CSL Limited (CSL) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is David Low. I cover health care stocks for JPMorgan in Australia. With us this afternoon, I've got Paul Perrault, CEO and MD of CSL, the largest health care company listed in Australia. And just a reminder, after the presentation, we'll be across the whole way in the Georgian room for the breakout. Thanks, Paul.

Thank you, David. Good afternoon, ladies and gentlemen, and thank you for joining us. I'm happy to be able to provide you with an update on CSL limited and comment on a few points that I think differentiates CSL as an organization and then focus on what we're trying to do to innovate in our space and provide the patients that we serve with our life saving, life extending medicines. So I'll call your attention to the forward-looking statements and I think you all have seen these legal slides before. I was quite interested in the music that was playing before, I felt quite relaxed. It's like I was getting ready to start cocktail hour. Today, CSL is the largest -- second -- fifth largest biotech company in the world and the #1 company in the plasma industry. This is a $30 billion industry of plasma proteins. And the company really has a very strong market position around the globe. In fiscal year '19, we had revenues of over USD $8.5 billion, and we have 8 major manufacturing sites around the globe with a fully integrated manufacturing network. We also have these sites in 6 different countries. So dealing with the regulators in all of these countries, making sure that our culture of our organization across countries and across sites is maintained as a key theme within CSO. We are a values-based organization and try to make sure that the culture of the company is a global culture that serves patients. We have some major capacity expansions ongoing across the organization. And certainly, I'll talk to those a little bit later as we go into the slides. We also have a solid financial position. We have a class A credit rating. We have a low debt in our -- net debt-to-EBITDA in our organization, and we try to maintain that financial discipline across everything that we do. And I would say, within our industry, there are current themes that we have that are ongoing. The first is really the plasma supply, which remains a bit tight in our industry. The United States is really the mine for plasma, if you will, across most countries in the world. Many countries are trying to be self-sufficient in plasma, but they find it very difficult with volunteer donations of whole blood to maintain the amount of raw material, this precious raw material that the donors do supply. And the reason it's tight is because it's hard to expand and open new centers, number one; number two, there's such a robust demand for the underlying core product in our industry, which is immunoglobulins, and that demand continues to grow around the globe, and I'll talk a little bit more about that. And then also, we see a shift in our influenza business in our Seqirus division moving from egg-based vaccines to cell culture vaccines and cell therapy. So I'll talk more as we move into the presentation. But I would say that the highlights for this year are really the strong financial performance that we've had as an organization. We continue to deliver. We had revenue growth of over 13%, and net profit was up after tax 17% in both real dollars and in constant currency. We experienced balanced growth across all our regions, which I think is also quite important because many companies, they have 3 markets, U.S., U.S. and U.S. And I think for us, it's really a matter of that global expansion that we've done, where we're selling product into over 70 countries now globally. So that balanced growth across regions is very important. We also have been executing to the plan of our new product launches. And many of you will know in the industry that a product launch is not a onetime event. You launch a product and then you have to continue launching the product. It's been very rare in our careers where we have products that actually sell themselves. And it takes a lot of commercial expertise and effort that our teams have delivered. And we launched first in some countries that the U.S. and the top Europe 5, but now we're continuing to launch across all of our other countries. And so these launches continue and that's continued to fuel growth for us as an organization. Ig growth in IG, and we'll talk a lot about Ig in a few slides, but it really is the main driver of a lot of our growth in our business. And that growth that we've had as an organization is above the market demand. So we continue as the leaders in the industry to grow above the market. We are expanding our footprint. So as I said, we sell into 70 countries. We have, actually, operations and through our affiliates in over 35 countries now. And I'd say that the influenza business and Seqirus has done extremely well with our Flucelvax, which has some really compelling real-world effectiveness data that we've been able to generate. And I think this is the future for influenza vaccines. As we move on to the next slide, the portfolio itself is continuing to see that strong underlying demand, as I talked about, and the heart of that growth is really immunoglobulin. It's at what we would call the high end of the historical range For IG growth, so in the high single digits is where we've been seeing this continue to grow. And I'd say, we've taken a very disciplined approach to the market expansion. In any new market that we go into, our job is to make sure that we continue to supply those markets. We don't want to be in and out of markets. As the leader in IG globally, it's our responsibility to make sure that markets that we enter continue