CSL earnings call transcript

A full transcript of yesterdays earnings call can be found at

https://seekingalpha.com/article/4814711-csl-limited-cslly-q4-2025-earnings-call-transcript

Those not wanting to log onto the site I’ll include some excepts below.

A few points first, those that missed the article on CSL’s change in R&D policy can read it here.

https://synapse.patsnap.com/article/what-are-csls-recent-drug-deals

Essentially, CSL is looking to de-risk its R&D spend and lessen the time it takes for drugs to reach the market. Hence, CSL is shifting towards collaborations with other firms, much like the deal with Arcturus which developed Kostaive (mRNA Covid vaccine) where an upfront payment was made followed by a final milestone payment contingent upon conditions being met. In this instance, the first commercial sale of Kostaive in the US. This deal in effect de-risks the R&D spend and avoids the upfront big cash burn of CSL112.

I think in the earnings call, Joy Linton, in response to an analyst question on FY26 R&D spend, is unable to commit to a percentage figure. I think its because they are looking for opportunities to make deals with other R&D firms, its about being smarter on how they spend their R&D hence the new Portfolio Development and Commercialisation operating model

Expect more contingent liabilities sitting off balance sheet going forward.

Just on the Seqirus demerger, personally, I’m still not sure what to make of it but I’m inclined to vote in favour and encourage other holders to do the same. Management is of the belief that the sum of the parts is greater than the whole and by demerging it from the group it can unlock that value.

Another thing to keep in mind, CSL currently has $US7.7B of contingent liabilities sitting off balance. I know for sure $US4.3B of that contingent liability due sometime in 2028 belongs to Seqirus. The balance of the $US7.7B contingent liability (I don’t know if or when it is due and payable), I suspect most of it belongs to Seqirus as well.

The point being, if the demerger doesn’t go ahead then this may put at risk the multi year buy back program as it will load up the group with debt.

Anyway the choice is yours.

Excerpts

Seqirus

CSL's management team and Board believe there is a clear strategic benefit to the demerger. Both ASX-listed entities will be able to focus on their core capabilities and realize simplification benefits, which will drive growth, and each will have a sustainable capital structure and access to funding to pursue distinct growth strategies.

we do see cause for optimism in the global seasonal influenza market. In the U.S., for example, we are encouraged by the recent positive universal recommendation by ACIP, a clear sign that influenza is not going away, and it still has a severe impact on public health.

During the year, we delivered on our exciting geographical expansion plans earlier than expected when we received preferential recommendations in Germany and France for our FLUAD product. We also launched this product in Taiwan and South Korea. Another positive was recognition of our pre-pandemic capability. The majority of avian flu contracts globally were awarded to CSL, which was strong recognition of our best-in-class differentiated platforms. Finally, fiscal year '25 result also included revenue from the supply of KOSTAIVE to our partner in Japan.

We strongly believe a demerger provides a compelling strategic rationale for both entities. Each company will have a renewed focus on their respective core differentiating capabilities, allowing for the acceleration of transformation and efficiency projects. A demerger will reduce complexity, making both businesses more agile and efficient to manage. Each business will have a dedicated management team and Board focused on independent strategies and decision-making as they strengthen their leadership positions in their respective sectors. As part of that, we are pleased to announce Mr. Gordon Naylor as the Chair-Elect of Seqirus. He is an excellent fit for the role, having played a key role in the operational and financial transformation of Seqirus when CSL acquired the Novartis business in 2015.

The demerger will create 2 global leaders in health care and unlock meaningful simplification benefits. As we have described previously, Seqirus is a global leader in seasonal influenza vaccines and critical pandemic preparedness contracts. It has a highly differentiated and market-leading product portfolio centered around innovations in cell and adjuvant technologies in a $7 billion industry with attractive long-term fundamentals. As a stand-alone entity, Seqirus will have greater autonomy to set its own strategic direction, including capitalizing on potential opportunities that may arise in a highly dynamic market.

Lyanne Harrison

I might talk on Seqirus. You mentioned that you expect seasonal influenza revenue to stabilize over the next couple of years. But one of your peers at its recent results mentioned that for this year, it's expecting total flu sales to be down in the mid-teens and that they also expect to take market share. Can you comment on where your confidence with Seqirus lies given where you're thinking the revenue would be for this year?

Paul F. McKenzie

Yes. Thanks, Lyanne, for the question. I hope you're doing well. In terms of the seasonal stabilization, it's really about the channels that we compete in. So we've been investing over the last couple of years in the pediatric segment. So if you looked at our share of the pediatric segment a couple of years ago, it was a big shiny 0And since then, we've moved up into the double digits, and we're looking to end the year around circa 20% as we included in our fiscal year '26.

So it's really about really how you look at the channels. For us, it's both pediatric and IDN as well as competing and faring well in the retail segment. So where we see the stabilization is our ability to compete actively across these channels. And in these channels, as you know, most of the vaccine fatigue is in that 18 to 64 category. So the pediatric channel, which represents about 35 million doses, is a pretty significant portion of growth for us. That said, we're also, for the first time, into Germany and France. Germany is a $300 million-plus market. We've had 0% opportunity there because we did not have the STIKO recommendation.

R&D

Research and development costs were down 5% as we discontinue some clinical programs. We expect a similar level of expenditure for R&D in FY '26 with a focus on prioritizing growth opportunities.

We will make significant changes to our R&D organization, removing fixed costs and redirecting that spend to important clinical portfolio work. We want to double-down on the pace and quality of our innovation and increase the productivity of our pipeline, both in the speed of translational research and maximizing life cycle management opportunities for our portfolio. To enhance clinical and commercial pipelines, a distinctive new portfolio development and commercialization operating model, we'll seamlessly integrate efforts across research and development, business development and commercial. CSL Behring and CSL Vifor will combine medical and commercial capabilities, delivering further synergies and additional revenue growth opportunities across our multiple commercial channels. And we have taken the hard but necessary decision to reduce head count across the entire organization.

Yes. Thanks, Saul, for the question. And look, our change in operating model is really important for our clinical and commercial portfolio success. And that change in operating model is really bringing together research and development, business development and commercial in lockstep. And it's really those 3 groups that have to work hand-in-hand to develop not only our clinical portfolio, but to maximize our commercial portfolio. And really, this is what we're going after. And we've had some disappointments in the last couple of years in R&D, and our footprint became quite dispersed and very fixed from an overall cost viewpoint, and it's those fixed costs are what we're trying to bring back down so that we can invest back in our clinical portfolio and commercial LCM progress.

So our goal is to continue to source key clinical assets, both internally and externally, which will help us continue to grow the top line.

David L Bailey

Okay. If I look at your R&D guidance for '26 and I look at your top line guidance, it implies about 8.3% of revenue. Maybe just thinking about the $500 million, there's going to be some fixed cost reduction in R&D within that. But I suppose my questions are, can you give us a bit more of a sense as to the phasing of that $500 million? And then secondly, how should we be thinking about R&D as a proportion of revenue on a medium- to longer-term basis relative to your current 10% target?

Joy Carolyn Linton

And on the R&D guidance, David, we haven't provided a percent of revenue number. That's quite intentional because as we go into our new product development and commercialization model, it is going to be as opportunities arise, and we need to kind of see what those opportunities look like and it's not like we're going to have the same R&D number every year. So it's why we've given you a number, kind of plus or minus, I think, what was it, $1.35 billion, plus or minus a bit. And so we'll try and guide to a dollar amount based on what we see in that near term in the R&D side because it will change versus the way it's been traditionally where we were spending to a percent of revenue number. So this is one of the demonstrated outputs of the new strategy going forward.

Behring

Gross margin for CSL Behring improved 130 basis points over the prior year from 49.7% to 51% of constant currency, consistent with our guidance. We are confident that the gross margin will continue to show year-on-year improvement.

With the rollout of the RIKA plasmapheresis system and I-Nomogram, our donor collection network has become more efficient with improving yields. So we are able to optimize our network and have closed 22 of our underperforming centers, representing 7% of our U.S. footprint. This does not signal an end to new center openings but a continued focus on reducing our collection costs.

The yield improvements are terrific and going actually probably ahead of plan, but they are creating some shorter-term fixed cost absorption in the centers, which is why we made the call to close some centers to keep getting that fixed cost down.

the Ig market and opportunity is very solid. We continue to see strong growth in primary immunodeficiency, secondary immunodeficiency and CIDP, all the indications that were being used. And that's why we're confident with our leadership role that we're going to continue to have mid- to high single-digit growth over the next several years.

