Thanks @Solvetheriddle and @mikebrisy. Good additional thoughts and context there. I will be at the November R&D day too and hope to hear sensible plans about how the restructuring there will take out unproductive spend but also hopefully help them create future, aligned, growth paths.

I suspect some of what is happening here is McNamee pushing a return to some of the strategies of his reign and McKenize wanting to leave a different legacy under his tenure, to what the Perrault years look like they have been. McKenzie looks like he might be the right guy for where they now find themselves - his background includes a PhD in chemical engineering from Carnegie Mellon University and an impressive career at American biotechnology company, Biogen.

He had also worked as head of research and development at Ethicon, a division of Johnson & Johnson Health, and before that head of manufacturing and technical operations at Janssen Pharmaceuticals. All seems helpful for a reset of R&D spend and outcomes...

Intersting article below in the AFR today. Confirms my thinking that McNamee is driving the overhaul of R&D. And that they think McKenzie is the right guy to execute that. All easier said than done of course but it does seem like an appropriate and sensible move right now. As @Strawman has said many times, we shouldn't be too quick to whack management for trying new things if it's in their wheelhouse and we should also be thankful when they kill or change things that didn't work. (I know he didn't say it exactly like that but this was my take on his point ???? )

‘We have to fix this’: Brian McNamee on turning around CSL

CSL was once a market darling, now it’s out of favour and pressure is on board and management to convince sceptical investors of a plan to restructure the business.

CSL chairman Brian McNamee says he expects a “grumpy” AGM this year after investors panned the company’s restructure plan. Eamon Gallagher

Michael Smith

Health editor

Aug 31, 2025 – 8.00pm

When Brian McNamee met with CSL’s shareholders late last year, the chairman of the global healthcare company knew something had to change. After a golden run lasting decades, bad blood was brewing between CSL’s investors, the board and a management team led by chief executive Paul McKenzie.

There were too many problems to ignore. At the top of the list was a string of research and development setbacks at the $100-billion-dollar company, which makes products from vaccines to therapies derived from blood plasma. The biggest was the spectacular failure of a heart attack drug candidate called CSL112, which the company had billed as a potential blockbuster, pouring more than $1 billion into it.

Investor anger manifested in a shock first strike at the company’s annual general meeting last October. A strike is when there is a shareholder vote of 25 per cent or more against a resolution. In CSL’s case it was a strike against the company’s remuneration report.

“When I went and saw the shareholders last year it was crystal clear the R&D failures we’ve had are unacceptable fundamentally and things had to change,” McNamee said.

“We had a major failure in the 112 trial which took enormous resources in the company. I said to both shareholders and Paul, we have to fix this … we have to get better at our innovation pipeline. We can’t just keep managing the existing portfolio.”

McNamee says this was when he asked McKenzie, a former chemical engineer, to conduct a thorough analysis of what needed to be done to return CSL, which has three divisions – Behring, Seqirus and Vifor – to its former glory.

The company’s R&D failures were compounded by challenges in its core Behring blood plasma business; a backlash against vaccines in the United States; and an underwhelming performance at Vifor, a Swiss pharmaceutical giant, which CSL paid $19 billion for in 2021 as a way to get into the fast-growing kidney disease market.

This was no time for tinkering measures. I was determined ... to get back to the nimble company we had created.

— Brian McNamee, CSL chairman

“Paul inherited a lot of this, and he set out to analyse it and fix it,” McNamee says. McKenzie was appointed CSL’s CEO in early March 2023, after joining the company as its chief operating officer four years earlier.

“We had fundamentally built up way too much infrastructure and way too much bureaucracy inside the organisation. Paul is an experienced guy running R&D groups. He is an engineer, and he was going to fix it.

“I knew this was no time for tinkering measures … the sclerosis we had created in the company. I was determined, as was Paul, to get back to the nimble company we had created.”