to have supply for patients. Our growth is being driven predominantly by volume. There is some price/mix in that growth as well, but volume is really the key, and that's why you see our expansion of the plasma centers that I'll also touch on. In coagulation, I'd say that we have achieved market leadership with IDELVION in key markets like the U.S., Germany and Japan. So IDELVION is our recombinant factor IX product, and I'll speak about that as well. And it's still, I would say, in the early days of its life cycle, so both IDELVION and still our factor VIII product, there are more markets where we believe we can differentiate across the globe. So we're quite excited about the possible expansion of IDELVION, moving the dosing interval from 14 to 21 days. A lot of data has been collected in the -- with the physicians and the treaters, and we have a lot of work going on to quantify that data and talk to the regulators. In our Specialty portfolio, we've had significant growth from both HAEGARDA and KCENTRA. And lastly, Albumin, which is an important product for us in terms of the economics of the business. We're seeing good volume growth across all our regions for albumin and particularly still in China that continues to drive demand. So I said I'd talk a little bit about the immunoglobulin market, and I would say that the chart -- the wheel chart -- color chart, you can see is really the global IG volume by indication and showing an 8% growth across the industry. Again, we're growing faster than that 8%. But you can see that the increasing awareness and diagnosis of diseases continues to drive this strong demand for immunoglobulins. And we're seeing that growth in primary immune deficiency in CIDP and also the expanding use in secondary immune deficiencies, mainly with these B-cell depleting oncology -- immuno-oncology products as well as some of the CAR-T therapies. So this is driving that ability for the physicians to rapidly then increase the immune system after they've had to deplete it to target these cancer cells. There are a number of potential new indications underway, and we have work going on in those indications. And as I said earlier, there's this continuing market tightness because, again, you need that precious raw material in order to drive more volume. And that's really what's been driving the use of IG across the globe. So this is not a U.S.-only event, we see these uses expanding in all geographies. When you take a look at HIZENTRA and the indication that we received for CIDP, we have the leading market products to grow above that market growth. And that's the reason that we're doing well. We have the #1 product in the intravenous space with PRIVIGEN, and we have the #1 product in the subcutaneous space with HIZENTRA. So this is a global market that I'm talking about, where we're #1 across the globe in immunoglobulins. In the CIDP market, we have the portfolio approach, so we have both PRIVIGEN and HIZENTRA approved. And gaining that approval for HIZENTRA in the CIDP indication in the U.S. in 2018, in Japan in March 2019, is really driving a lot of utilization in that space. It allows patients to now take control of their disease and infuse at home. And I think that's an important part of really making sure that you're listening to the patients, listening to the voice of the patient. That's what it means to be patient-focused, not telling the patient what they need, but asking them and then delivering the innovation. So it's still in the early days with respect to that launch in CIDP, but the interest, the awareness within physicians and patients is growing rapidly. And as a result, we're seeing the strong market growth for both PRIVIGEN and HIZENTRA in the CIDP indication. When we take a look at where we are in that market position, you can see the percentage of patients that we've had compared to our competitors, so we're rapidly approaching the lead share. We've grown from the low 20% level in these top 5 markets to above 30% as of June 2019, and that puts us on track to be the market leader. We're not there yet, but we still got a lot of work to do, but I'd say we're heading in the right direction. When we take a look at IDELVION, and I mentioned IDELVION earlier. This has been a tremendous product, this recombinant factor VIII -- or factor IX product IDELVION for patients with hemophilia B. It has transformed the lives of patients with hemophilia B. There's no doubt. It is administered once every 2 weeks, and we've had 0 breakthrough bleeds for the majority of the patients. In the markets where we've launched IDELVION, it has rapidly become the market leader and the standard of care for hemophilia B patients. So innovation really matters. And that's what we're in the business to do. So we have to innovate every day, and this product with the dosing interval and the 0 bleeds has made the difference in why you can be a market leader when you innovate in these spaces. As you can see by the chart, this is IDELVION's share in the 5 core markets, U.S., Japan, Germany, Italy and the U.K. And IDELVION in the red has grown substantially, as I mentioned, and the market share now over 40% and still continuing to climb. Today, we've launched IDELVION in 14 countries, but it is approved in many more, and we expect to move into more markets over the next 12 to 18 months. Again, part of that market expansion and making sure that patients all over the globe have access to these innovative products. Moving on to KCENTRA, another one of our specialty products. It remains the first and only FDA-approved 4-factor prothrombin complex for reversing patients bleeding on WARFARIN. And it is supported by lots and lots of clinical trials and also supported by clinical guidelines across the organizations as the preferred