CMXHF - CSL Limited (CSLLY) Q4 2023 Earnings Call Transcript

2023-08-15 02:37:06 ET

CSL Limited (CSLLY)

Q4 2023 Earnings Conference Call

August 14, 2023 09:00 PM ET

Company Participants

Mark Dehring - Head of Investor Relations

Paul McKenzie - Chief Executive Officer

Joy Linton - Chief Financial Officer

Bill Campbell - Executive Vice President and Chief Commercial Officer

Conference Call Participants

Lyanne Harrison - Bank of America Merrill Lynch

Andrew Goodsall - MST Marquee

Sean Laaman - Morgan Stanley

Steven Wheen - Jarden Australia Pty Limited

Saul Hadassin - Barrenjoey Markets Pty Limited

David Low - JPMorgan Chase & Co.

Laura Sutcliffe - UBS

Craig Wong-Pan - Royal Bank of Canada

Chris Cooper - Goldman Sachs Group, Inc.

Mathieu Chevrier - Citigroup Inc.

David Bailey - Macquarie Research

Presentation

Mark Dehring

Ladies and gentlemen, good morning and welcome to CSL's Full-Year Results Call for Fiscal 2023. It's Mark Dehring speaking, and joining me online is Paul McKenzie, CSL's Chief Executive Officer; Joy Linton, CSL's Chief Financial Officer; and Bill Campbell, CSL's Chief Commercial Officer.

As with past practice, Paul will provide an overview of the results and operations and then Joy will provide some additional detail on the financials. We'll then move to Q&A. With the view to giving everyone an opportunity to ask a question, could you please limit your questions to two. If you do have a further question, you are, of course, welcome to rejoin the queue. 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 McKenzie? Paul.

Paul McKenzie

Thank you, Mark, and good morning, ladies and gentlemen. Before I get into the results, I'd like to thank the entire CSL team and our partners for continuing to deliver for our patients. It is truly an honor to be given the opportunity to lead and continue to grow CSL. Our company has an important purpose to develop and deliver innovative medicines that help people with serious conditions live a fuller life and protect the health of our communities. I look forward to continuing to focus on executing our 2030 strategy, investing in innovation and serving our patients around the world. I also look forward to seeing many of you over the coming weeks and months and again at our Capital Markets Day in October.

We have a lot to cover today, and I'm sure there will be plenty of questions at the end of the briefing. So now turning to the results. I'm pleased to report that CSL has delivered an excellent result for fiscal year 2023 driven by strong performance across all of our businesses. First, the headline numbers. Revenue was up 31% at constant currency. This includes approximately 11 months contribution from CSL Vifor. NPATA, which is the measure we focus on as it reflects the underlying performance of the business was $2.6 billion, up 20% at constant currency. Net profit after tax was $2.2 billion, up 8% at constant currency and includes the one-off costs associated with the acquisition of CSL Vifor.

In terms of the major highlights for the year, in the CSL Behring business, our Ig franchise grew very strongly. Plasma collections are now at record levels, and we dosed our first patients in the U.S. with our gene therapy product, HEMGENIX, a transformational treatment for those patients with hemophilia B.

CSL Seqirus has continued to deliver strong sales growth, driven in particular by FLUCELVAX. CSL Seqirus also announced a license agreement with Arcturus Therapeutics to access their next-generation mRNA vaccine technology.

For CSL Vifor, we successfully closed the acquisition in August 2022 and had approximately 11 months contribution to this fiscal year. The integration of CSL Vifor is well advanced, and our cost synergy objectives are on track.

In R&D, we achieved a significant milestone with the last patient enrolled in our CSL112 Phase III trial, and preparations are well underway for global regulatory submissions for garadacimab, our homegrown monoclonal antibody for the treatment of HAE.

Now we'll focus on CSL Behring. Overall, CSL Behring's revenue was up 12% at constant currency. As I mentioned, our Ig franchise grew strongly. Sales were up 21% with strong growth recorded across all geographies as global supply recovered significantly. Our IV product, PRIVIGEN was up 29%, and our subcutaneous product, HIZENTRA, was up 12%. Underlying demand for Ig continues to be robust, and patient diagnosis rates have been growing in core indications. We received approval and are actively prepping for the launch of our 50 ml pre-filled syringe for HIZENTRA, which is another advancement for our market-leading subcutaneous product.

The increase in supply also saw our albumin portfolio grow by 11%, with strong growth in China as the COVID restrictions there eased and hospital operations started to return to more normalized levels. We have also had solid demand growth in both Europe and the U.S.

Hemophilia was up 8%, where once again, the standout performer was IDELVION, which was up 13%. This was driven by increased patient interactions with our healthcare providers. IDELVION also saw increased uptake in Japan. Specialty Products were up 6%, led predominantly by KCENTRA, which increased by 10% as social mobility increased post-COVID. The other category for CSL Behring was down 15%, largely due to the prior period, including COVID vaccine sales.

Let's get to the operating highlights for CSL Behring. We have continued to achieve strong growth in plasma collections with volumes up 31% for the year and now at record levels. The other pleasing aspect of our plasma collections is that during this growth period, the CSL Plasma team have carefully been reducing collection costs. Our cost per liter or CPL, over the year has been managed down by approximately 14% from June 2022 to June 2023.

CPL, which is largely made up of donor fees and labor cost, has reduced by approximately 17% from the peak in March 2022. This is a great achievement and reflects the focus and dedication of all of our employees in CSL Plasma and the commitment of our donors around the globe.

While significant progress has been made to grow our plasma collections to record levels, reduce our cost and improve our efficiency, there is still a lot more to do, and we will be driving hard to continue this positive momentum. We have continued to invest in new plasma centers with 12 new centers opened during the year. As you know, the Mexican border was reopened to donors in September 2022, and our centers near the border have been recovering strongly.

We have also continued to embrace an advanced digital technology in our plasma collection centers to improve the donor experience. The CSL Plasma donor app has undergone further enhancements with over 3 million user downloads and more than 0.5 million users logging on each month. We have used digital marketing campaigns with targeted messages to attract new donors, reactivate lapsed donors and encourage donors to return.

As mentioned at our half year results, we have commenced the rollout of our new Rika plasmapheresis devices. These are now installed at a limited number of centers and we continue to work through supply chain challenges with Terumo. We remain committed to the rollout of this program. However, it is taking us longer than originally thought as we iron out these issues.

On the manufacturing side for CSL Behring, we opened a new plasma fractionation facility at Broadmeadows and added new base fractionation capacity at our Marburg facility in Germany. Both of these expansions will help us meet the increasing demand for our plasma-based therapies and improve manufacturing efficiencies over time. We also have a number of initiatives underway to increase our manufacturing yields in the plasma production processes, and I will talk more to this later in the presentation.

Moving on to the next slide and our CSL Seqirus Vaccines business. CSL Seqirus delivered another strong result with total revenue exceeding $2 billion for the first time, a growth of 9% at constant currency. Seasonal influenza vaccines, which make up 90% of CSL Seqirus sales revenue was up 9%, driven by the outstanding performance by FLUCELVAX, which was up 30%. This growth by CSL Seqirus was achieved against the backdrop of reduced rates of vaccinations as communities around the world adjust to a post-pandemic environment. Considering this broader environment, CSL Seqirus' growth has been extraordinary, and we continue to benefit from our differentiated product portfolio.

Here are a few of the operational highlights for CSL Seqirus. FLUCELVAX has now been approved in U.S., Argentina, Canada, Taiwan and most recently, Australia and New Zealand for six months plus age indication. For FLUAD, the CDC adopted the Advisory Committee on Immunization Practices, or ACIP, recommendation for it to be one of the preferentially recommended seasonal vaccines for adults aged over 65 in the U.S. This preferential recommendation provides us with the opportunity to better educate healthcare professionals, pharmacy partners and patients on the benefit of adjuvanted influenza vaccines, which are designed to protect the immune system of older patients.

