Good day everyone, welcome to Grifols' Business Update Conference Call. We are very pleased to host this call today, and thank you for joining. As we have already explained, we want to increase our engagement with the capital markets and with investors. This is a testament to our commitment to enhance our communication. The call will last one hour. There will be a presentation of something like 30 minutes, and then we will follow with the Q&A session to complete the hour. If you have no questions, we'll finish earlier. Today, I'm joined by Steven Mayer, our newly appointed Executive Chairman, Raimon Grifols and Víctor Grifols Deu, our co-CEOs, and Alfredo Arroyo, our CFO. The materials of this call are already available on the investor relations section of grifols.com. Our forward-looking statement disclaimer here for this business update.
We undertake no obligation to update or revise any of these statements, and this forward-looking statement refers to the substantial risk and uncertainties. With that, I will turn the call over to Steven. Thank you.
Thank you, Nuria. Thank you everyone for joining the call today. Since I am new to the Grifols Executive Chairman role, I would like to begin the call by emphasizing a few high-level points before we turn to the specifics of our business update. Many of my friends and acquaintances have asked me why I elected to take on this role at Grifols at this point in my life. The answer is actually pretty simple. Grifols is a great company with a clear mission and a long history of improving the health and wellbeing of people around the world. It also has very strong fundamentals in place, irreplaceable assets supporting a long-term strategy, and the challenges it has recently faced can and will be overcome.
I've recently read a few reports that have questioned whether, in light of the fact that I've been on the Grifols board for several years, there will be any real changes in the offing. In response to that question, on the one hand, I can refer you to my long private equity career that was focused on being a change agent and helping companies that we owned realize their potential. On the other hand, I also fully recognize that words are not what matter. Our execution and our performance will ultimately tell the true story. I ask that you judge us on our strategic, operational, and financial performance over the coming months, which is how we will be judging ourselves. If you check out my personal background, you will also know that I'm highly competitive and driven to win, with a lot of experience in team sports.
While I am now ultimately responsible for delivering, at the same time, you should know that this is one team, and we will align as a single unified team behind our goals. In that regard, we are, as a team, laser-focused on our top priorities. First of all, creating an organization with a performance culture that will be efficient, effective, data-driven, agile, and decisive. We are already implementing a renewed emphasis on planning and execution. Again, if you look at the investments I led at Cerberus, you will see that in most of them, improved operational performance was at the heart of their success. That improved performance comes from a disciplined approach to planning, project management, and rigorous execution against the plan. I also believe strongly in the principle of accountability. Everyone in the organization will be accountable using measurable indicators, starting with me.
We will also be much leaner and more cost-effective, and while this will improve our margins, just as importantly, it will enable us to move faster and serve patients better. Our next priority is to meaningfully improve our cash flow and expense profile. We have been making, and expect to continue to make progress on the cost of plasma. Of course, there is a six to nine-month lag before cost reductions are recognized in our income statement as a result of our long inventory cycle, which, as you know, is characteristic of our industry. We are also focused on reducing fixed and semi-fixed costs throughout the organization from delayering, better spans of control, organizational streamlining, facilities rationalization and capacity optimization, outsourcing certain non-core functions, and better use of technology and data. We are also making further effort to reduce working capital and CapEx cash use.
Very importantly, we are implementing a zero-based budget process for 2023. A third and very important priority is debt reduction. Right now, we are evaluating a variety of levers, and although we have nothing to announce today, it is clear that the company has highly valuable assets throughout the world, and therefore, we have a range of attractive deleveraging alternatives under consideration. We do, however, believe that the company's stock is meaningfully undervalued today, so issuance of equity in today's trading range is not a favored option. We firmly believe that by year-end 2023, and very possibly before, concerns about leverage will be substantially mitigated.
Our fourth priority is capturing commercial opportunities with certain of our existing products that we believe are under-penetrated currently. For example, our subcutaneous IG product, which commands a higher price than IVIG, represents only a single-digit % of our IG sales compared to 40% for CSL. In addition, we continue to see opportunities for our high-margin Alpha-1 product, Prolastin, through ongoing efforts in patient identification. We'll be mentioning a recent favorable development in that regard later in this call. Our final top priority to mention today is the effort to unlock the full value of Biotest. We and Biotest are dedicating resources to accelerate integration and the recognition of both cost and revenue synergies. As you know, we also believe that the approval, commercialization, and successful launch of the new Biotest proteins are likely to have a substantial impact on Grifols' financial profile.
Of course, any initiative that's dependent on regulatory approval and successful commercialization and market launch inherently involves uncertainty. We continue to believe that fibrinogen and IgM are a matter of when, not if, and that ultimately they will be very significant and high-margin contributors to profitability. In addition to these five key priorities, we plan to continue improving transparency and enhancing our communications with the capital markets and with investors. Today's call is evidence of this. We also expect to schedule meetings with individual investors once we have progress to report on the priorities I've just walked through. I look forward to meeting many of you in person before too long.
Before turning the call over to Raimon and Víctor, I do want to state that it is highly important to me to ensure that we will deliver on all of our goals while remaining true to Grifols' core values and sustainability. Raimon and Víctor?