reversal agent. The growth has really been around penetration through the hospitals and the existing large hospital systems and into new regional accounts. And that's where we continue to see the growth. And there were some early reports that KCENTRA would stop growing but we continued to see that this is a product that physicians, the treaters see reverses bleeding rapidly and really assist patients that are in dire straits. In terms of future growth and the innovation that we're looking for, for the future. Innovation is one of our core values, it's one of the key things that we do. And we need to keep developing these innovative therapies, as I said, as we listen to the voice of the patient and serve the needs of the patients through the world-class R&D capabilities that we've established at CSL. On this slide is the list of some of the programs that we've entered into with clinical trials. And the chart shows that we have a deep breadth and a broad pipeline within CSL's future, and this will help fuel our growth into the future. Also shown on the slide are the 5 therapeutic areas or the groupings that were really of interest to us. One of the hallmarks of CSL through the years has been the focus that we bring to what we do. We try not to get entertained with shiny objects. We tend to focus on areas where we believe we have core capabilities, competencies or adjacencies and where we can really drive value. We have to be able to make a difference in what we are doing in research and development, or else why are we doing it, right? It's about making a difference with the science and making sure that the patient then can benefit. So these 5 therapeutic areas are of key interest to us, but we also have 3 product development platforms of plasma, recombinant technologies and also cell and gene therapy. So it's not just the therapeutic areas. And I would add a sixth therapeutic area, which is really influenza. And that's our Seqirus business. So we're all part of the CSL family, but we have a lot to do on our plates across these therapeutic areas. I don't think we need to add a lot more with the growth that we're experiencing. So to give you an example, in the hematology and thrombosis therapeutic area, we have programs leveraging all 3 platforms. We have CSL200, which is our first gene and cell therapy, targeting sickle cell disease, and we have a second program aimed at sickle cell patients using a slightly different plasma-based approach with CSL889, and our third program using a recombinant protein Garadacimab, which is CSL312, our anti-factor XIIa inhibitor. So again, leveraging the platforms in these therapeutic areas is something we're looking at as a platform approach to how we manage the R&D organization. Transplant, another area, which is quite of high interest to us because it's really among the most transformational or curative therapies in medicine. These are really sick patients, and I think that we can have a strong impact on the quality of their lives and the longevity of lives with patients that are undergoing transplantation. Utility is constructed because of the toxicities that you have in this space. Demand clearly outstrips the supply of organs that are available. And so we think there's a significant opportunity for us in the area of transplant. What you see on this slide is our high level aspirational strategy framework. We're currently focused on solid organ transplant and hematopoietic stem cell transplants. It's really about reducing complications arising from antibody-mediated rejection of these organs and graft versus host disease. So those are the areas and the visions that we have for medicines right across the strategic framework. What we think is, is that there are multiple opportunities with our current base that we have today. We have proof-of-concept studies that are currently running across these products, whether it's IVIG, C1 or Alpha-1. So I think it's a very good approach to really trying to have multiple shots on goal for these patients that are in high need of transplantation. So it's somewhat limited competitive activity that we see in the space as well, which we like. There's a lot of areas out there that are very, very competitive, but transplant, there hasn't been a lot of really transformational work done in transplant in quite a number of years. And so we think this is a good area for us to focus on. We're building on our platform, the strong plasma assets, we think that provides us an excellent opportunity, both short term, midterm and long term. So I think this is really a great framework for us to go by, as I say, it's aspirational. This is hard work. There's no guarantee that all of these products will make it, but with, again, these multiple-platform approach, we think we have a good chance to really show some benefit for these patients in dire need. CSL 112 is progressing well. The study enrollment is active in over 45 countries now. We have PMDA approval in Japan. So Japan is now joining the trial with us with CSL 112. Our independent data monitoring committee have no safety concerns with the product that we've seen, and we're looking for the first utility analysis in 2020 and we'll hopefully report out on that analysis at our full year results. So I think with 17,000-plus subjects that we're looking at, this is a huge endeavor. We have over 7,000 patients currently enrolled in the trial. So we've made very good progress, and we look forward to reporting more later in the year. Moving on to Seqirus and our portfolio within Seqirus, this slide shows that portfolio. We have traditional egg-based vaccines, we -- which are still well-proven and have served the community for more than 50 years. Seqirus egg-based products include Afluria and Agrippal. And we also now