Hatchings

NOVemBER 2025 – ISSUE 25

History

CSL Ltd (CSL) started its life as the Commonwealth Serum Laboratories in 1916, initially focused on vaccine and anti-venom manufacturing. In 1952 the Commonwealth Serum Laboratories expanded its operations by developing plasma fractionation capability, a strategic initiative that would shape CSL for decades to come. The Keating Government privatised the Commonwealth Serum Laboratories in 1994 and CSL Limited listed on the Australian Stock Exchange (ASX) later that year at $2.30 per share (adjusting for stock splits, this equates to $0.767 per share).
“Since privatisation in 1994 CSL has evolved from a small, government-owned business to one of the world’s largest plasma therapeutic companies …CSL’s enduring success has been underpinned by a culture of operational excellence¹” said John Shine AO, Chairman of CSL in its 2014 Annual Report.
For most of its listed history, the previous statement was true, as CSL delivered extraordinary shareholder returns from the time of listing on the ASX in 1994 until operational missteps and a large (and difficult) acquisition put a blemish on CSL’s long track record.

As shown on the chart below.

Chart 1 – Total Shareholder Return (TSR) of CSL 

Source: Platypus, Iress

CSL’s focus on operational excellence, disciplined approach to M&A, offshore expansion, and entrepreneurial corporate culture resulted in consistent multi-decade earnings growth which was rewarded by investors for decades. Until, that is, the last five years. This is demonstrated on the following chart.

Chart 2 – CSL Market Capitalisation and Index Weight

Source: Platypus, Iress

The Rise

Shortly after listing on the ASX, CSL established itself as a significant and growing global competitor in the plasma therapeutic industry through the acquisition of ZLB Bioplasma Inc in 2000 for A$696.4 million. This acquisition provided CSL with plasma fractionation facilities in Switzerland and more importantly, with the FDA approved intravenous immunoglobulin (IVIG) products, therefore, opening up the US market opportunity to CSL years earlier than it originally planned. Dr Brian McNamee, the CEO of CSL at the time, assumed responsibility for the delivery of earnings growth from the US market and relocated to the US temporarily.

CSL’s global plasma strategy was further accelerated in December 2003 when it acquired Aventis Behring (the second largest participant in the global plasma therapeutic market at the time) from Aventis for A$786 million up-front, a $179 million deferred payment and further contingent payments.

“The acquisition creates a world-leading plasma therapeutics business by combining ZLB’s IVIG business, plasma fractionation and production with Aventis Behring’s leading coagulation products, hemophilia expertise and specialty products market research,” ² the CSL CEO Dr McNamee said at the time. Some of the key highlights of the Behring acquisition included:

• • “a more diverse and highly competitive product portfolio
  • Higher profit per litre of plasma processed …
  • Complementary R&D portfolio […]
  • Global footprint […]
  • A lower cost plasma sourcing […]” ³

CSL attempted to accelerate its growth strategy in the plasma therapeutic market once again in 2008 when it made a takeover bid for Talecris Biotherapeutics Holdings Corp. for approximately A$3.5 billion. When the US Federal Trade Commission (FTC) blocked the acquisition in 2009 on anti-competitive grounds, CSL’s focus turned to accelerating organic growth – expanding its product portfolio in the plasma therapeutic space, improving revenue per litre of plasma processed, reducing cost of plasma collected and continuing to deliver operational efficiencies. 

CSL’s core plasma strategy was centred around ongoing strong investment into R&D initiatives, which in turn delivered attractive shareholder returns over the medium term. In addition, CSL invested in expansion of its plasma collection centres and fractionation facilities, which helped improve operating margins and profitability. Post the failed takeover of Talecris, CSL’s capital management initiatives also included ongoing share buy-backs which further strengthened the Return on Equity (ROE) profile of the company.

Chart 3 – CSL ROE

Source: Platypus, FactSet

For nearly a decade from mid 2010, CSL’s competitive position and dominance in the plasma therapeutic market solidified. Their closest competitor – Baxter – ran into corporate trouble. Baxter changed hands multiple times between 2014 and 2019. Baxter spun out Baxalta as a stand-alone plasma business in 2015. It was then acquired by Shire plc and subsequently sold to Takeda Pharmaceutical Company (Takeda) in 2019. CSL’s other competitor Grifols S.A (Grifols), a Spanish based healthcare company also underperformed in this period, hampered by a leveraged balance sheet and execution missteps as it grew by acquisition in the important US market. 