CSL was founded 109 years ago by the federal government as the Commonwealth Serum Laboratories. McNamee first joined the group in 1990 as its CEO. He took the company to a public listing in 1994, and eventually retired in 2013. Five years later, he returned as the company’s chairman.

During the past century, CSL has grown into a global company with revenues of $15 billion which employs almost 30,000 people. The plan to make it nimble again was not going to be easy.

Last month, McKenzie unveiled his plan to shake up the company, after delivering a 14 per cent increase in full-year underlying earnings to $US3.3 billion. It included 3000 job losses as part of a cost-cutting drive focused on the consolidation of its global R&D network, the demerger of its vaccines business Seqirus, and a $750 million buyback.

There was an immediate backlash from shareholders to the plan, which stunned McNamee and CSL’s management. Shares in the company plunged 17 per cent, marking it as the biggest one-day fall since CSL listed on the ASX, wiping almost $20 billion from its market capitalisation.

Institutional investors say they were blindsided by the huge volume of strategic announcements on CSL’s results day and also the disappointing news that profit margins at Behring were not returning to pre-pandemic levels as expected. The company also revealed that Behring had lost tenders in the UK and Mexico while overall revenue growth for the group would slow to 4 to 5 per cent in the year ahead.

“I caught up with management recently,” says Jun Bei Liu, lead portfolio manager at TenCap, which owns CSL shares. “It is going to require a bit of time for investors’ faith to come back. CSL is a growth company so when you no longer grow we just don’t know how to price this company.

“That has created a lot of doubt and less trust of what the management is telling us now.”

When McKenzie was interviewed last month, he denied the restructuring of the business was due to pressure from shareholders or in response to the strike at last year’s annual meeting, which is different from McNamee’s telling of the reasons for the overhaul.

McNamee, 68, is standing by the company’s new strategy, which he says puts CSL on the front foot but admits the company could have done a better job communicating the restructuring plan. He is also standing by McKenzie.

“Was the communication complex on the first day and did it get sidetracked? Sure. But Paul has a story to tell, and I want to completely give him clean air to tell the story he and I believe in.”

McKenzie, 59, a former swimming coach born and bred in Philadelphia, who has worked for multinationals such as Johnson & Johnson, Bristol Myers Squibb and Merck throughout his career, is only the third chief executive to lead CSL, since it became a public company.

Paul McKenzie was hired for his experience running huge research and development operations inside global pharmaceutical giants. Bloomberg

How long he stays in the role hinges on whether he can deliver on this plan to overhaul CSL and turn around its fortunes. So far, McKenzie’s tenure has been plagued with disappointments, many of which, as McNamee says, are inherited.

While McKenzie’s challenge is to deliver a turnaround at CSL, some investors say the blame for several of the company’s problems can be laid at the feet of his predecessors, McNamee and Paul Perreault.

McNamee dismisses suggestions that he, Perreault or McKenzie should cop the blame.

“Paul McKenzie lives with a hand he has been dealt, and he’s making some changes which I asked him to do. Decisions in good faith were made many years ago under a certain set of information and things have changed,” he says.

McKenzie was hired for his experience running huge research and development operations inside global pharmaceutical giants. Despite the erosion in shareholder value on his watch – CSL shares are down by almost one-third since his appointment – there are some investors willing to give him a chance.

“Paul McKenzie is very well regarded inside the organisation given his background as an operator, and it is in the long-term interest of shareholders for him to lead us out of this speed bump and back to where CSL belongs – a management team that the market will trust,” says Raaz Bhuyan, a principal of fund manager WaveStone Capital.

Bhuyan, like other investors interviewed, is critical of the way the restructure was communicated to the market and says there has been an erosion of trust in management since the “value-destructive acquisition of Vifor”.

“Putting out so much information alongside a result, including the vaccine demerger, didn’t help matters. Not to mention that the stock rallied over 15 per cent into the result since June as investors were running from some of the overvalued names in the hope that CSL delivers on its double-digit growth,” he said.