have cell-based technology, utilizing our plant in holly springs that we acquired through an acquisition of Novartis a number of years ago. This is in North Carolina, and it is really the only manufacturer of scale for cell-based influenza vaccine. So we think this is a true advantage in terms of where we're heading to transition to the newer cell-based therapies, which we've shown that in the real-world effectiveness data has some significant benefits over the standard egg-based vaccine. So for people with more risk of influenza, whose immune systems are weakened or compromised, we also have FLUAD, which is our adjuvanted vaccine. As you grow older, like me, you end up with immunosenescence and certainly the younger people are still developing their immune system, so there's this need to help potentiate the immunogenicity of the vaccine, and this is where FLUAD can really make a difference for those patients -- or for those potential patients. We don't want them to be patients. So we're talking about those elderly people aged 65 and the pediatric. And whilst FLUAD is currently an egg-based product, our goal is to really develop FLUAD into a cell-based therapy. So having an adjuvanted cell quadrivalent vaccine will be the next-generation of our work that we're currently involved in. So I'd just like to point out that every season, we make these seasonal influenza vaccines under a great deal of time and volume pressure. And this is essentially really something that we have to do when we're faced with a pandemic because if you can't produce seasonal vaccine in large amounts rapidly, there's no way you can respond to a pandemic. So we have to be excellent at everything we do at Seqirus to make sure that the dry run, if you will, during the seasonal time is really driving our ability to respond to a pandemic in countries around the globe. So it's not an easy thing to do because you're developing and registering a new product, really, every 6 months, one for the Southern hemisphere, one for the northern and as you all know, our typical development life cycle for a product is about 10 to 12 years. So this is a lot of hard work that the group at Seqirus is accomplishing. When we take a look at the market itself, it is evolving, and there's about 500 million to 600 million doses distributed globally of influenza vaccine. About 1/4 of them, or 150 million, are here in the U.S. So the U.S. actually has not a bad -- a rate of uptake with influenza vaccine, so almost half the population, but we don't see the large volume growth over the short- to medium-term. There's still a lot of education that has to be done in this space. The volume growth we expect to see will largely be related to the aging population, where there's a preferential recommendation for the higher dose vaccines and the adjuvanted vaccines. Global market is estimated to be around $4 billion right now. We do see this growing substantially, largely driven by the new technologies that I've talked about and the differentiated vaccines. So as the cell-based vaccines and the enhanced vaccines that we have with both Flucelvax and FLUAD, which we believe there is really also premium pricing available and recognition of that innovation should really help to fuel the growth that we see in the Seqirus business. For Flucelvax, the study has been conducted, which indicated that this type of vaccine was 36% more effective in preventing influenza-like illness than egg-based vaccine in the 2017/'18 season in the U.S. And for FLUAD, there's been data from some recent studies that have showed a substantial reduction in hospitalizations in people aged 65 and over, and that led the authorities in the U.S. and U.K. and Australia, recommending FLUAD for the older population. So again, innovation makes a difference. So moving on quickly because I'm running out of time. We take a look at the few comments on what's really driving our growth. And fundamentally, we strive to be more innovative, more efficient and more flexible and have structures in place to really excel in the measures that we see for growth. And when we take a look at the Behring business, we see ongoing robust demand for these products. I spoke about the global launches of our 5 new products that were yet fully to benefit from. There's still a lot of launches to come. And the penetration once we launch into these markets as we continue to grow. I didn't speak a bit to it today, but we need to mature and grow our Chinese fractionation business. China is high-growth market where we believe CSL can bring really insight and expertise to the marketplace and really assist in growing the business in China. This is our core business. It's something that we do extremely well, and we should be able to share that with other countries to really drive the learnings, the technologies and the innovation from what we've been able to do thus far. And we have a solid R&D pipeline, really, when we talk about programs that are fueling future growth. For our influenza vaccines business, we'll continue to drive the Seqirus business forward. You may have recall a couple of years ago, it was loss-making when we first acquired the Novartis business, it's now moved into the profitability mode and continues to be momentum in this business. And this is really a differentiated product portfolio, but this is tough, and we have to keep going because we also have to continue investing in our ERP system. So finally, I'd just like to draw investor attention to our forthcoming interim results announcement. We're currently in the process of finalizing the numbers and reviewing our internal forecast for fiscal '20. We'll then provide investors an update with the results in February at our midyear results. So thank you, and I appreciate your attention.