On the pandemic side of the business, CSL Seqirus was awarded a BARDA order for the manufacture of avian influenza clinical trial material. We renewed or extended advanced purchase agreements with Finland, Canada, Austria and Sweden. And we also supplied our pre-pandemic stockpile of Avian flu to Singapore. In relation to mRNA, we signed a licensing and collaboration agreement with U.S.-based Arcturus therapeutics, which gives us access to their next-generation vaccine technology platform. This includes our late-stage COVID-19 vaccine and gives us an R&D development program beyond influenza capability.

On the manufacturing side, our innovative cell reassortment technology is delivering high yields in our manufacturing processes. Our additional fill and finish capacities we built at Holly Springs and Liverpool are now fully operational. Building works are well advanced for the new cell culture influenza facility in Tullamarine, which is expected to be operational in 2026.

Turning our attention to CSL Vifor. As I mentioned at the beginning, our acquisition of Vifor Pharma successfully closed in August last year, which means approximately 11 months contribution from CSL Vifor in fiscal year 2023. The integration of CSL Vifor is well advanced and the cost synergy targets are well on track. CSL Vifor's revenue for the period was just shy of $2 billion. We don't have a prior period to report against, but based on unaudited management accounts, CSL Vifor performed in line with our expectations with revenue growth of approximately 14%, reflecting solid growth across all key product areas.

The growth in fiscal year 2023 was driven by strong performance of FERINJECT outside the U.S., strong growth in MIRCERA following an agreement with a large kidney care provider in the U.S. which took effect in January 2023. The step edit measures introduced by payers in the U.S. iron market had a positive impact on Venofer, CSL Vifor low-dose IV iron product, but put pressure on the high-dose IV iron product INJECTAFER. However, there are signs that this pressure is starting to stabilize.

Other highlights for the period include: for the iron business, INJECTAFER was improved in the U.S. for the treatment of iron deficiency in adult patients with heart failure, categorized as New York Heart Association Class 2/3 to improve exercise capacity; FERINJECT also gained marketing approval and was launched in China with patient reimbursement expected in early 2024, following the national reimbursement drug list submission.

For VELTASSA, we have signed agreements with both Humana and CVS in the U.S. KAPRUVIA, which is used to treat itching in patients with chronic kidney disease on dialysis was successfully launched in Germany and other European countries as well as a long-term licensing agreement signed for KORSUVA in China.

In the non-dialysis part of the nephrology business, TAVNEOS, a treatment for patients with severe active ANCA-associated vasculitis saw strong sales growth, especially in Germany and the UK. It gained reimbursement in France and we have seen continued uptake in Japan.

Moving on to our R&D outcomes. This slide shows the key R&D portfolio events which were achieved in fiscal year 2023. In immunology, we presented garadacimab's HAE Phase III study data for the first time at the 2023 American Academy of Allergy, Asthma, and Immunology Annual Meeting in February.

These data are consistent with the positive topline results announced in August last year, and we have also commenced regulatory submissions to global health authorities. BERINERT subcutaneous for HAE received PMDA approval and was launched in Japan. This approval of the at-home subcutaneous therapy for patients suffering from HAE advances treatment options for patients in Japan.

In hematology, HEMGENIX, as mentioned earlier, the first and only one-time gene therapy for appropriate adults with hemophilia B was launched in the U.S. with the first patients receiving commercial product in June.

KCENTRA trauma Phase III study, first patient in was achieved in March 2023. In our respiratory therapeutic area, CSL787 Phase I study is complete without any emerging safety findings and some promising efficacy trends. CSL787 is a novel approach to use Ig via inhalation. This is a potential novel therapeutic option for patients living with bronchiectasis.

In cardiovascular and metabolic, enrollment in the CSL112 AEGIS-II trial was completed in November 2022. There is a 12-month follow-up, after which data will be unblinded and analyzed prior to the release of the final results in early 2024.

In vaccines, we have completed our aQIVc Phase II dosing studies and are on track to commence Phase III with the Northern Hemisphere season. Arcturus 154 COVID vaccine global submissions commenced in May 2023.

For CSL Vifor, as mentioned on our previous slide, we received approvals for INJECTAFER in the U.S. for heart failure. FERINJECT and VELPHORO have been approved in China. We have also received approvals for KORSUVA and KAPRUVIA in multiple countries, including Switzerland, Canada, Singapore, Australia, United Arab and Kuwait. I hope you share our enthusiasm for the progression of the R&D pipeline.

I will now hand over to Joy for some more in-depth details of the financials.

Joy Linton

Thank you, Paul, and good morning, everyone. As Paul indicated in his introductory comments, CSL has delivered a strong performance slightly above the top end of our guidance. On a reported basis, full-year NPATA was $2.61 billion, up 10%. On a constant currency basis, NPATA was $2.855 billion, up 20% after adjusting for a currency headwind of $245 million. I'll talk to FX in more detail shortly.

As you've heard me say before, we believe NPATA provides shareholders with greater transparency as to the underlying performance of the company. Once the one-off Vifor transaction-related costs have washed through the P&L, the acquired IP amortization will, for the most part, be the only reconciling item between NPAT and NPATA.

The statutory net profit after tax measure is, of course, provided as usual. I do want to highlight that unless otherwise called out, references to NPATA are attributable to CSL equity holders only and the financials in this presentation are inclusive of approximately 11 months contribution from CSL Vifor, which, of course, affects almost every line item.

On this slide, we provide a reconciliation between NPATA and NPAT at constant currency. Starting with NPATA of $2.855 billion, the following adjustments are included. $239 million attributable to amortization of acquired intellectual property. Other one-off acquisition costs of $346 million which is made up of the acquisition transaction and integration costs and the unwinding of the inventory fair value uplift recognized on acquisition. This is a non-cash item and a result of the PPA exercise. Each contributed to approximately half of the overall balance. After adjusting for non-controlling interests and tax, NPAT attributable to CSL shareholders for the full-year is $2.441 billion.

Just a couple of observations before turning to the next slide. If you'd refer to Note 1 of the financial statements, we have provided additional commentary on the NPATA to NPAT adjustments. And while we're on the financial statements, I'd like to draw your attention to Notes 2 and Note 8. And here, we show the Vifor goodwill allocation across the CSL Group. This simply reflects where the value will be created by the Vifor acquisition with the allocation following where the actual benefit will be realized.

Now turning to the group financial highlights on Slide 13 and looking at the financials in more detail. On a constant currency NPATA basis, with strong growth in the Ig franchise and the inclusion of approximately 11 months of CSL Vifor financials, total revenue for the group was up 31% to $13.826 billion, and we provide a breakdown of our major products in Appendix A and B of this presentation.

Gross profit of $7.587 billion was up 32% and I will talk to gross margin shortly. The 58% increase in sales and marketing costs is largely attributable to the incorporation of CSL Vifor into the group with CSL Behring and CSL Seqirus costs as a percent of revenue, largely in line with the prior year. Group operating result was up 27% or $6.072 billion, and the segment split follows on the next slide.

Research and development costs were up 22% as we advanced assets such as garadacimab, CSL112, HEMGENIX, along with the inclusion of the CSL Vifor R&D activities. We expect that FY2024 total spend for R&D will be in the 10% to 11% guidance envelope of total revenue as we continue to invest in innovation and have a number of exciting programs coming to fruition that Paul has already outlined.

