CSL Limited

Ladies and gentlemen, good morning and welcome to CSL's first half results call for fiscal 2024. It's Mark Dearing speaking and I'm pleased to be joined by several of CSL's leadership team. With me here are Dr Paul McKenzie, CSL's Chief Executive Officer, Joy Linton, CSL's Chief Financial Officer. Dr. Bill Mezzanotti, Executive VP and Head of Research and Development. Andy Schmelz, Executive VP, CSL Bearing. Stephen Marlow, Senior VP and General Manager, CSL Securus. Hervé Gissereau, Senior VP and General Manager, CSL V4. Today, we're going to vary a little bit from past practice. Paul will, of course, provide an overview of the results and operation. Then we'll have Bill Mezzanotti providing some updates on the R&D portfolio, including the CSL 112 top-line data announced yesterday. Joy will then provide some additional detail on the financials, and Paul will finish up with some comments on Outlook, after which we'll move to Q&A. And as usual, with a view to giving everybody 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. And with that, I'll pass over to Paul McKenzie. Paul.

Thank you, Mark, and good morning, everyone. Great to be back in Melbourne. Thank you for joining today's CSL half-year result call for 2024. As Mark mentioned, we released top-line data for CSL 112 yesterday, and Dr. Bill Mezzanotti will talk to this shortly. While not the clinical outcome we were looking for, the study was well designed and well executed. I would like to second Bill's thanks and gratitude to the entire CSL 112 team, the clinical investigators and their teams, and the patients who participated in the trial. Before I deep dive into the results, I wanted to take the opportunity to reflect on my soon-to-be first 12 months as CEO. I continue to be energized by the passion that my colleagues bring to their work every day. All 32,000 of us at CSL and our partners are proud of the difference we make to patients, donors, and public health. Our portfolio of life-changing medicines and vaccines provide significant benefit to patients around the globe managing diseases of significant unmet need. CSL Bearing is a unique and resilient business with a strong growth outlook. My first 12 months as CEO has only reinforced that view. I continue to be bullish on the outlook for CSL Bearing and look forward to sharing with you the great progress we are making in our plasma, manufacturing, and commercial activities. In our CSL Securus business, the value of our differentiated vaccine portfolio continues to deliver value to public health systems now and well into the future. Reflecting on CSLV4, our commercial portfolio addresses significant unmet need in patient journeys in iron deficiency and nephrology. While the strategic potential of the business and the adjacencies with CSL bearing portfolios remain strong, we are working to address a number of challenges. Some of our existing portfolio is facing commercial and regulatory headwinds. For example, step-edit pressure with Farinject or reimbursement bundling of Kursuva in the U.S. Further, some of the late-stage pipeline assets did not meet their desired clinical outcomes, a risk inherent in research and development pursuits. These collective dynamics have dampened our near-term financial growth expectations for CSLV4. On a positive note, CSL V4 continues to generate strong revenues and margins, together with strong cash flows, and we are extracting synergies over and above our initial expectations. Additionally, CSL V4 has brought a number of enterprise-wide opportunities. leveraging the capability and strengths of three businesses in a new and unified way. An excellent example of this is patient blood management. However, this initiative will take time to deliver returns. Most importantly, as a group, CSL remains in a strong position to deliver annual double-digit earnings growth for the medium term. Speaking of the group results, let's move on now to slide four. I'm pleased to report that CSL has delivered an excellent result for the first half of 2024, driven by strong performance by the CSL Bearing business. First, the headline numbers. Revenue was $8.1 billion, up 11% at constant currency. NPAT-A was $2 billion, up 13% at constant currency. Net profit after tax was $1.9 billion, up 20%. In terms of the major highlights for the year, the CSL Bearing business delivered strong growth across the portfolio, especially the IG franchise, which grew very strongly, up 23%. Specialty products, Kcentra and Hagarta, continue to deliver and be the standout contributors to that portfolio. Gross margin recovery is underway, and Joy will take you through the detail of that shortly. There are a number of positive plasma initiatives gaining momentum, including the new RECA rollout. Regulatory filing for Garadacimab, our next-generation HAE therapy, has now been accepted for review by the FDA and EMA, and we anticipate bringing this product to market later this calendar year. It's also worth noting that Japan's submission is on target for approval this fiscal year. Moving over to CSL Securus, which delivered solid sales growth, outperforming the market in a very challenging season. This was primarily driven by our adjuvanted Fluad product, which grew 14%. In partnership with Meiji, regulatory approval was achieved for the world's first self-amplifying mRNA vaccine for the prevention of COVID-19 in adults. And not only did we commence the Phase 3 clinical trial for AQIVC in the Northern Hemisphere, we enrolled our last patient well ahead of schedule in January 2024. CSL Securus continues to expand its differentiated portfolio, and we are passionate about bringing these innovations to the market over the next few years. Switching over to CSLV4, the business is well positioned for the loss of exclusivity in iron in Europe, with limited impact of this seen to date. Tavanose, a treatment for patients with severe active anky-associated vasculitis, has exceeded expectations. mainly in Germany and the UK, with this momentum projected to continue as we expand into additional EU markets. And finally, patient conversion to Mercera, our long-acting ESA, has been strong. Moving to slide five, focusing now on CSL Bearing, our revenue was up 14% at constant currency. As I mentioned, growth in our IG franchise was exceptional. Sales were up 23% with strong growth recorded across all geographies as global supply recovered significantly. Our intravenous IG products, Privagen and Intergam, were up 27% in total, and our subcutaneous product, Hyzentra, up 18%. As we outlined at Capital Markets Day in October, underlying demand for IG continues to be robust, and patient diagnosis rates continue to grow in core indications. We have also launched a 50 mL pre-filled syringe for Hisentra in the US and the EU. We now have a wide range of pre-filled syringe sizes to help meet the individual needs of patients living with both PID and CIDP. Our albumin portfolio grew by 8% with strong growth in Turkey and Mexico and solid growth in both Europe and the US. In China, competition remains strong, and our team continues to advance our positioning. Haemophilia was up 8%, where once again the standout performer was Adelvian, which was up 7%. We maintain leadership positions with Adelvian in the US, several key markets in the EU, and Japan. Our new transformational gene therapy, Hemgenix, has had an accelerating rate of patient referrals. We are confident administration to patients will follow as we navigate through the complexities of the fragmented U.S. healthcare system as a first mover with gene therapy in hemophilia. Hemogenics is recognized as the new paradigm for patient and was recently awarded the Pre-Gallion Award for Best Product for Rare Orphan Diseases. Specialty products were up 6%, led primarily by K-Centra, which grew 12%. Higarda was up 9%, driven by strong growth in the EU, and despite increased competition, has been able to add new patients and preserve our existing patient base. You will note the category other was down 16%, which included COVID vaccine sales in the prior period. Moving to plasma highlights for CSL Bearing, let me start off by reiterating that the underlying fundamentals of plasma collection remain strong, and that there has been continued momentum for plasma donation growth. Digital transformation and continuous improvement initiatives have supported the increases in new donors, reactivated donors, and returning donors. We recently expanded our geographic footprint for plasma collections, opening our first center in Puerto Rico. This builds on the network diversification we already have in Germany, Hungary, and China. One of our initiatives to drive efficiencies through the network is the introduction of the Ricca Plasma Pheresis Platform. Our partner, Terumo, has submitted their iNomogram trial data to the FDA, and we have aligned with them on our rollout plan over the next 18 months. If iNomogram is approved, this initiative will provide a 10% lift in yield across the fleet. One of the pillars from our strategic focus areas is to expand the CSL bearing gross margin. We are making good progress, with cost per liter reducing 10% over the period compared to the prior period. There is still much more to do, however, and we will be working hard to continue this momentum, but gross margin recovery is underway. Joy will talk more to this shortly. Moving on to the next slide and CSL Securus, our vaccines business. First of all, a few comments on the current season dynamics. The industry has seen reduced rates of influenza immunization due to vaccine fatigue and the introduction of RSV and shingles vaccines. Given the reduced rates of immunization, there has been ample supply, giving rise to pricing pressure as manufacturers look to clear stock. Across the industry, we have seen an overburdened health system with staff shortages and reallocated government funding. Against this backdrop, CSL Securus has outperformed the market, delivering solid revenue growth of 2% at constant currency. Our adjuvanted vaccine, Fluad, reported strong growth of 14%, driven by early supply performance and a preferential recommendation from the ACIP in the U.S. Considering the broader environment, CSL Securus' growth is outpacing the competitors, and we expect continued growth over the long term from commercialization of our asset pipeline, which I will talk to on the next slide. Some operational highlights for Securus. flu cell vax six month plus age extension was approved in the UK, Australia and New Zealand. And for flu add 50 year plus age extension was approved in the EU. For flu add we also received a preferential recommendation in Canada for the 65 plus population. On the pandemic side of the business, The advanced purchase agreement with the UK was awarded solely to CSL Securus. We are selected by BARDA to deliver H5N8 antigen to the US government for preparedness against potential avian flu outbreak in humans. In relation to our product innovation journey, we commenced the phase three trial in the northern hemisphere for AQIVC. This brings the best of our technologies together, cell culture and our proprietary adjuvant. Our next-generation self-amplifying mRNA COVID vaccine received regulatory approval in Japan. It is the first self-amplifying mRNA vaccine approved anywhere in the world, and just last week you may have noticed some very positive immune response duration data published in The Lancet. And finally, we commenced a phase one trial for our self-amplifying mRNA for seasonal and pandemic influenza. Turning to CSL V4 on slide 9, revenue was just over $1 billion. We have not provided growth numbers similar to the other business units, as the prior comparable period only included five months following the acquisition of V4 in August 2022. Starting with iron, Ferenjectin China was included in the National Reimbursement Drug List. As you may know, the iron market is transitioning. With the introduction of step-edit measures introduced by U.S. payers, this has had a positive impact on Venefer, CSLV4's low-dose iron product, but puts pressure on the high-dose iron product, Injectifer. We are also meeting the challenge of loss of exclusivity in Europe, and we are well prepared for this. We remain confident in the growth strategies we outlined at the Capital Markets Day. Our patient blood management initiative, which includes iron, is making good progress, but this will take some time. Moving on to nephrology, continued strong ESA performance in the U.S. was the result of following patient conversion to Mesera. Capruvia was approved in a number of emerging markets and launched in the Netherlands and Iceland, and we've seen great, strong performance in Germany, France, and Austria. Valforo's performance in the U.S. was impacted by reduced inventory levels, as requested by our customer. More recently, Valforo in China was approved and included in the National Reimbursement Drug List. Kavanos saw strong sales growth with patient penetration across all launch markets, with regulatory approval also being obtained for South Korea. We also received the pediatric indication for Veltassa in both the U.S. and in Europe. So with that, I will now hand over to Bill Mezzanotti for his update on CSL112 and other R&D products.

Thank you, Paul. I appreciate the chance to discuss AGES II. Just some opening remarks. AGES II was one of the largest and certainly most complex clinical trials we've conducted at CSL. It was supported by years of non-clinical and clinical mechanistic work and a large Phase II safety study. We initiated Aegis II in 2017 and our trial team research partners and patients hung in there through the disruptions of a global pandemic, multiple wars, and widespread political crisis. We conducted the study in 49 countries, had over 900 investigative sites, and enrolled over 18,000 patients. who we needed to follow for at least one year from the time of enrollment. Despite the challenges the extended enrollment time required, we were still able to follow to completion of one year all but two patients. That's a remarkable achievement. And so on behalf of CSL, I'd like to thank all the patients, families, caregivers, and investigators for their support and participation in the AGES program. And as a result of conducting this megatrial, CSL has enhanced capabilities that already are and will in the future serve our patients and portfolio very well. Here on this slide is the design of the study, and details of this have been published previously, but let me touch on a few salient points. This was a randomized, double-blind, placebo-controlled study to investigate whether CSL112 added to the standard of care. could help reduce recurrent major adverse cardiovascular events, in particular stroke, myocardial infarction, and cardiovascular death in patients experiencing an acute myocardial infarction. Patients could be treated in accordance with appropriate country guidelines, including interventional approaches. They had to be randomized and receive their first dose of study medication within five days of presenting with their acute MI. Patients were randomized one-to-one to CSL112 or matching placebo via infusion. The dose of 6 grams was chosen based upon clinical, pharmacokinetic, and pharmacodynamic assessments from earlier studies, non-clinical measurements of cholesterol efflux, and rigorous assessment of safety and toxicology studies. After the first infusion, patients were to receive three more weekly infusions within the first month, with investigator follow-up through to the primary time of interest, 90 days, and then assessed onwards at 180 and 365 days post-MI. In the first 90 days after an MI, patients are most vulnerable to a recurrent event, and the risk slowly declines over the first year. The primary event was the time to first occurrence of any component of the composite endpoint of CV death, MI, or stroke from time of randomization through 90 days. The study was designed in collaboration with an internationally prominent and geographically diverse executive steering committee who strongly endorsed conducting the trial, the dose regimen selected, and the endpoints chosen. The study included two interim assessments for futility. The quality of the study conduct was excellent, as was the data capture. The results were clear. On the next slide, I will share the results. The study did not meet its primary endpoint, which was a statistically significant reduction in major adverse cardiac events at 90 days. There were no major safety or tolerability concerns with CSL112. As a result of these results, we do not plan on making any filings for approval to any major health authority. However, we do plan to discuss the results with major health authorities and to conduct numerous additional analyses to better understand the data and then determine any next steps in development. Importantly, study results will be presented at the American College of Cardiology scientific sessions on the 6th of April this year and published in a peer-reviewed journal. Until then, by ACC rules of disclosure, we are not permitted to share externally any further details about the trial results. Obviously, we as an organization are disappointed in the results, but not in the effort of our people. Given the unmet need in these patients during this vulnerable time period, the ongoing scientific and medical interest in high-density lipoprotein therapy, and the potential value to CSL, I firmly believe we did the right thing. My goal when I started at CSL was to build an organization capable of delivering CSL 112 and an organization that could be successful with or without positive 112 results. I believe we have achieved both. To complete HS2, we had to significantly enhance our capabilities to run the trial. All these capabilities will be utilized as we relentlessly and methodically grow and diversify our pipeline into the future. While today is not meant to be R&D day, we'll have that again in October, I did want to touch base on the next slide on a few recent pipeline highlights that reflect our ability to build and diversify our pipeline. Here are four quick updates, some of which as Paul has touched upon already, to reflect my enthusiasm for the portfolio. First, building on our enhanced capabilities to run cardiac outcome trials, we saw positive phase two results for the use of clazikizumab, our anti-IL-6 antibody in patients with end-stage kidney disease. These patients historically have very high levels of inflammation and very high mortality rates, primarily due to cardiac disease. Reducing such inflammation with therapies like clazikizumab has been associated with reduced cardiovascular risk. We will be shortly initiating a phase three trial to test this hypothesis. The study will be much smaller than AGES II, but fully powered to demonstrate the benefit we believe exists. We will be employing dialysis sites like Fresenius to help us conduct this international trial. Garidacimab, as Paul mentioned, our factor 12A antagonist for the treatment of hereditary angioedema with a great clinical safety and tolerability profile is now under regulatory review in the U.S., EU, and in other countries like Japan. We fully expect this potentially best-in-class therapy to receive first approval at the end of this calendar year. Building on our critical Hyzentra franchise, we finished enrollment in our phase three study to evaluate the safety and efficacy of Hyzentra in dermatomyositis, a rare disease with high morbidity and mortality. We should see phase three data around the time of R&D day in the second half of the year. Hyzentra has received orphan drug designation for this indication. Finally, as Paul mentioned, our adjuvanted high antigen cell-based flu vaccine, AQIVC, for patients 50 years and older, just completed enrollment for the Phase III immunogenicity trial, which will allow regulatory filing in the U.S. AQIVC has the potential to demonstrate best-in-class efficacy along with a very good tolerability profile and the reassuring safety profile we have seen over the years with both our cell-based antigen and our MF59 adjuvant. Data will also be available towards the end of calendar year 2024, and if positive, we will file soon thereafter. So stay tuned. I look forward to sharing more on these programs and many more things at our R&D Day in October. Now on to Joy.

Thank you, Bill. Still very much to look forward to in the R&D pipeline. Good morning, everyone. As Paul indicated, CSL has delivered a strong result for the first half of fiscal year 2024. On a reported basis, NPAT-A was US$2.017 billion, up 11%. On a constant currency basis, NPAT-A was $2.056 billion, up 13%, after adjusting for a currency headwind of $39 million. As a reminder, references to NPAT-A are attributable to CSL equity holders only, and this result does include the full six months contribution from CSL v4. On this slide, we have again provided a bridge between NPAT A down to NPAT at constant currency. And let me run through the numbers. Starting with NPAD A of 2.056 billion, the following adjustments are included. 129 million attributed to the amortisation of acquired intellectual property. The increase from the prior period was predominantly due to the six months versus five months of amortisation for CSLV4. One-off acquisition costs of $49 million. This was made up of continuing integration costs relating to the acquisition of CSLV4 of $18 million. And the final one-month unwinding of the inventory fair value uplift recognised on the acquisition of CSLV4. This is a non-cash item of $31 million. After adjusting for tax and non-controlling interests, NPAT attributable to CSL shareholders for the half was $1.942 billion. In the financial statements, you will find an extension to the segment note, Note 1, which provides a detailed bridge between the statutory results and the underlying results. I hope you find this table useful. Now turning to the group financial highlights and looking at some of the financials in more detail on the next slide. On a constant currency basis at NPAT A, total revenue for the group was up 11% to $7.954 billion. A breakdown of our major products by revenue is provided for you in Appendix A and B of this presentation. Gross profit was $4.491 billion, also up 11%. And the group operating result was up 13% to $3.796 billion. Research and development costs were up 11% in line with sales growth and is expected to be within our guidance envelope of 10% to 11% of revenue for the full year. General and administration costs were down 7% over the period arising from favourable FX variances and efficiencies that we are generating from bringing the enabling functions such as HR, finance, legal and IT into a single global structure and also some of the cost synergies from CSL v4 are included in this line. Net finance costs increased due to the higher interest rates on the floating portion of our debt and the full six-month impact of the CSL V4 debt. The weighted average cost of debt was about 4.2%, up from 3.85%, with the ratio of fixed to floating remaining at 70-30. As previously mentioned, the NPAD A attributable to shareholders of CSL was up 13% at constant currency. The reported effective tax rate increased to 19.2% in line with guidance provided at the full year result. The increase was due to the geographic profit mix and an increase in the corporate tax rate in the UK. We continue to expect for fiscal year 24, the effective tax rate to be within the range of 18 to 20% at constant currency. Cash flow from operations increased by 9% to $1.069 billion and was primarily a result of the growth in sales. NPAT-A EPS was up 13% of constant currency, or 11% reported. The interim dividend of US $1.19 per share was up 11%, and this translates to approximately $1.81 Australian dollars, which is up 12% on the previous year, given the strong US dollar. Before I move off this slide, you may notice when you get to the financial statements that we have reallocated certain corporate costs on a functional basis from general and admin into either cost of sales, sales and marketing costs or R&D. And to help users of the financial statements to compare expense lines, we have restated prior year periods in a similar manner. This is a reallocation of costs only and does not affect the bottom line. So turning to the next slide. On this slide, this is our segment reporting showing gross profit less sales and marketing expenses for each of our business units. You will recall research and development costs and G&A expenses are no longer allocated to individual segments as this reflects the way we now manage the business units. The main metric I'd like to focus on for this slide is the gross profit margin for CSL bearing. The gross margin recovery is underway and for the half improved to 50% at reported rates. This number is slightly better at constant currency and marginally above our expectations, having benefited from price increases earlier than anticipated. The initiatives in plasma collections that we've implemented together with manufacturing efficiencies are also driving improvement in our gross margin. We are making encouraging progress, but we still have work to do, and we remain confident in getting back to pre-COVID margins consistent with what we outlined at the Capital Markets Day last October. And with that, I'll hand back to Paul.

Thank you, Joy. I'd now like to make a few comments on our outlook. Looking specifically at CSL Bearing, we continue to expect strong demand for IG across its core indications. With an accelerated rate of referrals, we look forward to increasing patient administration of hemogenics. Our ongoing initiatives in plasma collection and manufacturing yield will support our efforts to further recover our gross margin to pre-COVID levels. In relation to Horizon 1, we are seeing promising IG recoveries in the early deployment for the first of a series of planned near-term upgrades to the current manufacturing process. Additional technology improvements are also in development for future deployments. And for Horizon 2, preclinical studies have been initiated and health authority engagement is ongoing. For CSL Seqirus, we will continue our strategy of product differentiation by progressing global registrations for our next-generation, self-amplifying mRNA COVID vaccine. As a reminder, this business has strong seasonality. Approximately 85% of the sales are recognized in the first half of the year. with expenses more evenly split over the year. As a result, CSL Securus will be loss-making in the second half of the year. For CSL V4, we are operating within an evolving iron market. While there are challenges for near-term growth, we are well positioned for iron competition in the EU and are advancing our geographic expansion. We will continue to drive the SALS momentum of our nephrology products including Macera and the recent launches of Tavanos and Capruvia. Our focus remains on unlocking value by leveraging capabilities across the CSL group. An example of this is addressing together with CSL Bearing the significant public health need in patient blood management. For CSL at the group level, I am pleased to reaffirm our financial guidance for fiscal year 2024. We expect revenue growth to be approximately nine to 11% over fiscal year 24 at constant currency. With NPAT-A expected to be in the range of approximately 2.9 billion to 3 billion at constant currency, a growth of between 13 and 17%. I also am reaffirming our double-digit earnings growth outlook over the medium term that we shared at the Capital Markets Day. And of course, being forward-looking statements, these are subject to the usual disclaimers as mentioned at the start of this presentation. With that, we will move on to your questions.

Operator, if you could open the lines up for questions, please. We do have one in the queue. Excuse me. First question comes from Leanne Harrison at Bank of America. Go ahead, Leanne.

Good morning, all. I've got two parts to my question. So what I might do is, first of all, talk about the dialysis business. You know, this part is a little bit of weakness there. Can you talk to the challenges specifically for dialysis and also, you know, the run rate going forward for the next six to 12 months given, you know, do you expect that to improve given new launches ahead?

Thank you very much for the question, Leanne. In terms of our V4, look, we have strong commercial portfolio. We're going to see some limited growth in the near term because of market challenges, not just in dialysis, but market challenges relative to step edits that limit the use of a product in the marketplace, as well as Cursuvia reimbursement, which has been tied in with the bundle issues in the U.S. dialysis system. In addition, some of our pipeline products did not have the clinical outcomes that we are looking for. But please note, this is a strong revenue and gross margin business, and we are really proud of what we've been able to do with integrating the company in and achieving above and beyond on our synergy targets. So our strategic vision remains compelling, although the timing of the entire ecosystem will take longer than we had envisioned.

Barry, just to follow up on that, you mentioned gross margins and understand the issues there with the step edits, but is that a particular headwind for V4's gross margins or are there other factors impacting the gross margin because we note that it's weaker compared to the same period last year?

Yeah, I think it's a great point. So let me just clarify on the step edits, what happens is we end up going to Venifer as the low-dose iron product, which has a lesser margin than ferrinject or injectifer.

And if we think about growth for the V4 business going forward, how should we think about that for the next six to 12 months? Are we looking... mid-single digits, high single digits, or is that something you can provide some commentary on?

Hi Leanne, it's Joy. I don't think we're necessarily going to provide that sort of guidance by business unit, but I think what you're hearing us saying is, you know, a bit over 12 months ago we'd said we could sort of see double-digit revenue growth across the medium term, and I guess that's what we're stepping back from today. So the growth will be, you know, much softer than that.

Okay, thank you very much. I'll leave it there.

Thanks, Leanne.

Next question comes from David Lowe at JP Morgan. Go ahead, David.

Thanks very much. Perhaps a question for Joy. I mean, I heard your comment that the bear and gross margins were ahead of expectations. Can I get you to talk a little bit about the 10% reduction in cost per litre and whether we're seeing that in the gross margins yet, and then perhaps about the trajectory of the recovery, given you've got quite a wide range of timing on that at the moment? Sure.