While cuts to CSL’s once-prized R&D operations were already flagged, the decision to demerge its influenza vaccines unit, CSL Seqirus – one of its three business units – and list it on the ASX was a surprise. Shareholders typically like a demerger as a way to unlock value and some estimates put a figure of $17 billion on the Seqirus business. However, many CSL investors say they cannot see the potential in the move.

“A few years ago they tried to convince everyone they should buy everything, and now they’re trying to convince everyone they should demerge because there is no clear synergy,” says TenCap’s Liu. “It is almost like the company is sitting around thinking, ‘OK, what do we do to try and boost the share price?’”

A technician inside the CSL laboratory at the company’s headquarters in Melbourne. Bloomberg

CSL argues the move will unlock value because Seqirus will thrive as a standalone entity rather than competing for resources inside the larger group, while reducing CSL’s complexity. The Seqirus business is more customer focused than the other two business units.

“I didn’t want it to get lost and stuck in CSL as we continue to try and grow the Behring portfolio, and it competes for capital and resources. It deserves its own potential opportunity to do that. People could debate the timing, but it is not because it is a problem asset. It’s because we believe it has great potential,” McNamee says.

This message was lost on some analysts and investors.

“We struggle to see the strategic merit surrounding the demerger at this particular point in time,” Barrenjoey analysts told clients as it downgraded its rating on the stock to neutral.

However, Investors Mutual portfolio manager Hugh Giddy is more supportive saying the sell-down has been overdone and McKenzie is the right man for the job.

“He has big shoes to fill because the other CEOs were impressive, and it is fair to say he has inherited some problems which were not of his doing. Paul is affable and very good with investors. He doesn’t want to overpromise and underdeliver. Does he face structural problems? I think that is what the share price is saying.”

McNamee is coy on when he might retire, and for now, most shareholders want him to stay as chairman. However, if he and McKenzie don’t deliver on their promise, that view could change quickly.

The company will hold its annual general meeting at the end of October, and it will be watched closely for a potential second strike.

In 2011, legislation came into effect, known as the “two-strikes” law, which is designed to hold directors accountable for executive salaries and bonuses, particularly if a company is underperforming. If a company receives two strikes it means its entire board can face re-election.

“I assume it will be a grumpy AGM,” says McNamee. “I’ve said before, I don’t want this for the term of my natural life, so we will see.”

@Karmast yes, you were spot on.

Far be it from me to be able to credibly challenge someone like McNamee, but I don't agree with everything he said about the management of the R&D pipeline and management responsibility.

It is entirely possible to have multiple, major products fail at the final hurdle.

Ultimately, you have to set Phase 3 endpoints that you can be confident will lead to an FDA approval, and you can't know the outcome until you've invested the hundreds of millions of $ required in conducting the trial.

It is possible that $CSL's desperation to land a blockbuster led them to set endpoints for CSL112 that were going to be harder to hit, to be more confident of approval. There's a whole mix of risk appetite, clinical skills and capabilities, and a bit of luck in the final outcome at play here.

But of course, the success of a company as large as $CSL should never rest of the outcome of one drug. And so there is resposibility for failing to manage a sufficient pipeline over time - measured over many years.

And as for Vifor - well that was McNamee and Perreault. $19 billion for what? A lion's share of revenue that is mature and subject to increasing competition? Purely and simply, they overpaid for it. I thought it was likely at the time, and I am convinced of that now. But it is a sunk cost, and I do believe it makes more sense for $CSL to own Vifor than Sequirus, given where we are.

So when "McNamee dismisses suggestions that he, Perreault or McKenzie should cop the blame" I disagree strongly. While there is an element of misfortune, there is also a large element of mismangement. Afterall, why are they being paid all the big bucks, if they are not responsible for the outcome. If they are not responsible, they should take a compensation cut. A big one.

This smacks of a poor sense of accountability.

So, while I have concerns about management, I agree with the strategy they have proposed, and I hope they have learned some lessons from recent years.

Disc: Held in RL and SM (and looking to buy more when I form my own view on the status of the R&D pipeline in November)

Let me add a +1 to this.