Thank you, Steve. Thank you all for being in the call here today with us. I would like to start by highlighting the two recent leadership appointments that come after the recently announced reorganization. We have appointed Pia D'Urbano to lead our Biopharma business unit and Jordi Balsells to lead our Plasma Procurement business unit. Pia brings with her 29 years of experience in healthcare, particularly in biotherapeutics, including high responsibility roles in top management multinational companies like Sanofi or Novo Nordisk in the U.S. Her experience spans global product launches, new product planning, establishing new businesses, heading marketing and sales, business development activities, strategic planning, and alliances development. She's an impressive executive, and her broad experience with market launches of new products is expected to be especially helpful as we look forward to launching the Biotest new proteins, for example.
We have also named Jordi Balsells for the Plasma Procurement business unit. Jordi held various roles during his professional life, with a special focus on retail distribution channels worldwide and global expansions. His experience also includes building local teams in subsidiaries, developing relationships with strategic partners, deploying omni-channel and high-tech projects. All this knowledge and experience in retail business will for sure reshape and evolve the way Grifols has historically approached the management of plasma procurement operations. I'm sure that this will move us to a more efficient and efficacious sourcing network. We are all looking forward to working with them. Now changing gears to the Q3 2022 highlights and the financial performance. Let me start with revenues.
Really, I am proud to say that Grifols delivered very strong operational performance in the third quarter, leading to a solid Q3 year-to-date 2022 number, while operating all that in a very complex macroeconomic environment. Compared to Q3 2021, global revenues on a combined basis were up 23% operationally, reaching $1.5 billion revenues. On a reported basis, this growth represented a 37% increase due to the foreign exchange tailwind. Underlying standalone operational performance has been the driver, with revenues growing at 13.7%. Of these underlying drivers for the quarter, it is thanks to higher plasma collections in the first half of this year, 2022, driving volumes of key proteins, especially immunoglobulins, together with pricing upticks, product mix, and the Biotest contribution.
Year-to-date revenues totaled $4,351 million, increasing by 9.5% at constant currency and 18.8% on a reported basis compared to the same period 2021, with a standalone operational performance of +3.8%. Regarding plasma procurement, following the latest updates, plasma collections volume grew by 25% in the first 42 weeks of 2022 versus the same period of 2021. We anticipate will underpin a strong sales growth in the second half of the year and onwards. We need to continue to build on this momentum in the coming period. Additionally, the lifting of the restrictions for the Mexican donors in mid-September has also started to contribute notably to future increase in plasma donations, and we expect it to continue to do so.
In terms of EBITDA, volumes, pricing, operational leverage, and cost discipline partially offset cost per liter and inflationary pressures to drive reported EBITDA to €927 million, representing a 21.3% margin on sales. Excluding Biotest, it stood at 22.2% of sales. Adjusted EBITDA was €899 million, with an adjusted EBITDA margin of 20.7%. Excluding Biotest, it stood at 20.7%. Paramount in the industry is the balance between volume of plasma and its cost. As plasma collection volumes normalize, we are now focused on driving cost per liter reduction by driving lower donor compensation, optimization of labor cost, and the rest of the fixed costs that are impacting in the cost per liter. Donor fee is one of the key components of the cost per liter, accounting roughly to 35% of the fully loaded cost, and therefore, the one that has a greater impact in the short term.
Since its peak in July this year, donor fee declined more than 15%. Comparing September versus January, it declined a total of 7%. At the same time, since volumes are sequentially increasing, the fixed cost portion of the cost per liter benefits from operating leverage. We firmly believe that this trend will be sustained, and we are confident on a further reduction from now to year-end that will positively contribute to profitability going forward. We will continue assessing the trade-off between plasma collection and donor fee and balancing these two components to enhance our performance. Moreover, as restrictions for Mexican donors were lifted, there is a significant upside to further increase plasma collection, which will certainly determine our decisions on donor fee evolution. Regarding the leveraging, the reported leverage ratio declined from 9.0 times in the first half of 2022 to 8.6 times in this last third month, September 2022.
It is expected to stand below 8 times by the year-end, specifically at 7.9. As we are focused on driving donor fee reduction, cost optimizations, and operational efficiencies, this is expected to trigger more EBITDA and working capital improvements throughout 2023, leading to a further reduction on the leverage ratio. After two years of highly complex pandemic environment that has severely impacted the plasma industry, now followed by its consequences in the means of this challenging macroeconomic backdrop, we see it from three different angles. On one side, inflation and the current challenging macroeconomic context are further driving plasma collection momentum, which can potentially contribute to further cost per liter reduction. On the other side, macroeconomic backdrop is impacting our labor cost to some extent, especially those in our plasma centers.
Third, our exposure to interest rates hikes in somehow is limited, as close to 65% of our total debt is tied to a fixed interest rate. To finalize these highlight sections, I will move to the innovation pipeline. Certainly, we continue to advance on our most advanced programs of our innovation pipeline, such as fibrinogen, IgM, albumin in cirrhosis, and antithrombin III in sepsis, among others. In this quarter, please let us highlight that we received FDA clearance for our AlphaID at-home product. The first free service for U.S. adults to screen for the genetic risk of Alpha-1 antitrypsin deficiency that doesn't need subscription, prescription, sorry, from the healthcare professionals. Now, let me please transition to Alfredo, who will give us further details on the financial performance.
