trying to make sure that we're in the right area. I would say that when we look at the fiscal year for Ig and we take a look at the first half, we were down about 9% on previous quarters -- or previous period. And in the second half, we were up 6%. And so overall, we ended up at minus 3% for the fiscal year. Pricing, I would just be cautious on. I'd just say that everybody's got their eye on pharmaceutical costs, as you might be well aware. And we will continue to look at opportunities with tenders and other things to optimize our portfolio and the pricing that we have in a responsible way.

Thank you, Andrew. Our next question comes from Saul Hadassin at Barrenjoey.

Paul, just a question on Ig in general. So we've seen the first FcRn product launched with an indicator in myasthenia gravis. It looks like sales have done relatively well, albeit in the early stage post that launch. But the data on CIDP is due out, I think, first quarter next calendar year. You spoke positively about the outlook for Ig in general. Are those -- do your thoughts on that change at all if indeed there is a CIDP indication that is approved to come, say, first quarter calendar year '23?

Not really, Saul. I think we're still very bullish on the fact that Ig is a standard of care. This isn't going to be a transformative product, at least not from the interim results they showed in their trials. So I would say, unless they had some major change in their efficacy rates and response rates from interim to final Phase III results, you have to have a product that is really completely transformational like an IDELVION to make a difference to penetrate a market, especially in a chronic disease where patients don't want to get sick, and Ig has been the standard of care. Everybody wants to point to the takeover of Ig with a product. It's not really going to affect PID. It's not going to affect SID. If it has a decent effect and depending on the pricing and the cost and the access, sure, they'll get some market share. But the likelihood that this is going to happen overnight or change my outlook for this year or our current strategic plan in terms of demand, we see the demand growing in a lot of areas with Ig still. And I think I pointed out also the fact that there's still an underutilization in terms of grams per capita per 1,000 head of Ig in many countries. During the pandemic, there is still a lot of need and demand for Ig outside of the U.S. I know people have looked at some of the numbers in U.S. Ig, which tends to be the flavor of the day, every result. But people have satisfied a lot of that demand. And let's be frank, I mean, there has been less diagnosis during COVID of rare diseases because you can't diagnose rare disease through telemedicine. You have to have these patients face to face, going through history. For a long time, you have to do multiple testing to really get to the underlying condition as opposed to the symptoms that these people are exhibiting. So we are seeing a return as things return to normal in terms of physician office access, hospital access, testing coming back online. During COVID and just after COVID started to apparently subside, although we're still seemingly in different waves, you couldn't even -- it was months and months even in the U.S. even to get an MRI done. And the specialized testing that has to get done where patients come in take time and access. So I think I'm still very, very bullish, as you might tell, on Ig and the growth that we see from a demand perspective, from a patient perspective and an efficacy perspective. And so I'm very positive on it.

Paul, just a follow-up on that. The commentary around albumin was probably a little bit softer than what we had expected, commentary around competitive pressures, pricing and I guess even just the underlying demand profile. So where -- is the confidence still there that you can maintain 2 core proteins per last liter the next few years?

Yes. Yes. I think the demand for albumin in China was pretty strong, and the problem with Europe is they had to go to other things because it wasn't widely available. It still goes back to the plasma collection issue over the last couple of years, and that's really the impact. When there is more product available, I feel very confident that albumin will be there. And China still continues to be a key driver, for sure. It's just that everybody also understands that, and that's why the pricing pressures just get a bit more tight in terms of the competitive nature of the beast, right? So I think that's kind of what I was trying to get across.

Thanks, Saul. Next question comes from David Low at JPMorgan.

Just starting with the plasma collections. I mean, we see the strong growth that's been reported by your competitors as well. Just wondering how you think we should think about that extrapolating into sales. I mean, is that 20% plus growth in volumes going to contribute to that level of growth in volumes of immunoglobulin and albumin in FY '23?

No. David, I think as we take a look, remember, we don't start with 24% sitting -- ready to sell, right? I mean, this is a python that swallowed a goat. It takes a long time for this to pass through the system. And so that 24% didn't come all in 1 month. It's been coming as we go, right? So it has to go through our long production process that we've talked about. It gives us confidence in our '23 numbers, for sure, but we've also been running on fumes, right? I mean, our inventory levels have been exhausted pretty much to a point where we have safety stock, for sure, because we want to take care of patients. But we've also had to limit growth in other countries because of the amount of finished goods inventory that we had going forward from the last couple of years of plasma collection. So I think as you think about it, think about the fact that we have to get those inventory levels back up. I mean, if I had more product to sell, you would have seen an even better growth in the second half than the 6% of Ig. And that just shows the underlying demand. But you can't just extrapolate that we've collected 24% more that it's all sitting there ready to pump out Ig tomorrow. So it will happen over the course of the year. So I would say that the exit rate coming out of the second half, moving into the first half is going to be strong. Second half will be stronger, and it really gives me confidence moving past that. I'm obviously not giving guidance to '24. But I think it's really important to understand, as you do because we've all been looking at this a long time, these long lead cycles to making sure that we can get it out in the appropriate time and get it into the markets to sell. So that's why -- I mean, it's -- you do the maths. And you say, well, 24%, you'd probably get 20%, 22% growth on Ig. It just takes a bit more effort to get it through the pipe and make that happen while we're building inventory and supplying the markets that need the supply.

No. That's crystal clear, but I thought it was worth clarifying. The other question I had was CapEx. I mean, Paul, you talked about all the collection centers. You talked about the Bern capacity coming on. I believe Melbourne is not so far behind as well. Is there less of a need to expand capacity now that all of that -- all those collection centers and fractionation capacity is coming online?

Look, it helps in the near term, David. But I would say that because these facilities take 5 to 6 years to actually build and get validated and licensed, we're looking towards our 2030 strategy because we do look out 10 years because of the long lead times in the business. And I would say that there still will be some capital that needs to go. I mean, you know we're just finishing off some other large capital projects. We have this new R&D facility in Marburg, which will have the capacity to house 600 scientists. We have the new headquarters here in Melbourne, which also has a number of floors of lab space, plus 2 floors of incubator space to help support the biotech infrastructure here in Australia. We have Banksia going on, which is out of Tullamarine for the cell culture facility. There's still some big projects to complete and to continue, and we're looking at when we might have to start the next project. So we are obviously trying to manage that very closely and carefully. We are still concerned about return on invested capital. So we want to make sure that whatever we invest in, it's the right time. And we want to utilize the facilities that we have built in the appropriate way. So when you start them up, we're also looking at the start-up times and seeing if we can do something more efficient on the start-up of some of these facilities now that they're completed.

Thanks, David. Our next question comes from Chris Cooper at Goldman Sachs.

Joy, just on the Behring gross margins, you said in February, you expected them to bottom out in the second half of '22 and then continue to recover from there. I just wanted to confirm that was still the expectation. You did state on this call, the gross margin recovery was delayed by Omicron and staffing. But I wasn't clear whether that was already captured by those comments you made in Feb.

Thanks, Chris, for your question. So clearly, in Feb, we didn't anticipate the length of time that Omicron was going to hang around and the impacts on staffing, as Paul has articulated, the additional costs to retain our staff. And really, in the Northern Hemisphere, there was that peak in kind of January, February with Omicron but then again in and around Easter. So April was a very sort of challenging month as well. And so it was really only into May where we really started to see plasma collections coming back. And so they were -- those first 4 months of the year were pretty expensive months in terms of cost per liter. So that is all still to come through in FY '23. And so yes, there is a delay in the return on the gross margin, and we will see a little bit more downward pressure on gross margin in the first half of FY '23.

Got it. Okay. And perhaps a more specific question on that cost dynamic into fiscal '23 for collection costs. Obviously, one of your competitors very notably commented that they were reducing donor compensation by 15% in the June quarter. Are you seeing anything sort of that across your network at the moment in the U.S.?

We haven't really seen anything that tells us that it's wholesale across all the areas. Like most of our friends in the industry, everything is kind of local, right? It's a massive country, and the local environment is something that's there, too. So in some centers, we have seen where competition might be not as pervasive where you've seen some adjustment in donor fees. I think the new donor fees are one area to look at for maybe some relief, but you're only talking about somewhere between 4% to 6% of the donors coming through the door are new or lapsed donors that have to be "a new donor" again coming into the system. And then I think everyone is certainly working on their cost structures. Donor fees is only one part, though, as you know, Chris. So there's other areas that we're working on, and one of the things will be the new platform that we're putting in place, which is going to reduce the time on the beds for these donors. And as we roll this out to all of our centers this year, that's going to be a massive change for people in terms of time for money because over a 30% decrease in time on the bed and on the machine is significant. So we will look for ways to continue to be aggressive and competitive but also make sure that we're gaining the value for the investments in innovation that we've made.

Good. Thanks, Chris. Next question comes from Sean Laaman at Morgan Stanley.

My question also relates to cost of plasma and gross margin and thinking about some of those elements, the volumes of plasma on a fixed cost base. And the fixed cost base has been expanding as you roll out centers and donor fees, the staff in the center and then what Rika could mean for the business going forward. So thinking about some of those elements, Paul, I wonder if you could give us a brief comment again on each of them. And if -- some of them might actually prove to be quite positive. I mean, if you can get some of those less efficient new centers up and running, if donor fees somewhat normalized and then Rika yields some benefit, if we look into 2040, do you think you can get sort of gross margin higher than pre-pandemic levels? So just all that, some commentary as a question would be really useful.

Yes. Thanks. Look, as -- but I would say that the complexity of this business tells us that there are a thousand different levers that we're going to have to push and pull to get to the benefits of all of these items. Because the first thing we have to do is, as you said, get our centers up to snuff in terms of the ones we've already opened. And to actually get some of that latent capacity, I mentioned the number of beds and the percentage of beds that we had to take out during social distancing with COVID back into the centers because we're going to need those beds with Rika, right? So we need the amount of beds. If we're going to be turning the beds quicker because the donors spend less time in the centers and on the machines, so we need to make sure that we have the base filled and these donors really moving through the system. And time is money. So if you can spend 30% less time in our centers than the competition, then for a change in $1 or so for donor fee, they're more likely to come to our center than another. The other thing is that it's a more comfortable donation actually for the donor. And we believe the amount of time that -- and the volume of red cells that you have outside the donor at any one time will make that very comfortable. And there's -- also, you don't have the cycles of the machine and the pumping that people go through with their fist to try to get the volumes moving through during those cycles. So there's so many pieces of Rika that makes so much sense from a technology standpoint and a safety and a comfortable donor experience. That's why we're so excited about getting it rolled out. Now having said that, there's a lot of execution that we have to stay focused on within that business. And part of it is the staffing, right? So we have to make sure that we have staff available and ready when the donors come in the door. And as the donors have started to return, we've had to increase cost in terms of the infrastructure that we have and the salaries and the hourly wage that we've paid in that retail environment. You see it here in Australia. I mean, I've been here now another couple of weeks, and I was here in June and February. And you see that there's a lack of people working in the areas that -- in the service industry that -- even here in Australia. It's no different in the U.S. It's just bigger scale. So you take a look at that across the U.S., and it's been a major issue for us. So we've invested significantly in that. Getting those centers up and running is costly because you don't have the overhead recoveries that you'd like to see with the number of liters flowing through. But as the liters increase in each of those centers, and we're doing everything we can to do that through the digital app and the digital analytics that we've involved as well as actually contacting the donors digitally, has really paid off in terms of the marketing efforts. Like I say, almost 2 million people have been reached through that new app, which is fantastic. So we saw some really good metrics in terms of donors coming back to CSL. As we take a look out, the gross margins and where they return to, are a bit delayed, as Joy pointed out, with things being a little bit slower than what we had predicted at half year. But it's timing. It's timing. It will start to come back. We have to get the overheads not only through the plasma centers but through the plants. So as we continue to put more volume through the plants and we'll get the overhead recovery on the COGS, and we'll -- hopefully, that will flow back down through the margins. So all of this, including whatever price we might be able to work on, which we've done, I think, a very good job over the last couple of years on pricing as we've had to allocate product in different markets and been very judicious on tenders that we participate in, all of that has helped us to make sure that we're pulling on all the levers as well as managing our expenses as it flows down through from margin into the EBIT line and hopefully to the profit line. So all in all, I'd say complex as usual, but I think we have all of the levers that we're pushing and pulling on to make sure that we get back to the expectations which are high, I know, for us, but happy to take the challenge on.