During this time CSL focused its corporate strategy on allocating its R&D budget to expand its portfolio of plasma therapeutic products and expanding regulatory approvals of already commercialised products in other key markets of the company. CSL also continued to improve on cost of plasma collections and all of this combined to underpin consistent earnings growth from CSL’s largest business division. 

In October 2014, CSL’s corporate strategy took an unexpected turn when the company made an announcement of the acquisition of the Novartis global influenza vaccine business for US$275 million. While vaccines had been a part of CSL since its origin in 1916, CSL’s existing vaccine division (bioCSL) was a legacy and an immaterial component of the overall group. This acquisition was somewhat surprising as CSL still had a material earnings growth opportunity in its core plasma franchise. While investing into the Novartis vaccine business initially seemed like a step outside of CSL’s core strategy, CSL demonstrated that its culture of operational excellence could translate to other arms of the business and delivered on its medium-term earnings guidance. A disciplined approach to this acquisition and strict focus on delivering earnings to initial guidance ensured that CSL’s return profile didn’t suffer. CSL successfully integrated this business with the existing vaccine operations and renamed this division Seqirus. An acquisition that, at the time, looked to be potentially returns-dilutive – actually delivered.

CSL then became a business with 2 divisions, CSL Behring and Sequiris.

The Fall

Like many companies around the world, CSL’s operations were disrupted by the COVID-19 pandemic. CSL’s plasma collection centres were initially temporarily shut down, and then were further impacted by social distancing, low unemployment and US COVID-19 stimulus payments, all of which contributed to the cost of plasma collection increasing and CSL Behring’s gross profit margin (GPM) declining. This coincided with Takeda regaining operating momentum in its plasma franchise. Takeda began to outperform CSL, in particular with regard to their ability to attract plasma donors back into its centres and collect plasma during this time. 

While Takeda’s operating momentum was improving, CSL operationally faltered. A number of operational missteps impacted CSL’s plasma franchise in the period after COVID-19:

1. CSL collaborated with Terumo Corporation to roll out a new plasmapheresis platform (Rika) through its collection centre network. This initiative was meant to deliver material improvements in plasma collection time and cost; however, the implementation of the Rika platform was delayed by approximately two years and didn’t really expand beyond a trial phase until 2024. This had a negative impact on CSL’s ability to recover plasma stockpiles the company depleted during the pandemic lockdown period as well as on the cost per litre of plasma collected. This operational misstep delayed CSL’s ability to return to the pre-COVID-19 GPM level in its core plasma franchise. 

2. CSL’s large R&D project (AEGIS-II trial evaluating CSL112) failed to meet its primary end point⁴ resulting not only in a material write-down of R&D costs, but also in a gap in its R&D pipeline (which would typically underpin future earnings growth) as CSL focused most of its R&D budget and corporate energy on the delivery of the CSL112 project. 

3. CSL’s core immunoglobulin franchise was disrupted by the approval and commercialisation of FcRn inhibitor therapies. CSL executives initially dismissed the potential threat of these therapies as they were progressing through clinical trials. The initial CSL assessment that FcRN therapies would be unlikely to meet primary end points in clinical trials and unlikely to have wider application if approved were proven incorrect, and FcRn inhibitor therapies were not only successfully commercialised but also gained traction with clinicians and patients. 

In the middle of the COVID-19 disruption combined with a number of operational issues that CSL was dealing with in its core franchise at the time, CSL added to the complexity of the overall group when they announced the acquisition of Vifor Pharma Ltd⁵ (Vifor) for A$16.4 billion in late 2021. This acquisition somewhat like the Novartis vaccine business, was outside of CSL’s core franchise, however unlike previous acquisitions, Vifor was materially larger. 

Vifor failed to deliver on initial expectations. Namely its core iron franchise was negatively impacted by the approval of generic iron-replacement therapies which were approved a lot earlier than had been originally expected. CSL anticipated that returns in the core part of Vifor franchise would eventually be eroded by generic competition, however they believed this to not be a threat for some years. Generic iron replacement therapies came to market shortly after CSL settled the Vifor acquisition. In addition, COVID-19 had a more severe impact on the underlying earnings of Vifor as the death rate of Vifor’s core population cohort was materially elevated by the pandemic. 

The result of this was that CSL was not only working hard to recover earnings trajectory of now two large divisions – Behring and Vifor, but was also trying to do so when unexpected competition (in both divisions) was threatening their competitive position. 

CSL’s return profile declined as a result of the difficult and large Vifor acquisition, the COVID-19 impact on earnings in the existing CSL Behring business, and increase in competition in both Behring and Vifor franchises.