Thanks, Victor. Hello to everybody. Thanks for joining this call. Now let's review our P&L, starting with revenues. Grifols delivered very strong operational performance during the third quarter. Compared to the third quarter of 2021, global revenues were up by 23% at constant currency, reaching EUR 1.5 billion and a 37% growth on reported basis. Robust revenue growth was driven mainly by Biopharma key proteins following increase of plasma supply, positive product mix, positive pricing, and very positive FX tailwind, as well as significant contribution from Biotest five months, circa EUR 200 million. Gross margin was impacted by a high cost per liter from the plasma collected in the first half of the year, due to mainly high donor compensation and labor cost impacted by inflationary pressures.
Additionally, it is noteworthy to mention the negative impact from the high margin diagnostic business triggered by the end of the one-off COVID-19 testing and mandatory Zika screening, which largely impacted gross margin by 180 basis points versus Q3 2021, and 250 basis points versus Q3 year-to-date, September 2021. At the EBITDA level, we were able to offset the impact at gross margin level and deliver a sequential EBITDA globally expansion, which was supported by operational leverage, cost savings, and R&D prioritization. Inflationary pressures were partially offset at OpEx level as well. Net income totals EUR 118 million profit, which reflects higher financial expenses linked with Biotest acquisition bond and high interest rates. Now moving to the slide nine, revenue performance.
Our main division, Biopharma, revenues reached EUR 1.3 billion, or EUR 1.2 billion excluding Biotest, during the third quarter of 2022, growing by 34% at cost and currency, and close to 50% on reported basis, thanks to positive FX impact. As mentioned, several drivers were behind this strong performance, including robust immunoglobulins underlying demand, larger plasma supply, prices increase, and product mix. Especially significant were the sales of XEMBIFY, our subcutaneous immunoglobulin, thanks to higher demand and a favorable customer mix. Year to date, Biopharma sales stood at EUR 3.6 billion, or EUR 3.4 billion excluding Biotest. This represents a year-over-year increase of 16% at cost and currency, 26% on reported basis. Excluding Biotest, Biopharma revenue grew by 8.7% at cost and currency, and 18% on reported basis in the first nine months of 2022 compared to the same period of 2021.
The sales performance reflects sequential accelerated growth of 21% at cost and currency in the third quarter compared to 0.1% growth at cost and currency in the second quarter, and 7.1% growth at cost and currency in the first quarter. Diagnostic revenues declined by 20.8% at cost and currency to EUR 170 million in Q3 2022, primarily due to the non-recurring sales of our COVID test and the termination of the mandatory Zika virus test, which was partially offset by robust sales of blood typing solutions. Diagnostic recorded circa EUR 500 million of revenues during the first nine months of 2022, down by 21% at cost and currency compared to same period of previous year. Excluding the one-off COVID test and the Zika virus screening, the decline was just 3.5%, mainly due to country mix and price.
Bio Supplies reported significant revenue growth in the third quarter, expanding close to 30% at cost and currency, reaching EUR 44 million, following the acquisition of Access Biologicals. The business unit grew by 5% cost and currency during the first nine months of 2022. Moving to the next slide to the margins. Gross margin stood at 38.2%, representing a slight sequential decline from 38.9% reported in the first half of 2022. This reflects a high cost per liter incurred in the first half of the year as a consequence of donor compensation and labor cost inflation. Grifols continue to expand and enhance its operations despite inflationary pressure. The company's effort to optimize cost and operational efficiency resulted in a stable cost per liter during the first half of the year, despite the 8%-10% annual inflation in our regions of operation.
On the back of solid plasma collection level, Grifols is focused on balancing volume and cost per liter to drive margin expansion, with an emphasis on reducing donor compensation and also optimization of labor and fixed cost. The donor fee, as mentioned, that accounts probably 35% of the fully loaded cost. It fell by 7% from January to September, and by more than 15% from its peak in July 2022. Additionally, as mentioned, it is important to highlight the impact of the Diagnostic into gross margin due to the COVID and once again, the Zika screening that impacted by 250 basis points the first nine months of 2022 compared versus previous year. EBITDA grew up to EUR 927 million during the first nine months of the year, with 22.2% margin and 21.3% including Biotest. This represents an EBITDA growth versus previous year of 12.8%.
As I already mentioned, Grifols continues to apply cost discipline through its savings plan and the prioritization of R&D projects, which partially offset the inflationary pressures as well as higher Biotest expenses, particularly related to the Biotest Next Level project. This accounts for the five months period where since the time that we acquired Biotest of EUR 35 million. Adjusted EBITDA for the third quarter of the year has proved to be in line with of the first half of the year, reaching close to EUR 900 million, with an adjusted EBITDA margin of 20.7%. Here, the adjustment basically are related to one-off restructuring cost as well as one-off extraordinary gains. Excluding Biotest, it stood at similar levels of the standalone company. Moving to the EBITDA sequential improvement. As shown in the slide, in the second half of 2021, the EBITDA was low, especially in the last quarter of 2021.
Due to low sales because lower plasma product as well as certain restructuring and write-offs that took place in the last quarter of last year. We have been addressing both the main impact from COVID-19, which were lower plasma collections and the higher cost per liter of plasma. As mentioned, also the impact from Diagnostic division has been significant. We were able to improve EBITDA throughout 2022 through cost control, R&D prioritization, bringing a contribution of EUR 70 million savings in terms of OpEx. The positive contribution from Access Biologicals following integration, that includes a one-off capital gain. This bridge also reflects what I've been mentioning so far, mirroring the sequential improvement. In the next slide, as already explained, plasma collections increased by 25% year-to-date versus previous year and to larger extent in the U.S., expanding by 28%.
Now that plasma volumes increase are normalized, we are focusing on cost per liter reduction, driving donor compensation decrease as well as optimization of labor and fixed cost. There is an ambitious plan to keep reducing cost per liter with the aim to revise this cost per liter. Donor compensation reduction will continue going forward. Optimization of labor and fixed cost, including some plasma centers relocation, consolidation, and also closing those less efficient. This will support further reduction in terms of cost per liter. Having said that, we will continue assessing the trade-off between plasma collections and donor fee, and balancing these two components to enhance our performance going forward. On the leverage, yes, we are laser-focused on leverage, and basically the main levers of the organic deleverage are in this order. First, EBITDA improvement, working on margin, plasma cost as well as OpEx already mentioned.
Optimizing working capital. This year we have to build up inventories. Once last year, the inventories were exhausted, as a result of the lower plasma collections. For the next year, the inventory increase will be limited in line with, I would say, normal times. Limited CapEx, no meaningful acquisitions, discipline in capital allocation, and since we are well invested, this business require no significant capital moving forward. This is, as mentioned by Steve, this is in the opening remarks, is a top priority. In Q3, we were able to reduce the 9x as of June, that was the peak of the year, down to 8.6x. By the year-end, expected to further decline and will be around 7.9x. We will continue to evaluate also, as already mentioned, our global wide base of valuable assets for optimization.
Important to mention that Grifols's strong liquidity position at the end of the quarter totaled EUR 1.6 billion, including a cash position of circa EUR 500 million, while there are no significant maturities until 2025. Víctor?
Thank you, Alfredo. I will enter into more detail about the performance of the business units. Biopharma, we are optimistic that we are seeing improved momentum evidenced by a strong third quarter across key proteins, especially IG, our flagship, which grew by 12% in Q3 year to date 2022. As global plasma supply increases, we're anticipating a strong growth with opportunities on core indications, such primary, such immune deficiencies, and CIDP. Demand is expected to remain robust. Many patients, even in top markets, remain under-diagnosed. Furthermore, even though incidences of the diseases are similar across geographies, consumption rates can vary very significantly from one geography to another. Actually, IG in the U.S., for instance, is still consumed at almost three times the rate per head of population when compared to Europe.
Noteworthy to mention how new products continue increasing its contribution, driven by our core plan to boost our subcutaneous franchise, XEMBIFY, to contribute to the revenues performance going forward. In albumin, excluding the already mentioned phasing in the second quarter of the year, sales were flat versus the first nine months of 2021, with lower volumes in China, partially offset by low single-digit price increases. Looking forward, we anticipate volume demand in China to continue to grow at mid to high single digits. Alpha-1 and specialty proteins delivered a high single-digit growth. Alpha-1 recorded mid-single-digit increase due to favorable customer mix and competitor supply shortages. Additionally, we delivered robust growth of our latest launches, such anti-rabies new formulation, tablets, and fibrin sealants due to its sustained higher demand, while other more regular products are performing well, all in all offsetting the Factor VIII tender pressures that we are seeing.
Moving to Diagnostics. Diagnostic performance has been impacted due to non-recurring sales of the NAT technology to detect COVID-19, and the termination of mandatory Zika virus testing, which was partially offset by robust sales of blood typing solutions. Excluding these two items, the business unit declined by 3.5% at constant currency in Q3 year to date 2022. As already mentioned, these two items impacted consolidated gross margins by 250 basis points in Q3 year to date 2022. This, together with some country mix and pricing, were partially offset by growth in the Chinese market and higher donation volumes, resulting in 35% growth in China year to date 2022. Blood typing solutions division recorded a robust growth of 20%, supported by solid performance across EMEA and U.S. regions, and stronger gel card sales in Eastern Europe.
As well as growth in China and rest of Asia-Pacific due to increases in donations and sales of gel cards as well as instruments. Recombinant proteins declined, primarily resulting from the joint business collaboration on a new R&D project. Regarding BioSupplies, reported significant revenue growth in the third quarter, led by BioSupplies diagnostics, supported by plasma for diagnostics, cell media, and serum, as well as with acquisition of Access Biologicals. BioSupplies Biopharma declined due to lower sales of non-therapeutic use albumin and Fraction V, which were partially offset through cell culture media revenue resulting from the acquisition again of Access Biologicals. Now I give the word to Steve with his closing remarks. Thank you.
Thank you, Victor. I'd like to conclude by reiterating a few points that we've already made but that I think bear repeating. To be clear, my management style is to keep returning to the most important priorities in the business, both those that make us strong and those that need changing, in order to ensure that our organizational and business priorities are absolutely clear and are driven to and then beyond the finish line. The Grifols Board of Directors asked me to join the company as Executive Chairman in order to enhance operational execution, financial discipline, business performance, and shareholder value. We are going to do so initially by prioritizing operating efficiency and cost reduction throughout the organization, especially, but not only, in the cost per liter of plasma, by the improvement of cash flow, and by debt reduction. These initiatives are already underway.
Standing back from them, though, I am absolutely certain that the fundamentals of our business and our strategy are strong, and that we are well-positioned to capitalize on our highly valuable assets and platform for years to come. I'll be working closely with the entire management team to help Grifols focus on its key priorities and achieve its goals. We are creating a culture of performance and accountability, to be crystal clear, I will be accountable for delivering, period. Recapping what you've heard about our recent business results, plasma collections have grown by 25% over the previous year, which in turn is underpinning strong sales growth in the second half of 2022 and onwards. The market remains strong, we aim to continue this momentum into the future. We're laser-focused on driving cost per liter down further.
Donor compensation per liter has declined by more than 15% since its peak in July 2022, our objective is to realize further cost per liter decreases through a combination of continued donor fee management, operating leverage as higher volumes absorb fixed costs, and meaningful reductions in fixed and semi-fixed costs per liter, such as labor and occupancy costs. Recall the characteristic of our industry, these lower costs will in general be recognized in our operating results six to nine months after they are realized. We are also on track to meet our financial commitments for the full year 2022. We expect global revenues to finish the year in the EUR 5.8 billion-EUR 6 billion range, including Biotest for about seven months of the year. Adjusted EBITDA margin for the full year is expected to remain in the 20%-21% range.
For the reasons we've discussed and with additional operating leverage, we anticipate margin expansion for 2023. Our leverage ratio is expected to decline to about 7.1 times by year end, a significant drop from the nine times reported just six months ago. Also, keep in mind that this leverage ratio does not include any pro forma results relating to the Biotest transaction. As you know, we had forecast about EUR 60 million of synergies between Biotest and Grifols. None of these synergies are included in the forecast ratio I just cited, and none of the de-leveraging alternatives we are considering are included in that ratio either. As mentioned, the entire executive team is focused, and I mean focused, on accelerating the execution of the company's operating plan, on operational excellence, on cash flow improvement and debt reduction, and ultimately on increasing value for all shareholders.
We look forward to communicating with you more frequently and transparently, including through quarterly earning reports and calls. Thank you.
Thank you, Steve, and thank you all for your time. Now, let's start. We will be pleased to take questions from the sell-side analysts that follow our company, that follow Grifols. Please press star five to raise your hand, we will be progressively taking your calls. Just one thing, be conscious of also your colleagues' time in order to have time for everybody to ask questions. Let's start with Vineet Agarwal from Citi. Please, Vineet.
Hi, can you hear me?
Yep.
Hello? Great.
Hello, yes.
Thanks. This is Vineet here from Citi on behalf of Peter. Two questions. First of all, on 2023, can you give some preliminary thoughts around 2023, and if the trends you are seeing persist, can you give us a sense of the scope of margin recovery you hope to see? Could it be 22%-25% or better? Second, how motivated are you to accelerate your deleveraging activities? Could we assume all options being considered, including collapsing the dual share class structure, monetizing your Shanghai RAAS stake, and/or doing something with diagnostics? Thank you.
Maybe. I think your third question, it was a bit difficult to hear you because maybe you were too close to the micro. I think your third question was on the fibrinogen and the timing associated to that. Is that correct?
I was just asking if you can give some preliminary thoughts around the 2023 margin progression. Could we hope to see 22%-25% margin or
We cannot
Better than that?
Sir, Vineet.
The poor reception.
Go to the second one.
What was your second question, Steve? Yeah.
I think the questions involved margin progression during 2023, which maybe Alfredo you can respond to, and the second half of the question had to do with deleveraging alternatives, which he mentioned a couple, which I can respond to.
Okay, thank you, Steve.
Thanks, Steve. To your first question, the margin progression. My comment is the following. The worst is already behind. By focusing on the lower cost per liter, as I already mentioned, we see a significant decline moving forward. Remember that it will take time to flow through the P&L based on our long Inventory cycle. That means that we will see meaningful, I would say, gross margin improvement coming from a lower cost per liter more in the second half of next year, back-loaded. On the additional OpEx savings, yes, we will capture those as the end of the year, that will help to improve our gross margin. Also, if I move back to the P&L, by increasing the share of Sub-Q, which we will expect that will be meaningful next year, this will help us to improve the gross margin.
Remember that there is a significant price gap between the regular IG and the Sub-Q IG. This is going to help quite a bit about the gross margin also starting next year. That's what I'm going to tell you now based on the gross margin as well as EBITDA and margin. The worst is already behind.
With respect to the deleveraging alternatives, we're going to wait until we have something to announce before we give any details, but I'll just broadly state that Grifols has an extremely valuable, I would say irreplaceable, group of assets globally. We believe that there are opportunities to capitalize on these to reduce leverage while continuing the overall long-term strategy that Grifols has. With respect specifically, I think you asked about the consolidation of the two classes of shares. We've already said that we think that the equity is meaningfully undervalued today, that applies to both classes of shares. We're not looking to a capital increase or equity issuance in today's trading range. That also applies to the consolidation of the two classes of shares.
As the stock price recovers to what we believe to be a better reflection of the value of Grifols, that will be one of the alternatives we consider.
Okay. Thank you, Steve. Now let's move to James Gordon, JP Morgan. James, please.
Hello, James Gordon. Thanks for taking the questions. One question was about the medium-term target. Last year, in conjunction with the Biotest deal.
Hi, James
there were targets set.
James.
Can you hear me okay?
We can't hear you.
I would say that last year there were targets set in conjunction with the Biotest acquisition for revenues, EBITDA, and leverage. More than EUR 7 billion revenues, EBITDA EUR 2.8 billion, and leverage below three and a half times. I believe those targets were pushed out to 2025 at the CMD. Should we still think that those targets could be achieved in 2025, or are those targets under review? Might it take longer to get to those targets? A review on where we are on the revenue, EBITDA, and leverage targets in the medium term. The other question was just in terms of pipeline. There were some previous plans in terms of investing in various pipeline projects, things like Alzheimer's disease, et cetera. Are all those plans still going on, or might you change some of the pipeline priorities as well, is the second question.
To the first question about the leverage. Yes, by 2025, either and/or will be a combination of organic and non-organic. Clearly, our target is to be below four times. Also remember that we need to go to the market, to the debt markets to refinance a portion of our debt. Clearly, it's a must that to be at a very good, I would say, leverage ratio at that time. It will be a combination of both.
Thank you. James, can you please repeat the second one?
Sure, sorry if I've got a bad line. The second question was, are all of the previous pipeline plans and pipeline investment plans still definitely going ahead, or is Grifols also reviewing them? Could there be changes in terms of investment plans and pipeline?
Very difficult to understand you, I think you're asking about the pipeline.
That's correct.
The Grifols-
The guaranteed pipeline?
Yes.
Yeah. Okay. As we said in our Capital Market Day back in July, we continue to believe very strong in the progress that we are doing in the different projects that we are undergoing. Very clear for Biotest products, fibrinogen and IgM. They continue basically on track. Regarding the albumin and liver disease, continues on track as well. Secondary immune deficiency for our IG products continue on track. Antithrombin, sepsis as well, continues on track. Overall, everything continues as we said in our last Capital Market Statement.
Okay.
Thank you.
Thank you, Víctor. Now, Sarita Kapila from Morgan Stanley, please. Sarita?
To understand how we should think about increasing competition in the Alpha-1 space, so particularly from Inhibrx, following the FDA decision to grant accelerated approval, and given that the data we've seen to date is quite encouraging. Thank you.
Regarding Alpha-1, this is a project that needs still time to arrive to the market, if it is the case. Regarding plasma products, as we have said today, for instance, we are continuously developing tools that can help our franchise to progress. In this case, it's the evolution of our AlphaID test. Now, in this case, a home profile so that patients can self-test and get the results at home from this new tool. We continue to develop as well some life cycle management formulations for the better convenience of our patients. This is regarding Alpha-1, how we see the landscape.
Okay. Thank you, Víctor. Now we have Guilherme Sampaio from CaixaBank Equities. Guilherme?
Yes. Can you hear me?
We can hear you.
Hello? Yes. Okay, perfect. Okay. One question regarding the process for request to find stake of GIC in Biomat USA, how we are in this process, and whether are you still counting on this to your leverage targets? Two small questions on the results. If you could provide some details on Shanghai RAAS performance this quarter, and if you could provide some color on the FX impact on quarter-on-quarter net evolution.
Okay. Regarding your question of GIC, just to remind you that the aim of both parties and the rationale had been always, and still is, that this is a financial instrument, which is an equity. Both parties, this is the understanding of the parties at the time of the agreement. As you all know, afterwards, the auditors, KPMG, they have some inside talking, and finally, they came up with applying the accounting rule that this is a debt. The agreement is not expected to be modified in the short term. However, still, the door is open. This is really where we are. Remember, this is a 20 years term. Now it's hard to get a debt for 20 years. As you can imagine, this is a real equity or quasi equity. That's, as I said, debt is not on the table for us.
Yeah. On the FX impact.
The FX impact, overall, yes. This year is going to be close to $100 million at the EBITDA level, because there is a significant dollar revaluation, specifically versus EUR. Since most of our revenues and most of our EBITDA is dollar-driven, we're expecting, and it's already bringing, by the end of September, €74 million of positive FX. By the year-end, expected to be, if the dollar trend remains the same, around €100. Very positive this year. For the next year, if it continues at the similar level, we see also a positive impact. Less than this year, but positive indeed.
Okay. Thank you, Alfredo. Emily Field from Barclays. Hello, Emily.
Hi. Thank you so much for taking my questions. Just a couple. On the divestitures point, is there anything that is off the table? Obviously, between diagnostics and Shanghai RAAS, I know that was kind of asked earlier, but there is some complexity. I just was wondering, is anything on the table if a satisfactory price can be obtained? Secondarily, you mentioned in the prepared remarks a couple of times about fixed and semi-fixed costs. I believe the company commented a few years ago about the split between fixed and variable costs and how that could be managed in the event of emerging competition. Could you just give us an update on how you see that split between fixed and variable costs and how much cost you would be able to shift in the event of emerging competition? Thank you.
To the proportion of the fixed and variable cost, a significant component obviously is the labor cost that overall accounts for near 50%, let's say 45% of our total cost. Those costs are, I would say, yes, variable, because you need certain people to run manufacturing plants. You need certain people to run operations and some in the back office. Clearly, there is a room for improvement. The team up to now and moving forward is going to keep working on ripping off some of those savings. There are some low-hanging fruit there. Both at the plasma cost site as well as the rest of the cost across the whole organization. Clearly, there are some upsides, not only at Grifols' side, but also, as mentioned by Steve, at the Biotest level. There are some synergies that can be caught.
Yeah. Maybe on the first part of Emily's question, Steve, maybe you can take this one?
Well, I think the critical point with respect to what you've described as divestitures, which I'm not sure I would employ that term, but we think we have this portfolio of irreplaceable assets. We also have a long-term strategy. Obviously, as with any company, we're going to try to optimize that portfolio of assets in order to achieve both the financial objective of deleveraging, but also the long-term strategic goal of driving shareholder value in the long term. When you ask if there are sacred cows or if there is anything off the table, value aside, what's going to be off the table is something that we think would have a material negative impact on long-term strategic and shareholder value. We do believe that there are many different ways of achieving our strategic objectives consistent with evaluating these deleveraging alternatives.
Okay. Thank you, Steven. We have next in the line, Tom Jones from Berenberg. Hi, Tom.
Hi. Afternoon, everyone. I have two questions, one for Alfredo and one for Steven, if that's all right. Alfredo, just a quick housekeeping one. I was a bit surprised on the drop-through in Q3 between EBITDA and net income. Was there just a step up in interest rates that caused that, or were there any significant large one-off items that affected Q3? I know the tax rate can bounce around and occasionally you get a relatively large FX charge in there as well. Was there anything a bit more one-off in nature that meant that the EBITDA number didn't quite drop through to the bottom line? My second question for Steven, it's really a big picture one, really. You've obviously been on the board quite a long time and followed this company and industry for even longer than that.
What would you say, in your words, is it that's in Grifols that excites you, that you think we as investors miss? Investors do love to hate Grifols a bit. What is it that the market is missing, do you think? Maybe a sort of corollary to that is if you could just click your fingers today and change one thing about Grifols, what would that be?
Well. First, not to be contrary, but we don't take the view that the market's missing anything because we respect all of our shareholders, because we think they're owners of the business, and the market is probably smarter than any of us individually. We're not bemoaning the fact that the market has not rewarded Grifols over the last year or two. Okay, our goal is to drive performance and then to make sure that we're transparent and communicative with the market, and we believe the market will ultimately reward that performance. If I stood back and looked in the biggest picture at Grifols, I think it's a great industry, which over time has proved to have a lot of resiliency and growth characteristics.
Globally, I think that growth will continue with a high degree of operating leverage and I think a return to the margin structure that prevailed prior to the pandemic. Clearly, at Grifols, there has been maybe not as much a focus on execution and performance, operational execution and performance as we might have had. I'm not pointing a finger at the past, but that's what we're going to be laser focused on. We do have a long-term strategy, but we also have a short to medium term strategy. That short to medium strategy is going to be very execution focused. If I could snap my fingers, I would advance two or three years and we would have a highly accountable, highly incented, highly performance-driven organization that was just really focused on execution and on delivery.
I think we need to reinstill that in the organization a bit. When you look at the big picture and you look at the platform and the portfolio of assets that Grifols has and the long-term strategy, I'm extremely optimistic. That's why I stepped into this role.
Tom, to your first question, the drop in the EBITDA margin mainly is driven by lower Biopharma margin associated to higher plasma cost. Remember that the time lag between the plasma cost increase and the time that flows through the P&L. Now in the second half of the year, including Q3 and Q4, we're going to see Biopharma margin decline due to the higher plasma cost. To the net income amount. Sorry, I said lower EBITDA level. To the net income, the drop is due to additional financial expense. Remember, which is associated to the interest rates hike. Despite the fact that we have 35% only floating debt, we had an impact, no doubt. That impact, once the interest rate is announced, it takes around two, three months to hit our P&L because that's how we have the quarterly interest rates revision.
That's why now we see in Q3 and also in Q4, we're going to see a higher financial expense. That explains why the net profit for the Q3 is lower.
Thank you, Alfredo. We have three more questions, if you want to stay with us, we'll take these three, to complete and to get the possibility to everybody. We have Rosie Turner from Jefferies. Rosie, hello.
Hi. Good afternoon. Thank you very much for taking my questions. Three left from me, please. Just thinking about your plasma collection volumes up 25%, I noticed that's 42 weeks of the year. Does that include Mexico and the border reopening, and are you able to approximate how much of that is Mexico versus U.S. itself? Following up on the Alpha-1 competition, can we just recap the level of penetration, I think, is it 70% of patients currently going under-diagnosed? Finally, just on that competition theme, just checking we're still not seeing any impact from the anti-FcRn competition in myasthenia gravis. Am I correct there? Thank you.
Okay. I take the questions on Alpha-1. If I understood correctly, is the level of diagnosis of the disease what we think is the rate today? It's 90% of the potential patients are being not under-diagnosed. We hope that with, again, this enhanced tool with a diagnostic Alpha-1 IG at-home test, that we can improve the level of diagnosis. I think this was the question regarding Alpha-1. The other one is FcRn competition-
Myasthenia
in myasthenia. Well, for Grifols, myasthenia accounts, I think, on the 3% of our revenues today. We are not highly worried about that as we don't depend much on that. We will see the progress of these new products, and we will compete with our franchise, but it's not a big threat for Grifols in this indication.
Yeah. Thank you. On the Mexican?
Well, the Mexican, since September that now we can operate regularly our centers for the border centers. We are seeing an accelerated return of these donors to our network. We are seeing every other week, a move, a progression on the level of volume being collected at those centers. As you know, in pre-pandemic levels, those centers were roughly collecting around 1 million liters. Now we are in this ramp up, we are seeing the trend that at some point, we will hit this level of 1 million liters for those centers.
Okay. Thank you. Julien Dumas from BNP. Hi, Julien. I hope you're still with us.