Great. And just one quick follow-up. I just want to check I've got the time lines right on 112 and the commentary that you provided. So it's 80% completed on the recruitment front. Maybe you get to 100% by the end of the calendar year, I think you said, then 12 months to complete the trial and then maybe 12 months to do the analysis to release the headline data. Did I get that right?

No. I think the 12 -- the end of this fiscal year for the completion of the trial is what we're expecting. And of course, that's been delayed through COVID. We expected to already have it completed. But after the completion of the trial, it will take us about 12 months to get all the top line data and everything released. So depending on how fast we can get that data done, it might be 8 months after that. It could be 10, just depends on the data, the complexity and what we have to -- the analysis it has to do. So I would say before the end of calendar '23, we should have the top line data and the understanding as to where we are.

Thanks, Sean. Next question comes from Gretel Janu at Credit Suisse.

So just going back to the guidance. So it does imply costs will continue to remain elevated. We've talked through gross margin in quite a bit of detail. But just wondering if you could make any explicit commentaries around guidance for SG&A costs and R&D.

Yes. Thanks, Gretel, for your questions. So I think you'll see on SG&A, we've actually done a pretty good job of managing those costs, notwithstanding we are investing in etranacogene, which we are hopeful will come to market. We're doing quite a lot of prelaunch marketing activity on that as we speak. So that particular cost aside, I think you can expect that our underlying SG&A will remain well controlled in the next period of time. We -- in terms of R&D, I think our guidance is 10% to 11% and see no reason for that to be any different going forward. As Paul has outlined, we have a big load of programs coming to fruition hopefully in the next period of time. So we're continuing to invest in R&D.

Great. And then just in terms of HAEGARDA, the growth is slow in second half '22. Are you seeing significant pressure from [ bi-seasonal ] products? And I guess, how do we think about this product now going into FY '23? Is it now more of a low- to mid-single-digit growth product?

No. Look, I think now that patients -- again, this goes back, Gretel, to the COVID environment in diagnosing these diseases, people having access to the hospitals. And a lot of these patients that present are in emergency situations, but not always. And so you still have to have the people diagnosing these disease and the people available. So I'd say that the demand -- patients haven't stopped getting disease or getting sick just because COVID has been around. So this demand piece is something that I want to make sure that everybody is clear on. The demand for Ig, the demand for these specialty products has not gone away just because COVID has been around. These patients are still sick, still need to be diagnosed, and this is the process with rare disease. So I -- what the percentage of growth will be, will be interesting to see. But I would say I'm not -- there are competitors out there. I wouldn't say that -- let me just say that you need to have a product that isn't going to give you any attacks. And so that's not the case with all of our competitors. And I would say that the data on HAEGARDA and with the data that -- the top line data that we've seen with garadacimab, I think we're going to be in very good shape in the HAE community. We've been there for a long time. There has been cannibalization of BERINERT as people have moved to longer-term prophylaxis. But they're going to longer-term prophylaxis with HAEGARDA because they haven't had attacks. And so I think there's still a lot more growth to come with HAEGARDA and then hopefully also with garadacimab as we move that through the pipe. And look, I would just say that specialty is a little bit of an area that I get excited about just because I can remember the days when we talked about trying to get the franchise to $800 million and nobody believed me then. That's fine. But we're $1.8 billion now. And products like KCENTRA and HAEGARDA are transformational for these patients. And so I just think that there's some real value here because that's what we're about, is continuing to innovate. And if we have to disrupt ourselves, then we will. But we want to bring the best to the market. And HAEGARDA is much better than some of the competition that is currently available.