Thanks, David. So yes, the 10% is average year over average year. So you are seeing that in the gross margins, which is why we put it out there. And in terms of the, so that's the first part. And on the second part of your question, on the go forward, really, I think we're quite consistent with what we said at Capital Markets Day. So we're still saying that three to five years from Capital Markets Day. And in 24, I'm kind of still saying 1% plus or minus a bit. Perhaps I'm a little bit more on the plus side than the minus side. So, you know, good progress so far, perhaps slightly ahead of where we might have thought, but that's really a function of some earlier pricing than we expected. You know, still lots more work to do, but so far so good.

Good, thanks very much on that one. Just the other question I had was just on V4. With the breakdown of sales and marketing, we can see that V4's allocation of sales and marketing certainly to revenue at north of 20% is well ahead of the other divisions that are sub 10%. Just wondering, is that the reality going forward or is there opportunity there to wind down sales and marketing cost as a percentage of sales?

We'll continue to look at opportunities of how we continue to enhance our sales model there with learning the best from bearing and secures, as well as look for opportunities of how V4 sales force can contribute in areas like patient blood management.

Yeah, and I might just, just a slight build on that, David. It is a bit of a different model. So I don't think you'll ever see it be a bearing level as in terms of percentage of sales, because there is, there's things like distribution agreements and, you know, payments to partners, et cetera, in there. Having said that, you know, it was probably closer to 25 than 20. So we've actually already taken quite a lot of cost out of that. And as Paul said, there's more work to do.

Perfect.

Thanks very much. Next question comes from Saul Hadasson at Barron. Joey, go ahead, Saul.

Thanks, Mark. I guess the first question for me, maybe to Paul. Paul, the commentary around the ability to generate double-digit earnings growth over the medium term, just looking at the performance of both Securus and V4 this half, and Nadine Bearing did all the heavy lifting. Is it your expectation that either of those divisions will contribute to that double-digit earnings growth positively, or is Bearing going to have to do effectively the same heavy lifting that it did this half over the next two years?

In the medium term, we expect all business units to contribute. I think in any given year, you'll see an ebb and flow across the business units.

Thank you. And, Joey, if I could just follow up with one on the... net operating cash flow. Noting you paid a lot more tax this half, but particularly receivables within the working capital looked like it went up materially. Just wondering if that's a timing issue that will reverse out in second half.

Yeah, that's correct, Saul. Really a function of the securest timing and just the nature of the Northern Hemisphere season vis-à-vis last year. In fact, we've had a very strong collections month in January, so that will phase through in the full year.

Thanks very much. Thanks, Saul. Next question comes from David Stanton at Jefferies. Go ahead, David.

Morning, team. Thanks very much for taking my questions. If you could give us sort of an update further to a previous question on the margin recovery you expect in bearing. We know it's in the same sort of timeframe, but can you talk to the major drivers and potentially the proportion you expect of that margin growth from each of those major drivers, please?

Thanks, David. I'll make a couple of comments and then maybe hand to Andy. David, I would say we remain of the view that the drivers are broadly consistent with what we shared at Capital Markets Day. So continuing to see a reduction in the cost per litre to collect is still a focus and a lot of... And Andy can comment on the work that's going on around productivity in the centres. The rollout of the RECA machine is a clear... and demonstrable driver of margin expansion. And the yield initiatives that we've been talking about, both Horizon 1 and eventually Horizon 2, they're important operational activities that are going to continue to drive that through. And then of course you've got the mix of the products and there was actually even a bit of a drag still with Pruvigen growing a bit stronger than Hyzentra in the first half. The rollout of pre-filled syringes in the second half on Hyzentra, that should help a little bit there. So as we start to see Hyzentra come back, or more perhaps importantly, the Pruvigen growth stabilise, I think you'll start to see some of that margin expansion come through in that. but broadly consistent with what we would have said in October. But I might hand to Andy for a couple of additional comments.

Thank you. Joy really outlined it well. We have multiple levers underway over the medium term to improve our margin and return to pre-COVID levels over the next three to five years. I mean, certainly within CSL Plasma and reducing CPL cost per liter, really enhancements of technology in the way that we can bring down donor fees. in the way that we improve the operational excellence and effectiveness in our plasma centers, the rollout of the RECA machines, devices which in steady state rolled out across the fleet with nomogram I as a key enabler. There will be about 10% more plasma on average per donor. And then also beyond this cost per liter and plasma, as Joy also mentioned, our IG yield initiatives, we have these Horizon 1 initiatives, process improvements from manufacturing perspective, and then Horizon 2, new processes, which... have the potential to improve IG yield by about 20% overall. So lots of opportunity to improve our cost base there. And then also, as Joyce said, the product mix over time should improve. Obviously, lots of volume growth, but we do see the opportunity for a price certainly with continued growth of Hyzentra in our IG franchise. So I think I'll leave it at that. But we're well on our way. to meet or exceed pre-COVID margins over the next three to five years.

Thank you. Just following up on the second part of my first question. So it's all, should we just assume they're all proportionally the same amount of contributions?

They're all equal in contribution, right, each of them, depending on where we're at in the overall cycle, right? I mean, the collections have a direct impact when you collect the product. The yields have a continuous impact. So I think we have lots of levers to pull nowadays, David, and I don't think you could look at them as equal contributors. Okay.

My second question, please. Yeah, yeah. Excuse me. Sorry, I didn't mean to cut you off there. My second question then is, can you give us an update on the timeline for potential reimbursement approval for Garidacimab in the US? I know that you say you expect approval in the US by the end of this calendar, but should we assume six months later for reimbursement approval? So it's sort of an F25 story?

Yeah, Andy here, I can take that one. For Garidacimab, as we expect, you know, approvals, it's our fiscal year 25, but later in the calendar year 24. In the U.S., certainly some formulary approvals will come with a lag, but we expect to be able to launch quite quickly and have uptake of the medicine. Certainly when you get into international markets, Europe, et cetera, there's going to be the typical lag in negotiation with health authorities, reimbursement authorities for uptake. But we're very excited, and we are bullish because of our heritage in HAE that we really have an exciting offering with Garidacimab, and we want to get out of the gates quickly.

