Chanticleer
CSL boss has four key messages for investors
Paul McKenzie finds himself in a position his predecessors haven’t faced for years: defending the blue-chip’s growth prospects, including from the threat of new obesity drugs.
Paul McKenzie finds himself in a position that CSL chief executives haven’t found themselves in for many years: defending the market darling’s growth prospects.
McKenzie, who officially succeeded Paul Perreault in March, has had a rough start to his new role. Since announcing the plasma giant’s first downgrade in recent memory in mid-June, McKenzie has seen CSL’s share price fall about 22 per cent, as investors weigh up a range of issues.
CSL boss Paul McKenzie is making the case for the group’s longer-term growth. David Rowe
At the top of the list is the continuing pressure on profit margins in the CSL Behring business, which collects and processes plasma to make several treatments for immunodeficiency and autoimmune disease, and has been hit by higher collection costs. But there are also concerns about the competitive pressures on iron deficiency specialist Vifor, which CSL bought for $19 billion in late 2022, where its key drug Ferinject is set to face competition from generic treatments next year when it loses exclusivity.
And there have been growing concerns last week that obesity drugs such as Novo Nordisk’s blockbuster Ozempic could hurt Vifor’s dialysis business.
These rare frustrations with CSL’s performance surfaced at last week’s annual general meeting. So Monday’s investor strategy day was McKenzie’s chance to reset the message.
He said that although the company was focused on growth, Monday was a chance to demonstrate that to the market.
“For us, it’s really about driving the transparency that the investors need. We’re very bullish on our growth. Not many companies can say you’re going to have annual double-digit growth moving forward through the midterm,” he told Chanticleer during a break in proceedings.
“So look, it’s not us defending [our growth story], it’s us celebrating.”
McKenzie delivered four key messages for investors.
First, CSL is still a growth machine that can increase earnings at double-digit rates over the medium term, which will help lift returns on invested capital over time. He outlined a string of new products that are near the end of trials, including a new flu vaccine and a product for acute bleeding from traumatic injuries.
Second, margins in the Behring business will turn around over the next few years as promised through new donor payment structures, changes in collection technology and better yield (more products per litre of blood).
Third, Vifor can ward off the threat of competition to Ferinject. That’s in part because CSL is well-prepared for the loss of exclusivity, although generic competition looks limited at this stage, which the company hopes will limit price and profit erosion.
The company is also excited about the use of the drug in a new process called patient blood management, which the World Health Organisation is now recommending to reduce the need for blood transfusions for patients with existing conditions who need surgery. CSL says it is already generating $US1 billion ($1.58 billion) in revenue from this business, and more growth is possible.
Ozempic ‘not a threat’
And finally, McKenzie insists that Ozempic is not a threat to the Australian giant.
The release of a study last week that suggested GLP-1 drugs such as Ozempic could be effective in the treatment of kidney disease weighed heavily on the stocks of a range of dialysis providers, including CSL. Dialysis treatment accounts for about 39 per cent of Vifor’s revenue, or about 6 per cent of CSL’s total group revenue.
But McKenzie says CSL’s review of that study has left it comfortable that it will not suffer an Ozempic hit
“When we look at all the puts and takes across the product, when we look at who was included in the clinical trial, how it affects our business, we really just don’t see it being material,” he says.
The rapid growth of Ozempic and similar drugs has led to the market quickly extrapolating the potential impact to a range of sectors – from fast food and groceries to several healthcare sectors.
But McKenzie, a veteran of the pharmaceutical industry, says he’s been down this road before when other so-called wonder drugs have been predicted to revolutionise the way we treat conditions such as obesity, high cholesterol and Alzheimer’s.
“There’s been many a thing that we’re going to fundamentally change the course of history in the industry,” McKenzie says. “But to fundamentally, to move a whole market and make that go away? We just don’t see it.”
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