Will AI uncover the next blockbuster drug for CSL?
At homegrown pharma giant CSL, medical innovation is about to really heat up.
As Paul Perreault prepares to sign off after a decade heading up homegrown pharma giant CSL, he thinks medical innovation is about to get really interesting.
The pharma industry is at the very early stages of harnessing artificial intelligence to underpin research and development and this could be key to speeding up the pace of uncovering new and potentially lifesaving drugs.
R&D matters for CSL, which spends more than $US1bn ($1.4bn) annually developing new drugs. It’s a costly and slow business with only a handful of drugs under development ever making it to the market.
Big pharma companies such as CSL need to keep the R&D pipeline well stocked as they look for the next blockbuster drug. Successful drug candidates can often represent a turning point for companies, offering riches of long-term licensing income.
Perreault says CSL hasn’t yet harnessed the full power of AI, but is well advanced in using data analytics and looking for trends in research findings.
“It used to take a personal lifetime to sequence a gene. Now, high school kids can do it in, like, half a day,” Perreault tells The Australian.
“Sequencing the gene now isn’t the issue. It’s how do you deliver that gene. What’s the right vector, and how’s it going to act once it’s there?”
CSL has quietly launched an AI group led by chief information officer Mark Hill, who is working with global R&D head Bill Mezzanotte to make sure they have the technology in place to use deep analytics to advance some of the early-stage research. AI has the potential to do the heavy lifting in the lab ultimately being able to double the research portfolio without needing to double staff.
“(Research) has always been a very technical field … we still need lots of people in the labs,” Perreault says. “We still need people doing some of that development and then scale-up work. The intersection of science and technology will really make that happen.”
Under Perreault, CSL moved to a global R&D model, which puts the research capability in a stand-alone unit, rather than through its discreet manufacturing. In its research portfolio it has dozens of candidates under way across immunology, cardiovascular as well as a Covid vaccine it is developing jointly with Arcturus.
Closer to a market, CSL has high hopes for its Hemgenix drug, which is the first gene therapy for haemophilia. It has just received approval from the powerful US Food & Drug Administration and is under review by European health regulators.
In December, CSL outlined a seamless succession with chief operating officer Paul McKenzie to take over from the start of next month. Perreault will step down from the board at the same time, but continue in place for the transition period until a full retirement in September.
McKenzie comes to CSL with R&D pedigree. He joined the company from global pharma Biogen and previously held executive R&D and manufacturing roles at Johnson & Johnson and Merck. So investors can expect to see even more momentum in this area.
CSL’s headline numbers on Tuesday saw the pharma return to top-line revenue growth, helped by the $16.4bn takeover of renal treatments company Vifor Pharma and improving momentum on plasma collection.
Through a string of acquisitions, Perreault has made CSL Australia’s most international company. When he took charge a decade ago, 11 per cent of sales came from Australia. Today it is little more than 6 per cent. North American sales now represent 52 per cent, up from 42 per cent a decade ago, while there is a more even spread of customers through the rest of the world.
Underscoring growth, annual revenue under Perreault has grown from $US3bn to more than $US10.5bn today, while full-year profits have climbed from about $US700m to more than $US2.5bn. A bigger balance sheet means more spending on R&D, with the norm having been only $US250m when he took charge.
The challenge for McKenzie is to break the middle-age slowdown that eventually catches up with all big pharma, which has seen CSL stuck in a sideways trap over the past two years as it trades on existing drug inventory. At the same time, he will need to drive the integration of the Vifor mega deal completed last year.
Seven’s stream hopes
After a cautious start, Seven West Media’s James Warburton is going all out on broadcast video on demand through his 7Plus arm.
After locking in long-term sports rights deals with Cricket Australia and the AFL and a new long-term content deal with US studio NBCUniversal in recent months, the Seven Network boss believes he has the right pieces now in place to generate at least half of his broadcast earnings from streaming in coming years. Just three years ago, it was 24 per cent.
As arch rival Nine Entertainment pushes on with its own all-you-can-eat subscriber streaming option through Stan, Warburton is betting the sports deals that start to flow in coming years will underpin his free broadcast-on-demand option.
The NBCUniversal deal will result in a lot more content delivered into 7Plus over time and Warburton is targeting a 42 per cent share in the overall broadcast video streaming market.
Live sport remains a driver for linear TV and, increasingly, streaming. Foxtel’s Kayo is a standout in this field, with latest numbers showing more than 1.13 million paid subscribers across the full complement of AFL, NRL and cricket rights. (Foxtel is controlled by News Corp, the owner of The Australian.)
Disney CEO Bob Iger this month suggested a shake-up was coming in some parts of the global streaming market, where high churn rates are undermining the economics of content production. However, sport becomes a different proposition because viewers watch the games through the entire season, as well as the content built around it.
Warburton’s Seven West Media on Tuesday posted flat December half revenue of $815.4m, while interim profit was off 4.6 per cent at $114.9m. Digital revenue, which covers 7Plus, jumped almost 30 per cent, although from a low base. Minutes watched jumped by the same rate.
Still, there are clouds on the horizon with a slowdown in advertising market coming. Warburton is tipping advertising market sales to slow to mid to high-single-digit growth, which is more bullish than most analysts tipping a reversal in ad sales. For its part, Seven says pre-sales in March are stronger than January and February.
Warburton has responded to this with a tough $15m-$20m cost-cutting program, although he has pledged to keep staff numbers, and not reduce content spending. The recent decision to walk away from a long-time Olympics broadcast partnership underpins the renewed cost focus. Dividends remain elusive for investors, with little sign of a thaw in the dividend freeze in place since 2017.
Warburton says platforms like 7Plus deliver younger audiences watching more content, be it on a smartphone or TV set, and advertising is more targeted. This means the digital platform can charge double the price than traditional linear TV – in regional areas, it’s is almost three times.
“You’ve got a mass broadcast reach with Seven and you’re selling that out and you’re getting to as many people as you possibly can,” he says. “And then with (broadcast video on demand) you’ve got a highly targeted addressable campaigns that you sell many times over. You can sell to every demographic and sell in every way with data”.
johnstone@theaustralian.com. au
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