General and administration costs excluding CSL Vifor acquisition-related adjustments of $177 million was up 27%. And again, this is primarily driven by the 11-month contribution of CSL Vifor. Net finance costs increased due to the debt associated with the CSL Vifor acquisition as well as rising interest rates. On debt, our weighted average cost of debt increased by 73 basis points to 4.11%.

As previously mentioned, NPATA attributable to shareholders of CSL was up 20% at constant currency. Of note, this does include a $49 million NPATA contribution from the sale of a property. This contribution is largely the reason that NPATA was over the top end of our profit guidance provided last year.

The reported effective tax rate for the fiscal year 2023 declined to 15.5%, mainly due to the geographic profit mix and the CSL Vifor lower statutory tax rate. We do expect for fiscal year 2024, the effective tax rate to be in the range of 18% to 20% at constant currency. ROIC decreased to 12.2% primarily related to the acquisition of Vifor with the benefits materializing over the coming years.

Cash flow from operations was $2.601 billion and remained relatively flat year-on-year. The strong cash earnings growth was offset by the growth in plasma collections, one-off Vifor transaction costs, along with the currency headwind. NPATA EPS was up 17% at constant currency or 6% reported and in line with our total dividend of US$2.36 per share, which also grew 6%. This translates to approximately A$3.59, which is up 13% on the previous year given the strength of the U.S. dollar.

Turning to the segment results on Slide 14. Fiscal year 2023 is the first full-year of our new segment reporting. And as we have previously communicated, this reflects the way that the Chief Executive Officer who is the Chief Operating Decision maker, monitors and assesses business performance in order to make decisions around resource allocation, and this is in accordance with the accounting standards.

There are very sound operational reasons as to why we've made this move. It reflects our organization structure, and we garner valuable expertise, scale and efficiency benefits by amalgamating the basic frameworks of what we call our enabling functions as well as our R&D organization. This includes our scientists, lawyers, accountants, HR professionals, et cetera. And I'll talk to the financial benefit of this a little more shortly.

As you can see on the slide, total revenue for CSL Behring and CSL Seqirus was up 12% at constant currency from strong Ig sales in CSL Behring and the ongoing shift to differentiated products in CSL Seqirus. With the addition of the 11 months contribution from CSL Vifor, where both FERINJECT and MIRCERA performed strongly, total group revenue was up 31% at constant currency.

As you know, the total cost of collecting plasma right across the industry has risen significantly over the past few years. And together with an inflationary environment and a currency headwind, all of these factors have adversely impacted the CSL Behring gross margin, and I will talk to this in more detail on the next slide.

Fundamentally, however, today's margins reflect the cost of plasma nine to 12 months ago as the cost of that plasma works its way through inventory until it is sold a year or so later when it is reflected in the cost of goods.

Switching over to CSL Seqirus, gross margins expanded due to the continued success of our product differentiation strategy and the improved manufacturing efficiencies driven by the cell reassortment technology delivering higher yields. And lastly, the addition of CSL Vifor has a modest, but positive impact on the group's margin. The group segment operating result was up 27%, with the integration of CSL Vifor into the CSL Group now substantially complete.

Turning to the next slide on the CSL Behring gross margin. We continue to expect the CSL Behring gross margin to return to pre-COVID levels in the medium-term. The path to margin recovery, however, is different to the COVID-driven margin decline. And the key contributors to this margin recovery are depicted on the slide. You can see each Chevron has a different size and is broadly representative of their contribution to margin improvement, with the bigger the Chevron, the greater the contribution. But please do not take your rulers out as this is not to scale.

Let's start with the largest contributor to gross margin improvement, CPL reduction. The largest components of CPL are donor compensation and direct labor. These two combined equate to approximately 65% of total CPL. The remaining is a mix of leasing costs, consumables, testing costs and other costs associated, including fixed infrastructure. Some of the major initiatives that we have implemented include optimizing the structure for donor payments, testing of different fee schedules, improving labor planning and initiatives to drive increased center level productivity. And as Paul stated, CPL is about 17% off the peak, so we are making genuine inroads, but there is more to do, and it is just going to take some time.

New products. We have and will continue to be an innovative company. The R&D portfolio is progressing extremely well, and we believe it's the best shape it's ever been in. There are a cluster of late-stage programs coming to fruition and these are high-value products meeting patient needs. HEMGENIX is exhibit A and garadacimab is not far behind. Notably, our modeling on this slide, we are excluding any contribution from CSL112.

Moving to the next Chevron. ASP mix shift, and this is both geographic and by product presentation. We have seen over the last few years is a geographic mix shift. The difference between U.S. and ex-U.S. pricing has been declining for several reasons, and we expect this dynamic to continue. I don't want to over index on this point as we don't expect this gap to close completely given the different nature of the various markets around the world. But it is a trend we expect to continue.

Another ASP mix shift dynamic is that of product presentation. There is a long-term shift towards subcutaneous Ig, a premium product with a higher price. And while we haven't seen this in fiscal year 2023, we do expect this trend to return over the medium term. Yield improvements. Ig yield improvement has and continues to be important. It is highly value-creating and an enterprise-wide focus. And Paul will talk to our Ig yield maximization strategy in greater detail in a few moments.

And lastly, scale and efficiency measures. When compiling our long-range planning, we think of high single-digit Ig demand growth. And this is essentially why we have maintained investment in our manufacturing capability and we continue to have confidence in this. Plasma collections are now comfortably exceeding pre-pandemic levels. Our manufacturing facilities are now operating at high utilization rates reducing the fixed cost per unit.

Of course, there are possible headwinds to margin expansion that are not detailed on this slide. For example, all else being equal, growth in Ig and albumin for that matter, deliver valuable gross profit in a dollar cents, however, they are a drag on the gross margin percentage. But broadly speaking, the last liter of plasma we collect is the most expensive and the last gram of Ig and albumin sold is at the lowest price. These products are marginal leader products and we do expect them to continue to remain in balance over the medium term.

Whilst FX has been a margin headwind in FY 2023 going forward, of course, this could be a headwind or a tailwind as currency peers move. But bringing this all together and keeping in mind a nine- to 12-month inventory cycle, we anticipate modest improvement in the CSL Behring gross margin in fiscal year 2024 and 2025 with a return to the pre-COVID margin in the subsequent three years.

So moving on to the next slide. I alluded earlier to the rationale as to why as a business, we have moved to a new segment reporting. And I think this slide clearly illustrates the value that our new organizational structure creates. As you can see, even as we grow revenue, G&A expenses as a percentage of revenue have been declining. This follows the work we have done over the past few years to bring together our enabling functions into a single global structure, and this has precipitated the move to our new segment reporting.

The journey to transform our enabling functions across the enterprise started about three years ago and it is now a centralized and globally managed. This removes duplication. It improves the ability to automate, improves our corporate governance and has been deployed among multiple functions, such as R&D, finance, communications, human resources, legal and procurement. And we anticipate being able to drive further operating leverage as we embed these progressive changes deeper within the CSL Group.

Moving to Slide 17 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. It's important to note that CSL Vifor is included for the first time in the fiscal year 2023 breakdown.

While the graph clearly shows the growing value with inventory, which is consistent with the growth in the overall business, it also reflects the increase in our cost per liter of plasma. Despite the growth in inventory, you can see as a percentage of revenue, inventory has essentially remained flat for many years. Focusing on the last couple of years, you may recall that we have had to judiciously manage the tension between patient demand and balancing our supply chain. This has resulted in us having a lower cover of finished goods than we would like, which largely remains the case.

Turning to capital expenditure on Slide 18. For many years now, CSL's capital investment has been significantly orientated towards supporting company growth with our major capacity projects completed at both CSL Behring and CSL Seqirus manufacturing facilities. I know many investors had a firsthand opportunity to visit some of these facilities at our recent European site tour. Albeit we will continue to need to reinvest into the company. CSL is currently well placed to meet demand growth in the near-term for capacity on both collections and on the manufacturing front.

We have worked hard to continue to build new manufacturing capacity at all our facilities to support product launches and meet future demand, while continuing to balance both capital investment and yield improvement initiatives. CapEx as a percentage of revenue has dropped considerably since fiscal year 2020 and will further reduce in fiscal year 2024. Fiscal year 2024 CapEx is expected to be circa $800 million, around a 30% reduction on fiscal year 2023. We are strongly focused on the return on our capital projects as we aim to extract as much value as we can from our investments.

Next year, the reduction in CapEx combined with the expected profit growth will obviously help improve our ROIC, and I will be giving some more granularity on this at our Capital Markets Day in October. Innovation also plays a key part in managing CapEx. The Ig yield improvement initiative is underway, both in collections and finishing reduces the need for future capital. And it's also worth noting that yield innovation goes beyond Ig with initiatives for yield improvement in albumin as well as cell culture for influenza production also [indiscernible].

So moving to the next slide, foreign currency. There has and remained significant volatility in world currency markets and CSL being a global company is not immune to this. For fiscal year 2023, the NPATA currency headwind of $245 million was largely driven by the stronger U.S. dollar and is a function of both realized and unrealized losses. To the left of the slide, the waterfall chart highlights the currency pairs contributing to the headwind with the Chinese yuan, the pound sterling and the euro all weakening against the U.S. dollar and contributing the most to the $245 million headwind.

The U.S. dollar against the Chinese yuan relates to albumin, the U.S. to the euro reflects the full range of plasma products sold into the EU, but particularly Ig inventory being built back post-COVID. The adverse movement of the pound sterling against the U.S. dollar is different as our UK Seqirus business is a pound sterling functional currency entity. The currency headwind is a byproduct of the production of FLUAD in Liverpool, which is then sold into the U.S. and then settled at a later date back into pound sterling.

Remaining on the left, the currency average rate table highlights the volatility in the major currency pairs with the U.S. dollar strengthening against most currency pairs upwards of about 8%.

Switching to the right-hand side of the slide, the $245 million FX headwind is broken down into FX impact by type. And here, you can see the transaction FX has been the largest contributor. The realized/unrealized FX where realized is the difference in the FX rate from the date of transaction to the date of settlement or in the case of unrealized the closing rates as of the 30th of June. This contributed significantly to the FX headwind with the U.S. dollar strengthening against most currencies during the year. There was also a modest translation impact.

You will also see that we have included a footnote on the outlook slide to provide you with the current estimated FX impact for FY 2024, should rates remain steady for the remainder of the financial year. And at this stage, we see no material impact on our NPATA guidance. And we will continue to provide updates to you during the year, such as at our AGM and the half year result.

And with that, I will hand back to Paul, who will finish up with some comments on our Ig yield maximization strategy and the fiscal year outlook for 2024.

Paul McKenzie

Thank you, Joy. As mentioned earlier, we have a number of yield initiatives underway across the group. On this slide, I'd like to concentrate on CSL Behring and give you a road map of our Ig yield maximization strategy. As you know, increasing the amount of Ig that we extract from every leader of plasma has been and will always be an area of high focus for CSL. We have been on this journey for some time, and it is an area in which we believe we have a competitive advantage today.

Starting off with the green arrow on the bottom left corner of the chart, we have used the pre-COVID period as our baseline. Since then, we have achieved Ig yield growth of approximately 5% to get us to where we are today. The next stage of our journey is about working within the current regulatory framework to continue to increase Ig yields. Over the next five years, we will be doing this by using data analytics by being smart about the way we allocate plasma and implementing a program of operational excellence and process changes to our existing practices.

We are targeting another 5% improvement and we are labeling this or calling it Horizon 1. Horizon 2 will build on Horizon 1 and run concurrently. Horizon 2 will involve proprietary process improvements with some manufacturing retooling required. This will give us a step change in the amount of Ig that we extract from every liter of plasma we collect. Work is currently underway and we have the pilot plant up and running for this new process. This will require regulatory approval.

For competitive reasons, we don't intend to go into the detail about the how. Our target for Horizon 2 is to achieve another 10% improvement in our Ig yields on the top of Horizon 1 improvements within a time frame around the back end of the decade.

Now on to the outlook. The company continues to have a strong mid-term outlook. We also continue to have a robust pipeline of R&D programs coming to fruition. Looking specifically at CSL Behring. The strong growth in Ig is expected to continue following the record plasma collections in fiscal year 2023. We look forward to rolling out HEMGENIX to more patients in the U.S. and Europe. And as I outlined, we have a number of initiatives underway to improve efficiencies which will support the recovery and CSL Behring's margin over the medium term.

For CSL Vifor, our focus is on organizing ourselves to unlock the value and growth within this business, a business we are yet to fully leverage the value of the broader CSL network. The iron and nephrology markets are evolving, and I have no doubt there will be challenges in the CSL Vifor growth profile, but the unmet patient need within these markets is significant, and CSL is well placed to respond in an agile and proactive way.

One example of our activity that leverages both CSL Behring and CSL Vifor is our work on patient blood management. Hervé Gisserot will be talking more on this initiative at our forthcoming Capital Markets Day in October.

For CSL Seqirus, we anticipate another strong year with continued growth driven by demand for its differentiated product portfolio. CSL Seqirus is also progressing, global registrations for its next-generation mRNA COVID vaccine.

In terms of our guidance for fiscal year 2024, it remains consistent with what was provided at our market update in June. We expect revenue growth to be approximately 9% to 11% over fiscal year 2023 at constant currency, with NPATA expected to be in the range of approximately $2.9 billion to $3 billion at constant currency, a growth of between 13% and 17%. This percentage growth rate excludes the one-off gain we made from the sale of property in fiscal year 2023 of $44 million.

With that, we'd be happy to take your questions.

Question-and-Answer Session

A - Mark Dehring

Thanks, Paul. Ladies and gentlemen, to Q&A. Our first question comes from Lyanne Harrison at Bank of America. Go ahead Lyanne.

Lyanne Harrison

Hi. Thank you, Mark. Good morning, Paul. Good morning, Joy. Congratulations on the strong growth in Ig and collections. And I know CSL usually waits on its R&D day to comment on pipeline. But given the progress in FcRn, can you comment on the status of CSL730 which a public clinical trial record is showing that, that candidate has been terminated. And if so, can you also comment on what CSL has in the pipeline in response to FcRn.

Paul McKenzie

Well, thanks very much for the question and look forward to seeing you, Lyanne. Our CSL730 program, as you mentioned, was terminated. We didn't really see a clinical viable option with that program. We are looking at our next generation in our R&D group of FcR inhibitor candidates that we're really going to move and progress efficiently.

But I want you to note, Lyanne, Ig is and will continue to be the standard for things like CIDP, where FcRn is playing. And we really want to make sure that people understand that patients who are well maintained on Ig portfolio are very happy with this. Over 96% of the patients on our Ig portfolio are either very happy or happy with their doses. So this is fantastic. So we do welcome innovation for patients around the world, but we think the results we've seen to date are at par at best with our portfolio of innovative pipelines that we provide, and we continue to look forward to serve in this marketplace as we move forward.

But with that, I'll hand off to Bill Campbell, who may want to add a few more comments.

Bill Campbell

Hi, Lyanne, good morning. Nice to talk with you again. I think there's not a lot more I would add to Paul's I think, excellent comments. I think, first of all, I think it will be helpful in the market to have another voice talking about CIDP and working toward more patient diagnosis, which tends to be quite undervalued at this point in time. Ig, without a doubt, has been and will absolutely continue to be the standard of care. I think it's highly unlikely at this point where you'll see many patients move off of Ig to another product given the long lead times around diagnosis and then ultimately how well patients are doing on therapy.

We continue to bring other innovations such as our pre-filled syringe enhancements to HIZENTRA that Paul spoke about. So I think we will continue to be an aggressive leader in this space. It is a market where we've been in for, as you know, a long time ex-U.S. and more on the five to six-year range in the U.S., but have built really strong relationships with the neurology community. And then the last thing I would say is there is a preference for subcutaneous therapy for ongoing maintenance in the space, subcutaneous Ig therapy, I should say, where HIZENTRA will remain the leader in that area. So I think it's good overall to have more voices talking about this and moving diagnosis along, but we feel we're in a very, very strong position.

Lyanne Harrison

Thank you very much.

Mark Dehring

Thanks Lyanne. Next question comes from Andrew Goodsall at MST Marquee. Go ahead, Andrew.

Andrew Goodsall

Thanks very much for taking my questions. I was just going to ask about the sales of Ig. I guess, you've got 30% more plasma, I guess, in the hopper. And just trying to see how you're thinking about balancing that with where post COVID demand has recovered to or where it's recovering to and your inventory rebuild?

Paul McKenzie

Yes. So let me comment, and again, I'll ask Bill to weigh in, but if you think about where we're at in terms of the Ig demand overall, Ig demand is growing back very strongly. We see on diagnosis in the U.S., for instance, where we reported at half year about 70% return of diagnosis rates to pre-COVID, we're now over 80% and continuing to build. So the Ig market itself is rebuilding, and we continue to be bullish on the fact that it will grow at high single-digit or low-double digits moving forward, which is incredibly important.

I know in terms of the plasma collections, people immediately want to say, well, your Ig growth should be tied exactly to your plasma collections. But that's not as easy when we're looking at, one, rebuilding inventory across many SKUs around the world, bidding on more tenders that require us to have more of an inventory in place. So months of coverage is really not always the best parameter for measuring inventory because we need to get down to SKU levels. As I mentioned and Bill mentioned, we are also prepping for the launch of the 50 ml HIZENTRA syringe. So that will take some work to kind of build that supply chain and make sure we have that distribution network there.

So a lot of the plasma collections that are there, will go to inventory, and we'll go to make sure that we can meet all the demands of the SKUs. And just by SKU, I mean, the individual product presentation, strength, dosages, labeling that occurs around the globe.

But with that, I'll ask Bill to make any additional comments.

Bill Campbell

Hi. Good morning, Andrew. Again, also good to speak with you. First of all, I'm super proud of the effort that the Behring team put forth in FY 2023. As you saw, the Ig business was up quite substantially, 21% overall. And as is in our past, the large percentage of that is volume-based. I would also say that the growth for us was strong across all four of our regions, which is something, as you'll know that I've spoken about quite extensively in the past, and we believe continuing to have a broad base of businesses in our strong, good long-term health. So really strong growth this year. We foresee the growth to be quite significant going forward as well. And if you perhaps were asking a little bit about FY 2024, it's a bit early yet in the year, but certainly see mid-teen growth on volume and lower percentage, obviously, on price. I think we're in a really good position with both PRIVIGEN and with Ig.

The thing I do want to just add on to Paul's commentary is inventory is really important for us. We've been – as you know, we're a bit hand to mouth going through COVID. We took a bit of a conservative, but appropriate approach to make sure that patients on our brands continue to receive our brands going forward. And building inventory backup to ensure the growth will be important for us.

Last comment I'll make is I can promise you the commercial teams around the world are quite anxious to get after more Ig volume after being a bit restrained in the last couple of years. So they're pretty excited and that goes from the U.S. team through Asia, Europe and rest of world. So like Paul, quite confident in the growth of our Ig business, and I believe that, that will continue for quite some time.

Andrew Goodsall

That's great. Thank you. And I don't know whether we have time for the follow-up, but just going to ask on Rika, whether there's – sorry, when you expect that to reaccelerate and get rolling out again?

Paul McKenzie

No. Thanks for the question. We've been working hard on solving some of the challenges we have with Rika. We're now into just over 10 centers. We're continuing to be impressed with what we're seeing in terms of the system itself, the benefits for donors in terms of donor safety, in terms of the total amount of plasma outside the body as well as donor time on the bed. In addition, we've been very happy with the employee experience around the machine.

Our challenge really, Andrew, has been around making sure the supply chain challenges get resolved. Remember, we're at an all-time record for plasma collections right now. We want to be – make sure we're very cautious in how we introduce the machine to not end up with any major disruption. So we see a critical period here in the end of the calendar year where lots of the supply chain issues them also including not just soft goods that we talked about before, but some spare parts for the devices themselves, some software updates and hardware updates all come together for us to drive the overall reliability of the machine. So we should be able to provide you at the half year very strong visibility to where we're going and how aggressively we can roll it out after this critical end of calendar year activity.

Mark Dehring

Thanks, Andrew. Next question comes from Sean Laaman at Morgan Stanley. Go ahead, Sean.

Sean Laaman

Thank you, Mark. Good morning, Paul and Joy. I hope everyone is well. Thanks for the detail on some of the dynamics around the gross margins, you've got 31% growth in volumes. You're still rolling out collection centers at a much small rates than you have done over the last years. You do expect that the mix will return to higher priced HIZENTRA and you've got this sort of yield kicking in, we're currently above 5% ahead of pre-pandemic levels. So you get some confidence that you will indeed get back to that gross margin that you had pre-pandemic in Behring, but then when you think about some of the more larger yield improvement, so just mathematically in the later part of the decade, if you were, for example, producing the same amount of product that taking 20% less plasma receive that outcome, why wouldn't we expect something like north of mid-60s gross margin?

Paul McKenzie

Yes. No, it's a great question. Thanks. I'll make some comments and also ask Joy to weigh in. Look, the return to gross margin of pre-COVID is a journey, as Joy outlined, right? We're continuing to pull out all stops across all the Chevrons that Joy had highlighted. One thing I want to note on the yield improvements, not every leader goes through the yield improvements that we showed on the Horizon 2. So that is really focused on in this period on the leaders that are used to produce Ig and albumin only because what we do not want to do is change the regulatory path of our existing products and infra marginals.

So when you look at it, you can't apply it to all the plasma leaders we collect. You have to apply it to the part that is really driving the marginal leaders of Ig and albumin. Now over time, we maybe able to go back and move that. But in this period that we showed on the graph, and given all the regulatory approvals and work that needs to be done, it's unlikely we'll get to all plasma being put through that new proprietary process.

Joy, I don't know if you want to add any comments.

Joy Linton

Agreed, Paul. Sean, the only other thing I would say is, of course, once the yield improvement comes in, you still then need to probably wait until the following financial year given the lag between the manufacturing process and actually selling the product. So that slide that kind of talked about the end of the decade, you've then got to put another nine to 12 months on that before it really starts to come through margin. So that's the only other thing that I would caution you on.

And of course, Ig and albumin they remain lower-margin products and the growth that we've had in the EU, at least in 2023, was a bit of a margin headwind for us. It was the right thing for us to do, building back, preserving those markets. And as I said, we actually see that will turn into a positive in the next period of time. So there's some headwinds and tailwinds, but we remain confident on returning to pre-COVID and I'm sort of loathe to make statements that go out too far beyond that. But there's – put it this way, there's many more tailwinds than headwinds, which is what we're seeing, which is positive.