Great. Thanks. Thanks, Dave. Our next question comes from Gretel Janu at Evans & Partners. Go ahead, Gretel.

Thanks very much, Mark. I just wanted to start firstly on IG, very strong. You did say back in August that you were looking for mid-teens volume growth for FY24. I'm assuming you exceeded that in the first half, but you have also mentioned pricing exceeded your expectations. So how much did price did contribute in the first half?

Thanks. Look at pricing around mid-single digit.

Great. And do you still confer mid-teens volume growth for FY24?

Yes, we do. Yep, that's correct. Ever so slightly. A little bit stronger than that in the first half, but we would hold our view on the full year. That's correct. Great.

Thanks. And then I just wanted to touch on RECA and the 18-month rollout there. So given all the issues in terms of supply and reliability you've had in the past 12 months there, how are you approaching the rollout? Should we expect just steady state kind of rollout over the next 18 months or will it be more pushed towards the back half? Thanks.

So as we stand today, about 10% of our fleet in the U.S. now has the RECA plasmapheresis devices. That's about double the number of plasma centers as October. We expect as we get to the end of our fiscal year in June that we should have about 20% of our fleet with the Rika devices, and then over the course of calendar year 25, the rollout to the rest of our U.S. fleet. So we feel that this is appropriate and purposeful to enable us to have smooth training and uptake, and of course, Given the nomogram I filing by Tarumo is at the FDA right now, we think that that times nicely also with the ability to benefit from nomogram I. Thanks, Gretel.

Thank you. Next question comes from Sean Larman at Morgan Stanley. Go ahead, Sean.

Good morning, Mark, Paul, Joy, and team. I hope everyone's well. First question is just a bit about temperature check on V4. So you mentioned some challenges for the business on crossover bundling, the step edits, the generic competition, etc. But I'm wondering once you get past these sort of near-term hurdles, do you still have the same growth expectations either in actual percentage growth terms or dollar value? that you had for the business when you bought it? Or does the business hold the same value for you today, given these challenges, compared to when you first acquired it?

Yeah, the simple answer is yes. And I think what we're also finding is there's other opportunities. It's just making sure we can coordinate and choreograph the timing of those opportunities. But the simple answer is yes.

Thank you, Paul. And second question relates to Rika. So the 10% yield improvement is quite material. How does the dialogue go with potential donors, given that you're sucking out 10% more volume from their veins than before? And how does that translate to whatever you might have to say on donor remuneration, et cetera?

Thanks for the question. What we look at every time we introduce a new concept or new capability, we go through a typical donor consent with the donor. So the donor will be aware of the new nonogram going in. The beauty of the RECA machine is that from a donor viewpoint, the amount of time on the machine will not change. So the donor will not, in terms of what we're compensating for the donor for, which is their time on the bed, they won't see a significant change in that discussion. And we'll obviously do some market testing of our best approaches. We now have that digital capability we've talked to you about, where we can really test and get our messaging out. And we really do feel that the donors, they have taken very well to the machine, and we think they'll continue to be very supportive moving forward.

Thank you, Paul. I'll jump back in the queue.

Good. Thanks, Sean. Next question comes from Steve Ween at Jardin. Go ahead, Steve.

Yeah, thanks Mark. My question is just around the guidance. For the first half of 24, you've done 11% revenue, which is at the top end of your range. And at the MPAD A level, you're at 13% growth, which is at the bottom end of your range. I'm just wondering of that mismatch there, what was sort of perhaps a bit unexpected in the margin in the first half and what gives you the confidence in the second half to sort of make that back up to be a bit more squarely within the range that you've set and reaffirmed?

Yeah, thanks, Steve. It's Joy here. Really just a few things on timing and I'd probably even call the tax line out, right? So in the first half, we're at 19%. That's probably a bit stronger than we would look to be in the full year. So nothing particularly that worries us about that. In fact, we're fairly comfortable on the NPADE guidance.

Okay, second question I had was just with regards to 112. Just curious from, you've obviously built some manufacturing capability there and how that does get redeployed, any sort of accounting issues that we need to consider in response to the results that you've received?

The good news is we have really good engineers, present company excluded, but the design of the facilities were made such that we can repurpose those facilities to other uses, so we do not see a material impact for the company.

Good. Thanks, Steve. Next question comes from Andrew Goodsell at MST Marquis. Go ahead, Andrew.

Thanks very much for taking my question. Just looking at the SIGs, it does seem that there's been a little bit of a skew of the recovery of sales growth into Europe. So just wondering what that mix has meant in terms of top line and margins.

I can take that one specifically. One of the effects of that with IG is that we see higher, you know, kind of return of supply to Europe, which is why Privagen, one of the reasons why Privagen has such strong growth of 35% in the first half, it's due to this you know, resupply to the market, which we had redirected some of the IG supply during COVID. And so, you know, while we're excited for that and certainly benefiting that we should normalize back going forward.

Did you have another question, Andrew? We seem to have lost Andrew, so we'll go on to our next question. Next question from Craig Wong Pan at Royal Bank of Canada. Go ahead, Craig.

Thanks. Just a question on Higada. I mean, quite good growth there of 9%. Just wanted to understand what drove that increase in the EU?

Higada grew pretty much in line with the market. So can you specify your question specifically about Europe?

I mean, the sort of Haygarda growth of 9%, I mean, that's been sort of stronger than what you've grown at before. I just wanted to see if there was some particular driver there. But if what you're saying is that you see that as growing in line with the market, then that's fine. I just wanted to see if there was any specifics there that kind of drove that. It seemed to be higher than what you've achieved in the past.

No, we're pleased that we've maintained share with Haygarda and the market growth is strong in the first half.

Okay. And then second question, just on the Velforo sales, that US inventory adjustment, is that just a one-off for this period or will that impact future periods as well?

We do not expect further inventory adjustment going forward for VEL4 in the U.S. In fact, the in-market performance of VEL4 remains extremely strong. This is the only phosphate binder in the U.S. growing in a declining market, high single digit in terms of new prescription and total prescription. So we are very pleased with the commercial performance. There was indeed a significant inventory adjustment at FMC and Fresenius RX in the first half, but we expect things to normalize going forward.

Yeah, thanks. I'll get back in queue.

Good. Thanks, Greg. Next question comes from Laura Sutcliffe at UBS. Go ahead, Laura.

Hello. Thanks for taking my questions. First one is just going back to Rika. I think you've outlined an 18-month timeframe to completion in the U.S. Commentary from Tarumo points to something maybe a bit more optimistic. I think they're saying 12 to 15 months. So could you maybe just give us some color there? Are you being conservative or is it that you have some more work to do on top of what Tarumo has to do? If you could just help us understand why we've got two different time frames.

Thanks for the question, Laura. Not intended to signal anything whatsoever. We're aligned on the timing, consistent with the plan, and we're perhaps maybe a little bit more conservative. If we can do it within 12 to 15 months or faster, we absolutely will. Our interest is to make sure that there's no hiccups and that there's continuity of transition and plasma supply.

Okay, that's clear. Thank you. And then just a second one on IV iron. You've talked about your level of preparedness for some of the maybe near-term lumps and bumps in the IV iron market. And I think you mentioned Europe specifically, but I didn't hear any mention of the U.S. I was just wondering if your plans factor in any expectations for a generic IV. to venifer in the US. I know we talk about ferrinjectin injector for a lot, but I think Viatris is trying to get a generic venifer approved.

So regarding the U.S., we are not expecting any generic competition before mid of 2026. So we still have more than two years ahead of us to maximize the opportunities with inject-a-fair, especially leveraging the new indication in heart failure patients suffering from iron deficiency. In Europe, we are extremely well prepared. We are facing limited competition so far. And, yeah, as stated, we are extremely well prepared to navigate this new competitive landscape.

Okay, so just to be clear, you're expecting, sorry, the generic to Venafer from Viatris to be rejected in the U.S.?

Yeah, so my answer was on inject-a-fare. You know, I don't want to comment on potential iron sucrose generics. You know, this is a topic for years. So, you know... We will see. We don't know. This is more a question for Viatris versus for CSL. We are extremely well prepared. Phenofare is by far the leading product benefiting from this landscape as we described earlier. We are ready for any kind of competition.

Thanks. Next question comes from Matthew from Citi.

Good morning. Thanks for taking my questions. The first one is on secure I just wanted to get your views on the potential impact of your move to trivalent vaccines from the next flu northern hemisphere season in the U.S.

Hey, Matthew. It's Steve Marlow here. Just to comment on the change, which is the change from the quadrivalent to the trivalent. Just get everyone on the same page. There's two A strains and two B strains in the flu vaccine. The B Yamagata, which is one of the lineages of the B strains, has not been detected since since COVID, really, since 2020. So we're working with the regulators to remove that component, and we're working closely with them to ensure reliability of supply. We expect a transition to take place for all regulatory regions over the next two to three years, and the US will transition first in 2024.

And just your, I guess, your expectations around pricing on the back of that?

Yeah, look, the value of the vaccine doesn't change. I mean, B. amygdala is one component of the vaccine. We do not expect to see any changing, any changes of pricing as a result of the change of the components of the vaccine. The protection remains unchanged.

Okay. And maybe just another one on your IG inventory position and pricing outlook in the US and I guess the potential impact from the US Inflation Reduction Act.

It's Joy here. Can you just clarify your question, please?

You've mentioned about six months ago that you wanted to rebuild your IG inventory position. I was just wondering how you're standing on that front. and then any sort of potential impact from the US Inflation Reduction Act on your pricing ability in the US going forward.

Thank you. I've got it. It's two separate questions. That's fine. So firstly, on IG inventory, we continue to work our way through to getting to good, reliable supply, particularly in our EU markets. We still have a way to go on that. We are still collecting as much plasma as we can collect, and we are selling as much plasma as well, as much IG as we can sell. So that is a slow process, but a lot of effort going on in the organisation to make sure that we're utilising our inventory as efficiently as we can. So not a lot to report there. And on the second one, which is about the potential for any impact from the IRA, I might hand to Andy.

So for the IRA, specifically for our plasma-derived medicines, the components that are relevant is the maximum out-of-pocket cost for patients, which has been reduced. And then, of course, the manufacturer has a little bit more of a burden here. Now, the benefit of reducing the out-of-pocket costs, of course, is that if there are any patients that might not have filled a prescription because of the the out-of-pocket costs are too significant, that burden should be eliminated and so you might have more fulfillment of prescriptions, so more patient volume. And that's certainly a good thing. That being said, if there's any additional burden for us, we certainly have thought through this carefully and have incorporated into our forward plans. And just to kind of note for our IG business, only about 10% of all patients in the U.S. that are utilizing IG are Medicare patients right now. So it's not a significant proportion of overall business, but it's already been incorporated into our forward planning.

Thanks very much.

Thanks, Matthew. We have a further question from Sean Larman at Morgan Stanley. Go ahead, Sean.

Thank you, Mark. A question on synergies with V4. So I think you mentioned that there was a bit of upside there or there was more than what you initially saw. I'm wondering if you could put some quantum around that.

Thanks, Sean. We said at the time of acquisition 75 million run rate synergies over the first three years. So we're at that level now. And it's broadly a pretty even mix, actually, between enabling functions, a bit in R&D, which kind of falls into the 10% to 11%. So some of that gets repurposed rather than necessarily falling to the bottom line. which is fine. Procurement, so cost of sales, so some nice benefits in there. And then, of course, some of the sales and marketing synergies that we've delivered. And you'll start to see that come through on a run rate basis as the year continues.

Thanks, Joanne. Just squeeze one more in, just the 10% average reduction in CPL across the period. Are you able to describe what the exit looked like and where we are today?

The exit at the end of December is what you're asking? Correct. Yeah. 10% down on, like, yeah, average year 10%. I think there's no doubt in the last six months that that rate of reduction has slowed a little, with donor fees kind of holding up perhaps a little bit more. But as we said earlier, a lot of work going on in the centres, and, you know, RECA will help deliver that going forward. But, you know, donors, it's a very dynamic environment, and it moves around kind of month by month, I think is what we would say. Which is why we've put some average year numbers out there, Sean. Actually, we think that's probably more helpful than the point-to-point. Yeah.

Okay, thank you, Joy.

Thanks, Sean. We have a further question from Andrew Goodsell at MST Markey. Go ahead, Andrew.

Thanks, I hope you can hear me now. It was just a follow-up question on the bearing gross margin. Just if you eliminate for the COVID vaccine sales at the previous period, where would the margin improvement year-on-year be?

I'll have to take that question on notice, I think, Andrew. Okay, no problem.

Thank you. Okay, thanks, Andrew. Next question comes from David Bailey at Macquarie. Go ahead, David.

Yeah, thanks, Mark. We've got the timeline for the RICA rollout now. What are some of the factors that could drive the recovery for bearing factory pre-covered within three years? And then what are the other factors that could delay it to being achieved in fiscal 28? Just trying to understand the moving parts outside of RICA, what could bring that forward to 26 and what could delay it to 28?

Yeah, David, I'll try to add some color to that, kind of running through the list of levers that I mentioned in my prior response. We're working hard to move as quickly as possible, and we could have variability either way. So if you go to... the leveraging technology within our centers and how we're, you know, the donor's fees and being more purposeful in our ability to pinpoint the fees that are required. We're moving in the right direction. We think we're getting more sophisticated with technology, so that could be an accelerator or, you know, could slow down. Certainly, we've got many elements of operational effectiveness in our centers. from scheduling to the hours that they're open, the workflow, so that we're kind of minimizing the labor but optimizing the throughput. So we're working on that. That could be a potential accelerant as well. Certainly the promise of RECA and the rollout, the timing of nomogram I, you know, the filing from Terumo is already in. You know, that coming through as expected will certainly be an enhancement in terms of getting to that steady state, 10% more plasma on average. And then a little bit over time, I think Paul mentioned in his opening comments that early kind of IG yield looks very positive from our findings. That could also be something that helps us move in the right direction. And then, of course, on the product mix, if we can really be successful with the launch of Garidacimab, with the margins that that offers, And really strong growth with Hyzentra, especially with the 50 milligram pre-filled syringe that's now out there. That also will be a good guy in helping us. So, you know, I think we want to reaffirm expectations on the three to five year time horizon. We've got many levers in play, but we are doing everything we can to move as quickly as possible.

And just as a reminder of the potential approval of the Milprogram I and how quick it will be to roll out across the fleet once the RICA platforms are in.

The capability for collecting a nomogram I should be, once the FDA approval is there, should be relatively rapid, given we'll already, you know, it's just the line of how quickly we can get the RECA device throughout the U.S. fleet. But that absolutely is purposeful in the way that we're planning the rollout with Terimo.

Thanks, David. Next question comes from Andrew Payne at CLSA. Go ahead, Andrew.

Yeah, thanks for taking my question. Just back on the RECA rollout, obviously you've covered off the timeline for this, but I just want to know were there any changes to the agreement with Cerumo that you can highlight? Just thinking if there's something around pricing or anything like that that we should be aware of.

I appreciate the question, Andrew, but our contractual agreements with partners are confidential.

Okay, no prob. And then just going back to IV iron, we have been hearing more of a pushback in the outpatient setting for injectifer, but in the hospital setting for using patient blood management, that does seem a bit more positive, and obviously your focus as well. So do you think the transition here will see those near-term headwinds in the clinical setting continue? You know, you've also obviously got the step-out of pressure as well, but... Is that something that you see also as a contributing factor to those headwinds?

So I'm not completely sure I understand the question. Or maybe there are multiple questions in your question. So clearly, step edit policies are a headwind in the US, something we have to navigate. And we believe we will do it successfully with our partner, Daishi Senkyo. And as we said earlier, Venofair is the winner in that specific context. Outside of the U.S., we are not facing these kind of headwinds. And we have in some countries a very, very successful retail business, especially in countries like Germany and Switzerland. But maybe you can clarify a little bit your question.

Yeah, so just feedback we're getting in the outpatient setting to inject if there are concerns around hypophosphatemia and that's generally needing to manage and continue to assess the patient in the outpatient setting, whereas in hospital setting there seems to be less concern around hypophosphatemia or anything like that.

Yeah, this is Bill Mezzanotti. Let me just comment a moment. I don't believe there's actually any new data that drives that change. I do understand that in some outpatient settings, some sales and marketing activities might be driving some changes, but not data, which is why I don't think you're seeing any difference in the in-hospital setting, where if there's a place you would worry more about hypophosphatemia, it would be in the inpatient setting. So I think we're still very supportive of the product. We keep the tabs on the outpatient market as well.

Okay, thanks. Thanks, Andrew. We have one more question in the queue. After that, we'll draw the meeting to a close. And that person, Leanne Harrison from Bank of America. Go ahead, Leanne.

Yeah, thank you for the follow-up. Just on collections, you know, previously you've called out, I think, for $23 million. and collection volumes were up 31%. Do you have a similar number for the first half of this year?

We're back to a steady state and growing post-COVID. We're going to continue to drive collections at or above our need for demand in the marketplace. So that was a COVID-specific issue. you know, chasing those percentages. There's so many other levers we're pulling that increases in IG don't necessarily have to track or correlate, or they don't correlate to the direct increase in plasma collection. So we're just going to go back to focusing on our growth and focusing on our initiatives and margin recovery.

Okay. And just one more question on Arcturus 154. Can you give us an indication of... when you expect first revenues from different markets? Obviously, Japan has already received approval, so when do you expect to launch and generate revenues there?

Thanks, Leanne. We expect to launch in Japan in 2024, so quarter three, quarter four of 2024. In terms of other markets, we have submitted into Europe, so we would expect approval quarter four, 24, quarter one, 25. And then we will submit for the US closer to the end of this coming year. So we're approval approximately 12 months after that. So I suspect COVID is going to follow similar timelines to flu in terms of its vaccination season. So you can work out from those approvals when the product will be released into the market.

Okay, great. Thank you very much.

Thanks, Leanne. Ladies and gentlemen, we have no further questions in the queue. So I'd like to thank you for your interest in CSL and I'll now draw the meeting to a close. Thank you and goodbye.