I'm still with you, thanks for squeezing me in. Appreciate, I'm sorry I have three questions. One for Steve, one for Victor, one for Alfredo, if that's okay. The one for Steve is that you made it clear during the call that one of your focus is to return to pre-COVID-19 margin levels or close to that. Do you plan to provide margin targets for the period 2023, 2025? Over time, there's been some misunderstanding between Grifols and the investment community and some disappointments on profitability. Do you plan to provide clear targets for us to build our models? For Victor, please, on the penetration for XEMBIFY, could you help us understand what you will do differently going forward to boost the penetration of this highly profitable product?
What can you do differently going forward in order to boost the penetration? The last question for Alfredo is a housekeeping on net financial cost and following up on Tom's question. I think you had EUR 200 million in net financial costs in the first half of this year. Is EUR 400 million of net financial cost for full year 2023 a good run rate, or could it be higher than this?
Well, let me start by addressing the first point, which had to do with whether we're going to provide guidance in terms of EBITDA margins. Look, we're obviously in a somewhat turbulent environment macroeconomically, in terms of other factors that will impact those margins, such as synergies with Biotest, such as the ability to continue to drive down cost per liter of plasma, and when those costs will be realized through the income statement due to the capitalization into inventory initially and the long inventory cycle. Some of the other cost reductions that we're planning, when exactly the new Biotest proteins will be approved and commercialized. Even factors like inflation globally. I think for us to try to provide long-term EBITDA margin guidance would not be prudent right now. I think we'll revisit the question at least for 2023 in the coming few weeks or months.
At the moment
I don't think we'll be giving any kind of precise guidance beyond 2023 and even for 2023. We're asking to be a little bit patient because there are a lot of factors that are impacting it. Okay. Thank you, Steve. On the question regarding XEMBIFY franchise, as you know, unfortunately, the launch of this new product coincided exactly with the pandemic period. During the first two years of its launch, has been very challenging, not being able to be present at hospitals and meet customers and so on. Said that, it's progressing nicely, the penetration of our product. The main characteristic that probably gives a competitive advantage is the tolerability of the product for our patients. This is very well perceived by doctors and patients, of course. We are progressing nicely. The weight of our subcutaneous sales over the total IG is continuing to grow.
Now we are in the range of 3%, and we are targeting to move that to a 5% proportion of IG sales. In the mid-future, we are developing the secondary indication for that franchise that will further improve the prospects of this nice product. Regarding the financial expense, I'm talking about the interest, because within the financial expense, there are deferred financial costs, there are FX, but just purely focus on the interest expense associated to our debt. Our quarterly run rate for this year is around EUR 75 million, and expected to grow, as I mentioned, because the impact in our accounts will be backloaded because the timing of the interest rate hikes. Expected that the quarterly interest expense run rate will be around EUR 100 million.
Okay, thank you. We have Álvaro Lenze from Alantra. Alvaro?
Hi, thanks for hosting this call. I think that having this increased communication from the leadership is very welcome. Three quick questions. The first one is, you have announced several management changes over the last couple of months, whether you are now happy with the team as it is right now, or we should expect any additional appointments? Second question is on cost-cutting, whether you could quantify how much cost-cutting you have identified, and how much would you need to invest to achieve this cost-cutting, or if you are still working on these calculations. If you are still working, whether you will provide some specific guidance on cost-cutting once you have the plans ready. The last question, more philosophically, on leverage. You have historically targeted four times net debt to EBITDA as your long-term goal, whether this could be rethought.
I know that there's still a long way to go to bring leverage down to four times, whether you could change this as a long-term target. Thanks.
Okay. Víctor?
Thank you, Álvaro, for your questions. I will probably take the first part of your question, then maybe Alfredo can complement. During the pandemic, we have been announcing that and communicating that, we have gone through a several kind of wide range of improvements of the operations of the company. We have closed the business units that were not profitable or were not core anymore for us. In the case of hemostasis business line, in blood bags, in the diagnostic division as well, and certain hospital division assets. Now no longer the hospital division is being reported isolated. We have closed the facilities. We have gone to the fit for growth process across the board. Many, many things to improve the operations of the company. The same for R&D. We have prioritized or stopped and canceled some R&D projects as well.
Subsequent to that, the final move, as announced the last Capital Markets Day, was the reorganization of the company. Now fully accountable business units, and we needed specific presidents to run those business units. Now we have Pia on board and Jordi on board. With that, we feel that all this kind of reorganization has been completed with those two appointments. Now the organization is fully at speed with all the structure and all the talent in place to develop further operational improvements and to drive all what we have been talking during this hour call about improving the business overall. Okay. To your couple questions. First, cost-cutting. Here, I will address Steve initial comments, where basically we're going to be focused on plasma cost, which is our main driver. Is where most of the costs are, I would say, in the company including the company.
This is various initiatives on driving down the plasma cost, point number 1. Point number 2, the OpEx. Basically, lower fixed cost, as well as higher efficiency, delayering, and many, I would say, initiatives now ongoing. Let me not provide you with more color because now Steve just joined, and this is one of our top priorities, which is in our table. We are working on this, and we will provide you more color later on. Regarding the leverage, as Alfredo mentioned, we will use whatever it takes, both organic and non-organic levers to be at the target, I would say, financial discipline level, which is four times or below, especially, as I said, ahead of the 2025 partial debt refinancing.
Okay. With that, we come to an end. Thank you everybody for joining. As always, the investor relations and sustainability team will be happy to take any additional questions or any concerns or anywhere how we can help, and speak to you all soon. Thank you