Paul McKenzie

Sean, maybe I can add one comment on the CPL, obviously, the biggest Chevron, right? It's really a balancing act. We're trying to thread the needle between continuing the journey of CPL reduction and making sure we collect the right volume of plasma for growth in future years, right, fiscal year 2025, 2026, 2027. So it's not like we can just immediately cut the CPL. It's a journey to do that in both donor fees as well as labor cost to make sure that we continue to collect the right amount of plasma. We will be open to your comment, double-digit plasma centers for this year and continue to look at can we diversify our footprint relative to plasma, which hopefully we'll have more news on in the upcoming results.

Sean Laaman

Got it. And just one very quick follow-up. Is there any impact on costs or gross margin related to having to extend with Haemonetics while carrying out the Rika project?

Paul McKenzie

There is not, Sean. Basically, it's – we pay for consumer good either Rika or consumer good haemonetics. And we've been able to work with both of them to make that roughly at par.

Sean Laaman

Perfect. Thank you. That's all I have.

Mark Dehring

Thanks, Sean. Next question comes from Steve Wheen at Jarden. Go ahead Steve.

Steven Wheen

Thanks, Mark. Good afternoon everyone. I just wanted to sort of take that donor fee discussion a little bit further. Just wondering where that – where the fees that you're offering donors at the moment sits relative to your peers? Because obviously, they seem to have made some headwind there, and I'm just trying to compartmentalize that particular aspect of your cost base and how much further it could come down if you're going to move towards what your peers are doing?

Paul McKenzie

Yes. I think if you look at our overall CPL, like I said, we're down 14% year-on-year and 17% overall from our peak. The real – it's there is really a market-specific opportunity relative to donor fees and what competition is doing, right? So we've done a series of things, move from eight donations to five donations, put in bonuses, each marketplace has its own unique dynamic though. So in some cases, like the Mexico border, I was down there a couple of weeks back, you see the competitors being very aggressive with price there, but not as aggressive in other parts of the U.S.

And so we really have increased our competitive intelligence of what the donor fee mix looks like. And then we respond to that by using the data analytics and our donor app to be able to get the right mix of donors that we can attract. And remember, it's a mix of new donors, which are running about 5% right now and returning donors. So it's really about getting that information. We've rolled out a customer management tool, a CRM, a tool that Bill and his team uses extensively in commercial. So we can continue to understand the personas of our donors and to make sure that we can enhance their experience but as well continue to move the journey of CPL reduction. So we've made really good progress on this on both donor fee and also labor cost. But again, as I shared, we want to thread the needle in terms of not cutting back on plasma total leaders relative to our growth aspirations for patients specifically to Ig.

Joy Linton

I might just add a couple of comments, Paul. And I agree with what you say. The two additional bits I would add, Steve, is we – based on our data, we were never as high as some of our competitors. So we didn't have as far to come down. We never chased up to the top end. I think that's important. And we think across both of our major competitors, that statement, we believe is true. And secondly, as Paul alluded to, we've got some pretty good data now. And actually, every time I look at the data, there's no – we are not at the top end anyway in terms of donor fee. In fact, our people sometimes think we're not quite as competitive as they would want us. They think we're cheap.

So we can see that data kind of area by area, center by center. And we're pretty comfortable that we are if not in the middle of the pack, at the lower end of the pack on donor fees as we speak. But I've said before, do we think donor fees will go all the way back down to the way they were pre-COVID? We are not modeling that. We just don't – we just think the donor has a different expectation now of what they will receive, and I think it would require something in some external factor, some broader economic disruption that would cause donor fees to go back down to pre-COVID. Hence, why we're so focused on other initiatives to really bring down the overall CPL. It's not to say donor fees won't go down. We think they will, but we're not modeling that they'll go all the way back down to pre-COVID.

Steven Wheen

Got it. Thanks for that. And just as a follow-up, changing topics. Specifically, HEMGENIX, how do we think about that with regards to the recognition of revenue for some of the geographies? What are you recognizing? And what are you providing for? And then secondly, as part of that, can we – do we get a feel for what sort of IP amortization, you're going to be backing out specifically related to that part, which is, I guess, included in the Behring segment?

Paul McKenzie

I appreciate the question, Steven. First off, I just want to say what an unbelievable opportunity it is to change the journey for hemophilia patients. Over the last couple of months, I've been able to be out with the commercial teams and meet some of the patients and talk to a grandfather who's had infusions for years and now has an opportunity with their grandson to have that person, their grandson to have a completely different experience.

To me, this is pioneering and we're really making a difference in terms of the life experience of our hemophilia patients. So absolutely a great feeling and so great to be part of a company that's making that happen.

And with that, I'll hand off to Bill to talk through the dynamics in the market because the system in the U.S. and the system in Europe will obviously be quite different in terms of how we approach the contracting with the providers and the governments. Bill?

Bill Campbell

Thanks, Paul, and good afternoon, Steve, I think I would just first of all, echo what Paul has said. We are incredibly excited and, to be frank, honored to be able to bring this groundbreaking product to patients. We've been in this space as a leader for a long time. As you know, we have the leading product in the market with IDELVION today, and I can come back to that if need be. And to be a pioneer is quite exciting in this area.

I personally believe this is the future in hemophilia. I also believe gene therapy will be the future in orphan and rare diseases broadly. Having said that, there's a lot of kilometers to go as we might say. These are upfront payments. They're expensive products. We've got to do a lot around education with physicians and with patients and payers, et cetera, et cetera. We're really excited to have the first couple of patients dosed at the end of the fiscal year that we just completed, and there are a number of patients in various parts of the queue.

You would expect that you've got to go through neutralizing antibody testing. We've got to go through office preparation and office, making sure they're ready to administer this product in their space. We've got to go through significant reimbursement hurdles and all of those hard kilometers have largely been overcome.

So specifically to your point, Steve, I think the majority of the patients in FY2024 will still come out of U.S. We are waiting a bit more work in the Europe in Europe around some reimbursement and pricing negotiations, but fully expect to see the first patient in Europe, likely as we get to the end of this calendar year or the first part of the next calendar year. So I would say 75% to 80% of the patients in 2024 will come out of the U.S. and the balance out of Europe.

Having said that, I'll just add a couple of more comments. We are now about 78% to 80% of patient lives covered by reimbursement in the U.S. We have close to half of the hemophilia treatment centers now trained and prepared to administer. We've distributed many, many, many test kits for neutralizing antibody – we have a number of prescriptions going through the Q relative to reimbursement and feel really good about where we are with this product.

It is going to be, and I think we've always known that it was going to be a different launch trajectory than a product like IDELVION, which was a major advancement, but in a space that was quite comfortable with replacement therapy. So exciting. The team's worked remarkably hard. The early feedback from patients has been absolutely exciting and incredibly rewarding for us, and we're quite excited.

Joy Linton

Steve, I might just answer your very specific accounting question. So on the revenue recognition, it's broadly – and these are a bit of general statements because each jurisdiction is slightly different. But it's a broad statement, and particularly in the U.S., we recognize the revenue upfront.

There is, in some jurisdictions, the requirement to essentially probability assess whether there's any – like if the durability doesn't happen, you have to hold something back as a durability guarantee, but that is relatively small in the scheme of things. And then the second part of your question in terms of amortization, we're amortizing it on a per patient basis. So the amortization will be dependent on how many patients we dose in the current financial year. Overall, you might sort of think $20 million to $30 million would be the ballpark for the forward year.

Steven Wheen

Fantastic.

Mark Dehring

Thank you. Thanks, Steve. Next question comes from Saul Hadassin from Barrenjoey. Go ahead, Saul.