Chart 4 – CSL Return on Invested Capital (ROIC) Profile

Source: CSL Annual Reports, Platypus

Shareholders have not been rewarded for CSL’s corporate strategy and execution in the last five years as the company has struggled to deliver on earnings expectations. However, the CSL Board, historically known for a strong and disciplined approach to setting executive remuneration hurdles, became more forgiving. Namely, performance ROIC targets for the at-risk components of executive remuneration. These targets were reduced materially as realised returns declined after the acquisition of Vifor and failed attempts to improve on underlying earnings of the plasma franchise.

The acquisition of Vifor did not just dilute CSL’s return metrics but also affected the quality of its results. The CSL executive team changed ‘reporting metrics’ from Net Profit After Tax (NPAT) and Earnings per Share (EPS) to ‘NPATA and EPSA’ (i.e. NPAT and EPS exclude amortization of intangibles). This made the accounts less transparent, particularly in the context of acquiring intellectual property, which is becoming a more important feature of CSL’s strategy. This included the Vifor franchise which regularly partnered with third parties on R&D projects, combined with CSL Behring which pivoted towards acquiring intellectual property with the purchase of gene therapy rights for hemophilia B. Excluding amortisation of acquired intangibles from reported metrics makes it difficult for investors to have transparency over the total R&D investment and ultimately hold executives accountable for returns delivered from this strategy. NPATA and EPSA are lower quality financial metrics. 

The deterioration of earnings quality also became evident as the company became unable to deliver on earnings guidance and expectations. CSL delivered a profit warning in June 2023, the first of many earnings downgrades to follow. The full financial year (FY) 2024 result was delivered within guidance but below consensus estimates and FY 2025 guidance provided at the 2024 result was also lower than analysts’ expectations. When CSL delivered its FY 2025 result a year later it was clear that CSL would have missed the disappointing full year guidance had it not been for the fortuitous win of government contracts for avian flu which were not expected to contribute to revenue when the guidance was originally set in August 2024. 

GPM recovery to pre-COVID-19 levels in CSL Behring division was coming through at a slower pace than company initially guided. CSL changed its guidance on when the GPM would recover multiple times. Eventually, in August 2025, CSL in the FY 2025 result announcement withdrew the promise of the GPM recovery in CSL Behring to pre-COVID-19 levels altogether. This shocked the investment community and the bullet proof part of the franchise lost its formidable luster and management’s credibility was permanently damaged. 

The FY 2025 result was poorly received by the investment community. In addition to walking away from the promise that CSL Behring GPM would recover to previous levels, there were many other disappointments:

• • guidance was met but only because of a one-off contract win that is hard to capitalise on a going forward basis; 
  • FY26 guidance was disappointing; and 
  • CSL announced in specie distribution of the Seqirus business division, which was an inexplicable decision given the characteristics of the business. Sequiris as a stand-alone business is characterised by unpredictable contract wins and as such would not be well rated by investors who reward predictable and sustainable earnings growth profiles. It would also have no comparable companies on the ASX.

The CSL’s share price fell materially after the announcement of the FY 2025 result, wiping out billions of dollars of CSL’s market capitalisation (see Chart 2). The stock has been derated and is now trading at multiples last seen during the GFC.

Chart 5 – CSL 12-month Forward PE

Source: Platypus, FactSet

The CSL executive team and the board have been slow to acknowledge a series of missteps that have led to this outcome. Following the FY 2025 result , CSL has announced the departure of the CFO; however,  the remuneration framework has not been adjusted back to what is considered more appropriate performance hurdles. The in-specie distribution of Seqirus has been shelved for now.  

At the 2025 Annual General meeting in October 2025 CSL downgraded FY26 profit outlook, only six weeks after giving this guidance, attributing this to the weaker uptake of influenza vaccines and weaker demand for albumin.  

As stated in 2014 the then Chairman of CSL said that: 

“CSL’s enduring success has been underpinned by a culture of operational excellence. Our rapid international growth has been the result of a series of disciplined acquisitions” ⁶. 

Investors will need clear evidence that CSL is on track to return to its previous exceptional standard of execution, discipline, and entrepreneurial corporate culture before the stock can re-rate to the previous exalted levels. 

1. CSL ASX Announcement, 2. CSL ASX Announcement, 3. CSL ASX Announcement, 4. CSL ASX Announcement, 5. CSL ASX Announcement, 6. CSL Annual Report 2013-14

Disclaimer: