Earnings Call Transcript
Grifols SA (GRFS)
Earnings Call Transcript - GRFS Q3 2022
Operator, Operator
Good day, everyone, and welcome to the Grifols Business Update conference call. We are pleased to host this call today, and thank you for joining. As we have already mentioned, our goal is to increase our engagement with the capital markets and investors. This reflects our commitment to improving communication. The call will last one hour, with around 30 minutes allocated for a presentation, followed by a Q&A session to fill the hour; however, if there are no questions, we will conclude earlier. Today, I am joined by Steve Mayer, our newly-appointed Executive Chairman; Raimon Grifols; Victor Grifols Deu, our co-CEOs; and Alfredo Arroyo, our CFO. The materials for this call are available in the Investor Relations section of grifols.com. Additionally, we will provide our forward-looking statement disclaimer for this business update. We are not obligated to update or revise any of these statements, which refer to significant risks and uncertainties. With that, I will turn the call over to Steve. Thank you.
Steven Mayer, Executive Chairman
Thank you, Nuria, and thank you for 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 well-being 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 own to 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 6 to 9-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, sourcing certain non-core functions and better use of technology and data. We're also making further effort to reduce working capital and CapEx cash use. And 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 favorite 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 underpenetrated currently. For example, our subcutaneous IG product, which commands a higher price than IVIG, represents only a single-digit percentage 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 will be mentioning a recent favorable development in that regard later in this call. Our final top priority to mention today is in the effort to unlock the full value of Biotest. We in 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 for Grifols' financial profile. Of course, any initiative that's dependent on regulatory approval and successful commercialization and market launch inherently involves uncertainty, but we continue to believe that fibrinogen and IgM are a matter of when, not if, and that ultimately, it will be very significant and high-margin contributors to profitability. In addition to these 5 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 Victor, I do want to state that it is highly important to me to ensure that we deliver on all of our goals while remaining true to Grifols' core values and sustainability. Raimon and Victor?
Victor Grifols, Co-CEO
Thank you, Steve, and thank you all for joining the call today. I want to begin by highlighting the two recent leadership appointments related to our newly announced reorganization. We have appointed Pia D'Urbano to head our Biopharma business unit and Jordi to lead our Plasma Procurement business unit. Pia comes with 29 years of experience in health care, specifically in biotherapeuticals, including consulting roles at major multinational companies like Sanofi and Novo Nordisk in the U.S. Her expertise includes global product launches, new product planning, establishing new businesses, marketing and sales, business development, and strategic planning. Her extensive experience with market launches of new products will be invaluable as we prepare to introduce Biotest proteins, for instance. We have also named Jordi for the Plasma Procurement business unit. He has held various roles throughout his career, focusing on retail distribution channels globally and on global expansions. His background also involves building local teams and subsidiaries, forging relationships with strategic partners, and carrying out omnichannel and high-tech projects. This expertise will definitely reshape and enhance how Grifols manages Plasma Procurement operations. We are excited to work with them. Now, moving on to the highlights from Q3 2022 and our financial performance. I'm pleased to report that Grifols achieved very strong operational performance in the third quarter, resulting in a solid year-to-date number despite a challenging macroeconomic environment. Compared to Q3 2021, global revenues increased by 23% operationally, totaling EUR 1.5 billion. This growth reflects a 37% increase on a reported basis due to favorable foreign exchange rates. The underlying operational performance was driven by a 13.7% revenue increase. We anticipate higher plasma collections in the first half of 2022, contributing to increased volumes of key proteins, particularly hemoglobins, alongside pricing increases, product mix improvements, and contributions from Biotest. Year-to-date revenues reached EUR 4.351 billion, marking a 9.5% increase on a constant currency basis and an 18.8% increase reported from the same period in 2021, with an operational performance increase of 3.8%. As for plasma procurement, the latest updates indicate that plasma collection volumes grew by 25% in the first 42 weeks of 2022 compared to the same timeframe in 2021. We expect this trend to drive solid sales growth in the second half of the year and into the future. We also anticipate the lifting of restrictions on Mexican donors in mid-September will significantly enhance plasma donations going forward. Regarding EBITDA, we saw that volumes, pricing, operational leverage, and cost discipline helped to partially offset costs per liter and inflationary pressures, leading to reported EBITDA of EUR 927 million, which represents a 21.3% margin on sales, and 22.2% if excluding Biotest. Adjusted EBITDA came in at EUR 899 million with an adjusted margin of 21%, and 20.7% without Biotest included. In this industry, maintaining a balance between plasma volume and costs remains crucial. As plasma collection volumes start to stabilize, we are focused on reducing costs per liter by lowering donor compensation, optimizing labor costs, and managing the fixed costs that influence costs per liter. Donor fees are a significant part of the cost per liter, accounting for approximately 35% of total costs, making it a critical short-term factor. Since peaking in July, donor fees have decreased by over 15%, and have dropped by 7% when comparing September to January. With volumes also increasing, the fixed cost component benefits from operational leverage. We are confident that these improvements will be sustained and that we will see further reductions contributing positively to profitability through year-end. We will continue evaluating the balance between plasma collection and donor fees to enhance our performance. On the deleveraging front, the reported leverage ratio improved from 9.0x in the first half of 2022 to 8.6x in September 2022. We expect this ratio to fall below 8x by year-end, specifically to 7.9x. Our focus on driving down donor fees, optimizing costs, and improving operational efficiencies is expected to yield higher EBITDA and working capital enhancements throughout 2023, leading to further improvements in our leverage ratio. After two years marked by a complex pandemic that severely affected the plasma industry, we are now witnessing its repercussions amid ongoing changes in the macroeconomic landscape from multiple perspectives. On one hand, inflation and current economic challenges are bolstering momentum in plasma collections, potentially aiding in reducing costs per liter. On the other hand, the broader economic situation does affect our labor costs, particularly in our plasma centers. Additionally, our exposure to interest rate hikes is significant, as about 65% of our total debt is linked to fixed interest rates. In conclusion, I want to highlight our innovation pipeline, where we continue to advance our key programs, including fibrinogen, IgM, albumin cirrhosis, and anti-inflammatory treatments, among others. Notably, we have received FDA clearance for our AlphaID At Home product, which is the first free service for U.S. users to screen for the genetic risk of alpha-1 antitrypsin deficiency without needing to see a medical professional. Now, I will hand the call over to Alfredo for further details on our financial performance.
Alfredo Arroyo Guerra, CFO
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 a reported basis. Robust revenue growth was driven by Biopharma's key proteins following an increase of plasma supply, positive product mix, positive pricing and a significant contribution from Biotest at 5 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 dollar compensation and labor costs impacted by inflationary pressures. Additionally, it's worth noting the negative impact for the high-margin diagnostics business, triggered by the end of the one-off COVID testing and mandatory Zika screening, which largely impacted gross margin by 180 basis points versus Q3 '21 and 250 basis points versus Q3 year-to-date September '21. At the EBITDA level, we were able to offset the impact at gross margin level and delivered a sequential EBITDA global 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 188 million profit, which reflects higher financial expenses linked with the Biotest acquisition bond and higher interest rates. Now moving to Slide 9, revenue performance. Our main division, Biopharma, revenues reached EUR 1.3 billion, EUR 1.2 billion excluding Biotest during the third quarter of 2022, growing by 34% at constant currency and close to 50% on a reported basis, thanks to positive FX income. As mentioned, several drivers were behind this strong performance including robust immunoglobulins, underlying demand, the larger plasma supply, price increases and product mix. Specially significant were the sales of our subcutaneous immunoglobulin, thanks to higher demand and a favorable customer mix. Year-to-date, Biopharma sales stood at close to EUR 3.6 billion or EUR 3.4 billion, excluding Biotest. This represents a year-over-year increase of 16% at constant currency, 26% on a reported basis. Excluding Biotest, Biopharma revenue grew by 8.7% at constant currency and 19% on a reported basis in the first 9 months of 2022 compared to the same period of 2021. The sales performance reflects sequential accelerated growth of 21% at constant currency in the third quarter compared to 0.1% growth at constant currency in