Saul Hadassin

Paul and Joy, two questions from me. The first one, Paul, you talked about sustainability of Ig growth in that high single-digit level over the long-term. I'm just wondering as it relates to FcRns and what looks like competition coming across a large number of autoimmune diseases. Is this – is the confidence in that sustainability more to do with the idea that, that new product is not going to gain much share? Or is it to do with the growth. So you're expecting to see in areas where there's no direct competition such as primary immune deficiency and secondary immune deficiency.

Paul McKenzie

Yes. Thanks, Saul. I hope you're doing well. I think the answer is yes and yes, right? I mean we're quite bullish on the growth of and the need for Ig. And we really – when we look at the underlying data and the history of our portfolio in this space, the thousands of years of patients experience the safety record. We think it will be very hard for a competitor to really make a significant trajectory and market share.

Remember, please, CIDP is only about 20% to 25% of the overall Ig volume. So even if you had a wildly successful launch, which, again, the data wouldn't necessarily support today, you would still only be talking a small percentage of the overall Ig franchise. I don't know Bill if you want to add anything to that.

Bill Campbell

Just to be quick, I would just say, Saul, I think we believe that there's significant underserved patients in PID and SID for sure, you've seen significant growth in the SID space, but I would say significant growth opportunities in CIDP.

Saul Hadassin

And can I ask Joy, just a quick one. Joy, just on the guidance, the translation of revenue growth due to NPATA growth. Just wondering, where does the leverage come through? Is that effectively simply leveraging the finance cost line? Or do you expect some uplift to either gross profit and/or operating cost leverage?

Joy Linton

Thanks, Saul. We will – we do expect further operating leverage down the P&L a little bit in gross margin. But then further, as you go down the P&L as well, pretty well all the way down. So yes, I mean, it's – it will be our first really normalized full-year, right, post the acquisition of CSL Vifor where we'll have 12 months and 12 months. So starting to, as I said earlier, starting to see some of the benefits that we've been working on over a few years now as well as a bit in the gross margin line.

Mark Dehring

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

David Low

Thanks very much. If we could just start with the generic competition that you're expecting in the – for the Vifor business, just if we could have an update on what you're anticipating and what was incorporated into guidance, please?

Paul McKenzie

Sure. So first off, I'm very pleased with the progress we made with CSL Vifor, not only the acquisition but also the growth, right, 14% revenue growth on constant currency, again, against unaudited numbers, but really impressive and fueled by iron and MIRCERA. So on the LOEs, we knew during the due diligence that the LOEs would come. So it's largely expected. However, the approval path in the EU ended up being different than we thought it would be. So that resulted in it moving up. So when we look at our overall preparation, we're spending lots of time making sure we're fit for purpose in both how we approach our commercial footprint in the market.

We're actually taking advantage of the power of CSL by bringing tendering excellence, which we have in both Behring and Seqirus to really make a difference. We're really advancing the opportunity with real-world evidence in terms of how we actually look at our real-world experience and look to extend labels, and you have a great example of that with the heart failure label.

And we now look for opportunities, like I mentioned, of patient blood management. We are really committed as we shared at the Market Day, the 10% growth over the medium-term, acknowledging the LOEs, we're going to have to adjust and move to the dynamic of the marketplace.

So we do know of a competitor that is approved in over double-digit countries in Europe. But I will assure you, we are ready. We've accelerated our preparation, and we will succeed in the expansion of iron for patients around the globe.

David Low

Great. Thanks so much. And just my other question on the pilot side for the yield enhancements, can we just confirm that at a pilot level, you've seen this step change in yields at a double-digit increase?

Paul McKenzie

Yes. We can confirm not only have we seen the double-digit, but we have delivered the quality of product that we expect for Ig from a comparability viewpoint.

David Low

Thank you very much.

Mark Dehring

Thanks, David. The next question comes from David Stanton at Jefferies. Go ahead, David.

David Stanton

Good afternoon. And thank you very much for taking my question, team. Look, I note that PRIVIGEN is growing faster than HIZENTRA. Why aren't we seeing HIZENTRA growth to the same extent as PRIVIGEN growth? Is there some kind of structural constraint? Or you're selling potentially into – more into lower-priced markets? Or has there been an impact from FcRn as they move into potentially treating Myasthenia Gravis. Any color would be greatly appreciated? Thank you.

Paul McKenzie

Yes, I'll ask Bill to jump in on that one.

Bill Campbell

Yes. Thanks, David. Good afternoon. There is no structural change whatsoever there. I think if you go back five years or so and you look at a compounded growth rate, and that's kind of pre-COVID and then going through COVID and then coming out of COVID the SCIG volume has grown much, much, much faster on a compounded annual growth rate than IVIG.

I think during COVID, as you would expect, given the stay at home order, social distancing and so forth, was a strong desire to grow or to go to HIZENTRA. As we've come out of that, there's been a significant pent-up demand for IVIG in particular in Europe, but in the U.S. as well. So it’s frankly, meeting the demands of a number of markets, and these are not low-priced markets whatsoever.

And then lastly, just to comment on the pricing side of it. And I think, as Joy mentioned, we have largely closed the gap on pricing between Europe and U.S. in particular, but I would broaden that by saying rest of world. So by no means are they low-priced markets.

David Stanton

Understood. Thank you. And my follow-up then, if that's all right, Mark. How are we going acceleration in specialty product growth over the near to medium term to potentially sort of add to gross margin growth over that medium term as well? Thank you.

Paul McKenzie

Yes, maybe I can make a few comments. One is, obviously, Samara, we had some supply challenges a few years ago, but we continue to resolve those. And now we see some growth back in that market, particularly in Europe, and we're making headways in the U.S. as well.

I think if you look at our overall programs in KCENTRA and others, KCENTRA, there's still a lot of market growth, and I know there's been talk about competition entering there, but there's still 35% of the patients on fresh frozen plasma. And I think that's a huge opportunity to expand the market and move forward. So I think we'll continue to see that happen.

And then, obviously, we're all very excited about Garda and what that will do for the HAE market, right? Remember, we have HAEGARDA, which has really been over 80% of the patients in the prophylaxis space are on HAEGARDA. We continue to see new ads. That market overall has increased. It's kind of similar to Bill's comment earlier where as people come into it, the diagnosis, the observations, the medical energy around it increases, we are very excited about bringing GARDA into play where we have a single new technology, Factor XIIa single once-a-month dosing with an auto-injector, it's going to be really powerful. And that's where we see a lot of our growth coming in specialty products. Bill, I don't know if you want to add anything else.

Bill Campbell

To just add quickly, David. I think all of that is right. It's really fascinating. This is a group of products that largely didn't exist eight to 10 years ago now contribute close to $2 billion in revenue. And beyond the category growth, KCENTRA grew another 10% last year on the revenue line. And while one month and half is a bit early in our current fiscal year, continuing to show really nice positive signs for the year that we're in.

Beyond that, I would just add to Paul's comment, Garadacimab is really, we think, a game-changing product in that space with a very high margin for us. We think that will add to the growth. We haven't included 112 as Joy mentioned, but certainly that would change the size on the specialty market growth. And then lastly, and we'll talk more about this at the Capital Markets Day is the whole PBM effort, which will lead to some kind of broader growth here. And then lastly, as you know, we're in the process of the trauma trial for KCENTRA and if we're successful there, and it's going to take some time. But if we're successful, we think that there's some really nice growth opportunity as well.

Mark Dehring

Thanks, Dave. Next question comes from Laura Sutcliffe from UBS. Go ahead, Laura.