We're confident that Ig will remain the first-line leader in CIDP, and FcRns are going to be good for patients who are intolerant to or who don't respond to Ig. So we really look forward to continued CSL Ig portfolio growth with PRIVIGEN with HIZENTRA. And that kind of mid- to high single-digit growth profile over the midterm takes into account any possible impact from FcRns.

To comment on fixed cost absorption, the yield benefits in the centers means, you're exactly right, we're collecting more plasma from the donors and then it's going into our Horizon 1 or into the manufacturing network, and we're extracting more Ig from every liter of plasma we're collecting. That then means we don't need to collect quite as much plasma as we otherwise did, all other things being equal.

We have been sitting on underperforming centers, and you could say, "Well, why didn't you close them earlier?" So we needed the plasma whereas now we have a cheaper, more effective way to get that plasma, which is via the yield initiatives. But we're still sitting on the fixed cost of those centers, so that's why we've gone ahead and announced the closure of 22 centers

Tariffs

Please be aware that this guidance assumes no impact from pharmaceutical sector tariffs. It is our current expectation that any such policy would not impact our ability to deliver on the strategic initiatives outlined today. CSL has significant operations in the U.S. and the majority of our commercial portfolio is drug-sourced from there.

Sacha Krien

Okay. One quick clarification, if I can. So just in terms of tariffs, are you saying that it's your expectation that the country of origin of most of your Behring products will be deemed to be the U.S.

Paul F. McKenzie

For our plasma-derived proteins, the active pharmaceutical ingredient comes from the plasma, correct.

Andrew Goodsall

Sure. If you've offered to re-domicile in the U.S. And so if tariffs were applied to pharmaceuticals and plasma, but a grace period offered, which is what the President has been talking about, how would that play out for you just conceptually?

Paul F. McKenzie

Yes. So I mean, I'm not quite sure I relate to the re-domicile point. But just in general for tariffs, if you look at our plasma-derived products, as required from regulatory, the plasma is sourced all in the U.S., and that's where our operations are for the plasma sourcing, and that provides the active pharmaceutical ingredient. That provides us the tariff conversation strength in our view.

Andrew Goodsall

Okay. But I guess re-domiciling just meant the finishing component, obviously, not the rest is already there.

Paul F. McKenzie

Correct. Yes. But the main thing from a tariff discussion is the active pharmaceutical ingredient, which comes from the plasma sourced in the U.S. I think you may be referring to we're talking about adding Ig capacity over the medium term in the U.S., but that was always part of our plan, independent of the current administration's activities. It was really about balancing Ig capacity around the world. And as you know, we're continuing to execute the plan to Horizon 2, and we will come to a point where we will decide on retrofitting existing modules and/or investing new. And that's part of what we're going through and the pros and cons of how we approach that, and that's why you see the potential for Ig capacity expansion in the U.S.

Most Favoured Nation (MFN)

I'm just wondering, maybe my question is, what do you foresee is the potential impacts of tariffs in your MFN? And if you do need to, can you lift offshore prices to mitigate that, to some extent?

Paul F. McKenzie

So again, for tariffs, I just wanted to reiterate that we don't see tariffs at this point, based on what we understand, to be impacting our fiscal year '26 and our ability to deliver on these guidances. And that's really because of our global footprint, but particularly our footprint in the U.S. where we have a significant infrastructure and that for plasma-derived products, the active pharmaceutical ingredient is sourced from U.S. plasma operations as required by regulatory.

But I wanted to remind you, during COVID, we were one of the few companies that stayed true to our patients in Europe. And during that time, because we stayed true to those patients in Europe, we were able to achieve price increases across 22 countries during that COVID period, which we've been able to maintain. So as you know, we've never been a company that's chased price.

Sacha Krien

On the Most Favored Nation pricing, I'm just wondering if you can give some comments or general comments on potential impacts and mitigation strategies across the business.

Paul F. McKenzie

Yes, I'd say it's a bit too early. We're not really clear on where that policy will go. But again, in terms of our portfolio, we've been very disciplined in terms of our pricing approaches around the globe. But until we have the specifics, and we're monitoring it closely, there would be too much speculation to tell you anything concrete at this point. So let's see how it plays out.