CSL takes mRNA tech overseas after Morrison government rejection

The nation’s biggest health group is looking offshore for mRNA development after Morrison government rejection, while its shares surged on an upbeat outlook.

CSL chief executive Paul Perreault. Picture: Stuart McEvoy

CSL chief executive Paul Perreault says the company is fielding calls from the US, UK and Europe about developing its mRNA research and manufacturing overseas after being knocked back by the Morrison government.

His comments come as CSL’s shares soared more than 8.5 per cent to $263.69 on Monday after it delivered better-than-expected half-year earnings, including a $US1.76bn ($2.45bn) net profit.

CSL, Australia’s biggest health company, hoped to build a factory in Melbourne to lessen Australia’s dependency on imported mRNA vaccines – the technology used in the Pfizer and Moderna Covid-19 jabs.

Instead, the federal government awarded the contract to Moderna – which was founded in 2010 and based in Cambridge, Massachusetts.

“Am I disappointed? Yes but I’ve moved on. We’re free to go elsewhere. And we will, because there’s demand out there for these types of technologies,” Mr Perreault said.

“We’ve had incoming calls. There’s plenty of places we can go. So Australia doesn’t want us as part of that, OK. In the US we have a new contract with BARDA that includes sa-mRNA. In the UK we have very strong relationships and they’re interested and when we look at Europe there’s interest there as well. So I not fussed from that perspective.

“Moderna and what they’re doing, I assume they put in a great proposal. I wish them luck and I wish the government luck in terms of making sure this is part of what they really want.”

But Mr Perreault praised the government for introducing its much anticipated “patent box” legislation – that will almost halve the corporate tax rate on profits from locally commercialised research – to parliament, singling out Josh Frydenberg. “It’s great that the government, Josh and others have looked at this and aid, ‘this is something we need to have to be competitive’. And I think that’s absolutely the case.”

More than 20 countries around the world, including the UK, Switzerland, France and Belgium, offer similar targeted incentives to the “patent box”.

The Australian legislation involves introducing a concessional tax rate of 17 per cent on profits on products that are developed and then manufactured in Australia. This compares with the usual corporate tax rate of 30 per cent for big businesses and 25 per cent for smaller operators.

“There are some governments that tend to be more confrontational than collaborative and in this case, I’d say that Treasury and others have been very consultative, and I’m very happy with the process so far,” Mr Perreault said.

Mr Perreault’s comments came as CSL’s net profit eased 5 per cent to $US1.76bn in the half y r to December 31 as Covid-19 constrained plasma collections, limiting sales of its core immuno­globulin portfolio.

Meanwhile, revenue rose 4 per cent to $US5.99bn, due to strong gains across CSL’s non-blood products. Its influenza business Seqirus was the standout, with the division’s revenue surging 17 per cent to $US1.69bn.

The result was better than analysts had expected given Covid-19 had hit donations of plasma – the key ingredient needed for CSL’s core products and after rival Haemonetics had slashed full-year plasma revenue guidance from 10-20 per cent to 8-10 per cent organic growth last week, citing Omicron disruptions and a $6m stocking order in the prior year.

But Mr Perreault said CSL plasma collections – which increased 18 per cent in the six months to December 31 – were returning and “expected to underpin future sales growth”.

“We have responded by implementing multiple initiatives in our plasma collections network, which has given rise to significant improvement in plasma volumes collected,” Mr Perreault said.

During the half year, the company opened 18 new plasma collection centres and plans to lift that number to 35 by the end of this financial year.

CSL now expects full-year net profit of $US2.15bn-$US2.25bn at constant currency. This compares with $US2.34bn last year and includes about $90m-$110m in transaction costs related to the agreement to acquire European renal treatments company Vifor Pharma for $16.4bn.

“Full-year NPAT guidance was maintained, although now includes $90m-$110m of transaction costs, so we view it as about a 5 per cent upgrade to guidance,” Royal Bank of Canada analyst Craig Wong-Pan said.

Jarden analysts Steve Wheen and Seb Clemens said while immunoglobulin sales were “slightly weaker” than anticipated, Seqirus had hoisted the company to deliver earnings above expectations.

“The beat was largely explained by Seqirus which delivered an EBIT 20 per cent higher than consensus, largely on the back of the very high margin FLUAD sales,” the pair wrote in a note to investors.

“The other highlight was hyperimmunes and HPV royalties, which were much stronger than anticipated.”

HPV royalties jumped 134 per cent as sales rebounded to pre-Covid levels following “strong demand and increased supply”.

Elsewhere across the CSL product portfolio, its recombinant haemophilia B product, Idelvion, increased sales by 17 per cent. Kcentra, a peri-operative bleeding product, grew a strong 15 per cent as hospital demand began to return to pre-pandemic levels.

Meanwhile, Haegarda, CSL’s therapy for patients with Hereditary Angioedema, increased 7 per cent driven by the continued shift from on-demand to prophylaxis treatment and successful new launches.

Mr Perreault said the Vifor acquisition would “represent a meaningful acceleration of our 2030 strategy, by further enhancing our focus on our therapeutic leadership areas, innovation, and sustainable growth”.

But S&P Global Ratings analysts said last week CSL would “need to navigate meaningful and complex integration challenges” after the Vifor acquisition. They placed the company on a “negative outlook”.

“We expect CSL’s S&P Global Ratings adjusted debt to EBITDA will increase above 2.0x, which is outside our expectations for the ‘A-’ rating. However, management has a credible deleveraging strategy over the next 18 months, in our view,” S&P Global Rating said.

“The negative outlook reflects our view that the incremental debt burden to part fund the acquisition will cause leverage to increase above adjusted debt to EBITDA of 2.0x. It also reflects the view that the company’s credit metrics could remain above our tolerances for the ‘A-’ rating level if it experiences any unexpected operational issues or if the integration benefits from the Vifor acquisition are not realised in a timely manner.”

CSL will pay an interim ­dividend of $US1.04 a share on April 6.