Be it in investing or politics, most people seem to have a hard time connecting cause and effect. And specifically in regard to the time lag between when a decision is made, and when the results are felt.

Parachute the most intelligent, wise, honest, honourable, ethical and capable person into the top job at a large company and it'll take years before the full impact of their leadership is clearly observable. Sure, maybe some quick wins will be apparent to those watching closely, but it just takes time to shift culture and for investments to bear fruit.

Crank the wheel hard to port in giant cargo ship and it'll take a 5km and 20 minutes to complete a full circle.. Momentum is a thing in business, economies and politics as much as in physics.

(Same is true in reverse, btw. Put some idiot in charge and it'll be a good year or two, if not longer, before the full scope of their ineptitude is obvious.)

Given this, is it any wonder that CEOs and politicians kick the hard decisions down the road? Better to score some shallow but more visible wins, even if they worsen the situation long term, and let your successor deal with the aftermath.

And layered over all of this is the diabolical messiness and unpredictability of the world we live in, which makes it even harder to know whether the right moves are being made.

I'm not saying that the current Chairman and CEO are blameless, or that even now they are definitely making the right moves. But I do salute leaders who acknowledges the reality of the challenges at hand, and are prepared to make difficult decisions that will likely take a long time to play out.

Shareholders can be upset about the fall in the share price and the potential for a slow down in growth, but they set a very high bar in bidding up the share price to a level that was always going to be difficult to justify. Baying for blood only incentivises the leadership to shy away from doing the right thing.

We tend to get the leaders we deserve, imo.

Honestly, for the first time in a long time I'm starting to think CSL is looking rather interesting. This is a deeply moated business that's delivered attractive and consistent growth since, well, forever, and despite the market getting it's knickers in a knot, they're still calling for close to double digit earnings growth in the year ahead.

Excellent thoughts and wisdom @mikebrisy and @Solvetheriddle

Both your views fit perfectly alongside each other here in my view. It would be better if they “owned” it even more. And business is hard, especially one this big so hopefully these changes show they’ve learned and are adapting accordingly.

Thanks to you both.

CSL is making new 52 week lows today which has piqued my interest. From a bottom up anaylsis the stock looks worthy of an accumulate with a forecast FY2026PE of approx 18 times. However it is the strategic announcements and macro uncertainty that is making me require a larger margin of safety that I would usually need hence my desire for another 5-10% weakness before I step up to the plate but I can certainly see value in the stock at these prices.

About Time (12/9/25)

For the first time ever, I am now a direct owner of CSL shares, having bought a small parcel at $205 yesterday when my order triggered. I have always liked and admired the company, listened and nodded in agreement with proud owners of it as they prattled on about how good a company it is, safe, growing, dominant in it’s core business with other opportunities.

But, the price has always been an issue, particularly in the last 5 years where I had mused when it hit $300 that I would expect a better and safer return from a 5-year term deposit than CSL. Growth over the proceeding 5 years had been very high, but by 2019 the law of large numbers was becoming an issue and the innovations, while good, didn’t suggest anything other than high single digit or low double-digit growth. 

Which is good, but not worth a PE of 40 if you want market or better returns (priced for perfection you could say). CSL has grown over the last 5 years at modest but reasonable rates and was destined to grow into it’s $300 value in time, but that was still a way off and now we are down around $200 it is actually looking reasonable.

So with a relatively simple view of the company and it’s prospects (way short of @Mikebrisy), I see a PE of around 22 as a good price for a good company. One that I expect to grow a bit ahead of inflation, provide a modest ~3% dividend (FC included) and continue to attract a bit of a quality premium. A return at or better than the market is a solid possibility.

It’s only a starter position, which I will likely top up to a full position if it drops below $200 on current information and would be exiting if it got to $300 again any time soon. That said, I intend on sitting it indefinitely while it remains somewhat rationally valued.

I think I can now legitimately call myself a Retail Investor! No more impostor syndrome…