Health Check: CSL turns to a vaccines demerger in an ‘urgent’ get-fit drive

• CSL shares tumble 12% on the back of a multi-pronged transformation drive and a perceived weak result
• The company is paring 3000 jobs in a bid to save up to US$550 million of annualised costs
• Opthea lives on!

CSL (ASX:CSL) has unveiled some of the most sweeping changes in its three-decade listed history, the centrepiece of which is the proposed demerger of its Seqirus vaccines operation.

The company is also making the “hard but necessary” decision to let go of around 3000 staff – 15% of its workforce excluding plasma collection centre workers.

As part of its push to save US$500-550 million in annual costs, CSL also will slash its circa US$1.5 billion a year research and development (R&D) spend.

The company also will re-introduce a share buyback over multiple years, from next year.

CSL CEO Dr Paul McKenzie admits the company’s recent performance has been below par.

“With a sense of urgency, I want us to re-focus on our core strengths, lift R&D productivity and instill a lean and efficient mindset, while at the same time optimising our capital structure and removing complexity,” he says.

McKenzie adds a “dynamic geopolitical backdrop, competitive pressure and organisational complexity have challenged CSL and hindered its ability to deliver superior returns”.

Investors this morning weren’t buying the ‘cut to greatness’ story, slashing CSL shares by 12% on concerns about stagnating revenue growth.

De urge to demerge

CSL expects to demerge Seqirus by June next year.

Seqirus is the second biggest player in the global, US$7 billion-a-year flu vaccine sector.

Those with a sense of history will recall that CSL – then Commonwealth Serum Laboratories – was formed in 1916 to boost wartime vaccine production.

“Seqirus has a great future that will be driven by its strong competitive position in an improving market,” chimes CSL chairman (and long-time CEO) Dr Brian McNamee.

The demerger is subject to third-party consents, regulatory approvals and a “voluntary” shareholder vote.

Seqirus will be headed by the division’s current president and former CSL CFO, Gordon Naylor.

Cutting to greatness?

CSL’s cost-cutting blitz will result in one-off, post-tax restructuring measures of US$560-$620 million in the current year.

The measures should result in annualised cost savings of $500-550 million over the next three years, with most pocketed in the 2026-27 year.

The company pledges to reinvest in “high priority opportunities, with the need to deliver sustainable, profitable growth”.

McKenzie admits that CSL hasn’t got the desired bang for its buck from its R&D spend, which last year was around US$1.5 billion.

By being fixed to a proportion of revenue, these costs became “dispersed” across too many ventures.

The company has guided to current year R&D of US$1.35 billion – directed at more specific projects.

Management also revealed the closure of 22 underperforming US blood collection centres – 7% of its footprint.

In the meantime, new plasma collection systems have bolstered per-litre productivity but yields still aren’t where they should be.

Buyback for a ‘lazy’ balance sheet

CSL’s multi-year share buyback program will start with $750 million in the current year and will “progressively increase” in the short term.

The buyback recognises the company’s debt to earnings ratio has continued to decline, from 2.2 times last year to a comfortable 1.8 times.

The timing and quantum of the buyback will depend on factors such as market conditions and other opportunities to deploy capital.

The company also upped its final dividend by 12%, to US1.62 share.

Going by the numbers (1)

Let’s not forget the actual full-year results.

CSL’s revenue was US$15.6 billion, 5% higher, led by the mainstay Behring plasma products arm.

Net profit rose 17% to US$3 billion.

Behring’s revenue notched up 6% to US$11.2 billion, while Seqirus’s turnover rose 2% to US$2.2 billion.

Revenues from the acquired – and oft maligned – Vifor iron deficiency and kidney health arm rose 8%, to US$2.2 billion.

Sales from Behring’s core immunoglobulin franchise grew 7% to US$6.06 billion, while haemophilia product sales grew 13% to US$1.48 billion.

Going against the trend, sales of it Warfarin reversal drug Kcentra slumped 16%, because of a new market entrant.

Some analysts view Behring’s revenue as weak, which management attributes partly to the company not competing in low margin tenders.

Going by the numbers (2)

CSL has guided to current year revenue growth of 4-5%, assuming currencies remain the same. This implies revenue of US$16.2-16.3 billion.

Excluding restructuring costs, net profit should come in between US$3.45-3.55 billion. That’s growth of 7-10%.

Management expects “continued robust demand” for our core therapies, as well as the uptake such as its recently approved Andembry (for hereditary angioedema).

While the company expects seasonal influenza revenue to stabilise, the avian flu and Covid-19 contribution will be “substantially lower”.

Notably, the guidance assumes no impact from the Trump administration’s intended pharmaceutical tariffs.

“CSL has significant operations in the US and the majority of our commercial portfolio is drug-sourced from there,” says McNamee.

Opthea wins a reprieve

Five months on from its disastrous phase III trial results, eye diseases house Opthea (ASX:OPT) has negotiated a US$20 million survival deal with its investors.

Under a Development Funding Agreement, a cabal of shareholders was owed up to US$680 million. As of June, Opthea held residual cash of US$48 million – and even CSL can’t get blood from a stone.

The settlement involves the investors receiving the one-off cash and just under 10% of the company’s share base.

CEO Dr Fred Guerard, CFO Tom Reilly and a director, Sujal Shah will step down. They’ve no doubt had enough of it by now, anyway.

The chairman, Jeremy Levin, bats on.

The deal leaves Opthea – now essentially a cash box – with US$20 million of readies.

The company has scheduled a briefing or tomorrow morning, to cast light on its new direction.

Sadly, the flagship program for wet aged related macular degeneration is dead, buried and cremated.

Argent pots Auscann’s assets

Medicinal cannabis house Argent Biopharma (ASX:RGT) has entered a US$15 million deal to buy the assets of Auscann Group, which was one of the trailblazing ASX ‘pot stocks’ before delisting last year.

Subject to a binding term sheet, the deal includes Auscann’s Neuvis oral drug delivery platform, preclinical epilepsy trial data and access to European manufacturing and German pharma distribution.

Argent says the deal aligns with its plans to dual list on a US exchange.

The assets to be acquired also are “directly synergistic” with Argent’s  commercialised lead assets, Cannepil and Cimetra.

Argent also acquires Auscann’s 48% shareholding in the once ASX listed Cannpal Animal Therapeutics. It also wins 19.99% of the WA based, European focused ECC Pharm Ltd.

Argent pays for the purchase by issuing 25 million of its shares to Auscann.

At Stockhead, we tell it as it is. While Argent is a Stockhead advertiser, the company did not sponsor this article