CSL posts record profit and upgrade

Melbourne's CSL (ASX:CSL) today reported a net profit after tax of AUD$176.4 million for the first half of the financial year, up 34 per cent from the previous first half, and has upgraded its full year profit forecast by about 15 per cent to $335 to $350 million.

"We think the first half was an excellent result for the company underpinned by [subsidiary] ZLB Behring's outstanding performance," said CSL managing director Brian McNamee.

As well as the contribution from ZLB Behring, solid demand for CSL's Helixate (a synthetic blood-clotting factor for haemophiliacs) and plasma products, plus an increase in the pricing of Carimune (intravenous immune globulin or IVIG), also contributed to CSL's growth.

While CSL's reported overall sales revenue was down 1 per cent, to $1.4 billion, sales revenue from continuing operations grew by 8 per cent and ZLB Behring's sales revenue was up 11 per cent.

Sales from CSL Bioplasma (based at Broadmeadows) were down 30 per cent due to reduced plasma derived product sales after the Australian National Blood Authority changed its policy on recombinant products for haemophilia patients. "Broadmeadows will be down 15 per cent at the end of the year," said McNamee. "It won't be 30 per cent for the whole year."

The company's net operating cash flow for the half was up 38 per cent to $264 million. McNamee said the outlook for the year's cash flow was $500 million -- "probably 20 to 25 per cent higher than our prior guidance".

McNamee said the company had previously disclosed a goal of 10 per cent EPS (earnings per share) growth on a continuing operations basis. With the 15 per cent upgrade in forecasted profit, he said that growth will now be closer to 25 per cent.

CSL Pharmaceuticals sales improved by 14 per cent, largely because of growth in northern hemisphere influenza vaccine sales.

The company's R&D spend for the first half was $71.2 million, down from $75.5 in the same corresponding period last year. "That's partly a timing issue for the half," said McNamee. "We'd expect our second half to be more like $80 million. We are looking to increase our R&D investment, but sometimes it's a little lumpy. Some of our clinical trials are going to occur in the second half."

Gardasil launch

On the operations front, CSL aims to launch Gardasil -- the recombinant vaccine against human papilloma virus (HPV) invented by Prof Ian Frazer and developed by CSL and Merck & Co -- this calendar year in Australia, said McNamee. "We've been fortunate that the TGA recognise this as a breakthrough medicine and have given it priority review, as have the New Zealand regulator," said McNamee.

It is expected that CSL will receive between $100-$200 million in royalties from Gardasil, with an estimated 7 per cent royalty from Merck and a smaller royalty from GSK which is developing Cervarix, a rival vaccine. "Certainly if the market uptake is what both GSK and Merck hope for, those sorts of royalties remain possible if not probable when the product is maximised in the global sphere," said McNamee.

The company also recently announced its plans to enter the US influenza vaccine market with product available for the US 2007- 2008 flu season, following a $80 million investment in plant and equipment. McNamee said CSL was aiming for a 10-15 per cent share of the northern hemisphere flu vaccine market.

Pandemic vaccine downplayed

While the company recently announced results from its initial clinical trial of a pandemic flu vaccine for the H5N1 avian virus, McNamee said that: "I don't see this as a material product for the company. Our flu franchise is a material part of the company, and to some degree when we're making bird flu vaccine we're not making the normal flu vaccine." However, he also said that: "We see that our work is important, we're sharing our data internationally."

McNamee said that in the next financial year, CSL hoped to have a "decent piece of the recombinant factor VIII market in Australia," although he wouldn't be drawn on the exact market share the company is hoping to achieve. He also said that the company would soon launch Vivaglobin, immunoglobulin delivered subcutaneously -- said to be a more convenient delivery methodfor certain patients. This follows US FDA approval in early January 2006. "Immunoglobulin gets a lot of attention, but it is only 30 per cent of the business," said McNamee.

The company also expects to submit a biologics license application to the US FDA for its 12 per cent liquid IVIG in the near future.