Laura Sutcliffe

Hello. Thank you for taking my questions. I've got two, but they're both on before. So I might ask together. Firstly, I was wondering if you're at all concerned about the potential the widespread use of GLP-1s to impact your dialysis book of business, given a fair amount of CKD is associated with excess body mass. And then secondly, just a quick one on Mircera. Obviously, that contract with has been substantial. And I was just wondering if you could confirm whether it's subject to the same carve-out payment from the JV as is the case or has been the case historically for sales to all non-FMC clinics? Thanks.

Paul McKenzie

Could you – do you mind, Laura, and good afternoon. Could you just repeat the second question? I had a little trouble following it?

Laura Sutcliffe

Sorry, yes. So for Mircera, historically, sales to non-FMC clinics have been subject to a carve-out payment from the JV. I was just wondering if the Mircera contract with Gavitas is subject to that same financial arrangement? Thanks.

Paul McKenzie

Okay. Great. So thanks for your questions. The first question was obviously on new technology GLPs. And will that affect dialysis. I think the dialysis market the likelihood that, that evaporates over the next five to 10 years is small. I think dialysis is bouncing back after what was a very tough period with COVID. Obviously, GLPs could introduce a different paradigm. But in our current modeling, we don't see it being substantial in the near to midterm relative to the dialysis market. In terms of your question on Mircera, I do believe the carve-out does apply for products sold to other dialysis providers beyond FMC.

Mark Dehring

Good. Thanks, Laura. Next question comes from Craig Wong-Pan at Royal Bank of Canada. Go ahead, Craig.

Craig Wong-Pan

Great. Thanks very much. Just with looking at your plasma collections, they are at record levels now, but the growth rate did slow from the first half to the second half. I was just wondering if that was due to like a weaker comparable number? Or is there something else that's happening there to impact the growth rate?

Paul McKenzie

In terms of the first six months or the second six months? A lot of that was just seasonality. If you think about the tax season, the winners, you have weather impacts. So it wasn't anything structural in terms of what we had planned or budgeted for?

Craig Wong-Pan

Okay. And then my follow-up question is just with your plasma collections, could you share like how much growth is coming from like new donors or returning donors sort of from new center openings. If you could kind of share any on that, that would be great?

Paul McKenzie

Sure. I mean if you think about that's always a mix of all of them, right? But a lot of our growth. We've kind of stabilized now after a higher number of applicant donors to roughly 5% or 5.5% applicant donors. So a majority of the growth comes from our returning qualified donor base, which we're privileged to serve.

Mark Dehring

Thanks, Craig. Next question is from Chris Cooper at Goldman Sachs. Go ahead, Chris.

Chris Cooper

Thanks, Mark. Joy, just Slide 14, it does look like the operating margin in Behring contracted to slightly about second half despite the gross margin grow in the correct way. So I think you said earlier in the call on a full-year basis, SG&A was flat as a percentage of sales. So I just wanted to check, we should be taking the full-year level as the go-forward rate, not the second half exit rate for SG&A and Behring? Thanks.

Joy Linton

Yes. I think that's right. Yes.

Chris Cooper

Yes, full-year, right. Okay. Got it. And the follow-up, so two of those products you're obviously referencing for the gross margin recovery, HEMGENIX and Garadacimab just very quickly on both. So just on HEMGENIX, I know there was some optimism around a launch in Europe before the end of the fiscal. So it now sounds like that's been pushed out by perhaps six months or so. Any additional color on what drove that disappointment there? And just on Garada, I'll just squeeze that in. You said, I think, earlier in the call, regulatory submissions have been done. I just wanted to get an update on the expected approval and commercialization timings from here.

Paul McKenzie

Yes. Well, I'll start, and then I'll ask Bill to make some comments on HEMGENIX. But on Garada, obviously, we don't typically comment on approval times, right, that we have submitted as we said, and we're preparing submittals around the globe and then where they obviously take their due process. And we'll see how that plays out with the agencies.

In terms of HEMGENIX, I don't know whether I'd call that a disappointment. I think it's what's the reality of being a pioneer in the space in terms of as you move into these spaces with a life-changing therapy the system takes time to react to that and make sure that the entire ecosystem can deliver to it. So I think we're pushing hard. The team is working very hard to Bill's point, but there are some natural things that happen in a complicated launch like this. I don't know, Bill, if you want to add anything.

Bill Campbell

I know. We're running close on time. I would just say absolutely not disappointed, we remain – and if I left you with that thought, Chris, I apologize. We remain as excited as ever about Europe and this product. As you know, the pathways in Europe take – just take longer around pricing and reimbursement and so forth. So I'm as bullish as ever about where we are on Europe. And as Paul said, this is a massive lift with a new-to-market completely historic product.

Mark Dehring

Thanks, Chris. Next question comes from Mathieu Chevrier at Citi. Go ahead, Mathieu.

Mathieu Chevrier

Yes. Good afternoon. Thank you. Just one on Ig pricing. What kind of growth are you seeing now relative to history, given the higher rate of inflation? And do you think there's still opportunities to further improve your pricing relative to competition.

Paul McKenzie

And I'll let Bill comment as well. But look, we've never wanted to be the price leader in the market, right? We've always felt that sticking close to CPI makes the most sense. Now with that said, as we opened up and started to put more into tender markets, we obviously respond to the dynamic of the market and make sure that we're good in terms of that pricing. So if we can take advantage of pricing because of tender or availability, we certainly would.

I think if you look across the globe, the pricing story for this fiscal year 2023 was in EU and ROW, about 25% of our revenue growth was to pricing. In the U.S., about half of our revenue growth was to pricing. And I think that probably reflects where we'll continue to move. Bill, I don't know if you want to...

Bill Campbell

I think that's right. Paul, and we've tried to take an appropriate pricing strategy for the last eight to 10 years. What I would say, Mathieu, is that our tender pricing continues remains quite strong, and we've built some great capability around tender management and pricing and seeing some lift there that's maybe beyond kind of headline pricing.

The other thing, and I've mentioned this on prior calls, but we – our team in Europe has done an amazing job of getting list price increases in almost every European country now. And while list price is not selling price, it certainly allows us to facilitate better ASP and ultimately tender and contract pricing. So I think we've been in the mid-single-digit range, a little bit higher in some markets, most of that coming from tender. And we believe that there is still pricing room in the future.

Mark Dehring

Thank you, Mathieu. Well, ladies and gentlemen, we'll need to make the next Q&A our last. So that is from David Bailey at Macquarie. Go ahead, David.

David Bailey

Yes. Thanks, Mark. I'll be quick. Just in terms of that gross margin recovery, just wanted to be explicitly clear about what's included within that does not include CSL112. It doesn't include the Horizon 2 in Ig yield of a step change. My question is, what's embedded within the assumptions around the Rika platform. And then my follow-up question would be just a bit of help around fiscal 2024 for Vifor on topline growth as well as gross margin given some of the moving parts there.

Paul McKenzie

Yes. Thanks, David, for the question. I'll confirm and I'll let Joy make some comments. It does not include CSL 112 or Horizon 2 for the midterm recovery that joy had described. But Joy, if you want to add any comments?

Joy Linton

Yes. Thanks, Paul. And on Rika, I think it's partly why we say the COVID the return to COVID margin happens sometime in the subsequent three years because there's clearly a number of variables and how we finally end up agreeing to roll Rika, it will be one of those variables, David.

Your second question on was Vifor topline fiscal year 2024, yes. We're not really providing guidance by business unit on revenue. But clearly, we've got the overall revenue growth of 9% to 11% is our forward guidance for FY2024 and Vifor will fit inside that envelope.

Mark Dehring

Thank you, David. Ladies and gentlemen, thank you for your interest in CSL. We'll now draw the meeting to a close. Bye-bye.

Paul McKenzie

Thanks, everyone.

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CSL Limited (CSLLY) Q4 2023 Earnings Call Transcript