the second quarter and 7.1% growth at constant currency in the first quarter. The Diagnostic revenues declined by 20.8% at constant 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 testing, which was partially offset by gross sales of blood typing solutions. Diagnostic recorded circa EUR 500 million of revenues during the first 9 months of 2022, down by 21% at constant currency, compared to the same period of the 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 constant currency, reaching EUR 44 million following the acquisition of Access Biologicals. The business unit grew by 5.5% constant currency during the first 9 months of 2022. Moving to the next slide on 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 total 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% to 10% annual inflation in our regions of operations. On the back of solid plasma collection levels, Grifols is focused on balancing volume and cost per liter to drive margin expansion, with an emphasis on reducing dollar compensation and optimizing labor and fixed costs. The donor fee, as mentioned, that accounts probably for 35% of the fully loaded cost, fell by 7% from January to September and by more than 15% from its peak in July 2022. Additionally, as mentioned, it's important to highlight the impact of the Diagnostic into gross margin due to COVID and Zika. Excluding that impact by 250 basis points for the first 9 months of 2022 compared to the previous year. EBITDA grew to EUR 927 million during the first 9 months of the year, with a 22.2% margin and 21.3%, including Biotech. This represents an EBITDA growth versus the 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 pressure as well as higher Biotest expenses, particularly related to the Biotest Next Level Project. This accounts for the 5-month period 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 the first half of the year, reaching close to EUR 900 million with an adjusted EBITDA margin of 20.7%. Here, the adjustments basically are related to one-off restructuring costs as well as one-off external 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, basically due to low sales because of lower plasma products as well as certain restructuring and write-offs that took place in the last quarter of last year. Since then, we have been addressing both the main impact from COVID, which were lower plasma collections, and the higher cost per liter of plasma. As mentioned, the impact from the Diagnostic division has been significant. We were able to improve EBITDA throughout the 2022 through cost control, R&D prioritization, bringing the contribution of EUR 70 million savings in terms of OpEx. Also, the positive contribution from Access following the integration, that includes a one-off capital gain. This reach 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 the previous year, and to a larger extent, in the U.S., expanding by 28%. Now that plasma volume increases are normalized, we are focusing on cost per liter reduction, driving dollar compensation decreases, as well as optimizing labor and fixed costs. 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. In addition, optimization of labor and fixed costs, 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 fees while balancing these 2 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 costs, as well as OpEx origination. 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. But for next year, the inventory increase will be limited in line with, I would say, normal times. Also, limited CapEx. No meaningful acquisition, discipline in capital allocation. And since we are well invested, this business requires no significant capital moving forward. This is, as mentioned by Steve, is a top priority. In Q3, we were able to reduce the 9x as of June, which was the peak of the year, down to 8.6x. By year-end, it's 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. It's important to mention that Grifols' 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.
Victor Grifols, Co-CEO
Thank you, Alfredo. Now, we would like to discuss the performance of our business units in more detail. In Biopharma, we are optimistic about the improving momentum shown by a strong third quarter for key proteins, particularly Ig, our flagship product, which grew by 12% in the third quarter year-to-date 2022. With the global plasma supply decreasing, we expect strong growth opportunities in core areas, such as primary immunodeficiencies. Demand has been and is expected to remain robust, with many patients still underdiagnosed even in developed markets. Additionally, although the incidence of diseases is similar globally, consumption rates can vary significantly. For instance, in the U.S., consumption is nearly three times higher per capita compared to Europe. It is worth noting that our new products are increasingly contributing to our revenue, driven by our strategy to enhance our subcutaneous franchise. In Albumin, excluding the previously mentioned phasing in the second quarter, sales were flat compared to the first nine months of 2021, with lower volumes in China partially balanced by low single-digit price increases. Looking ahead, we expect demand in China to continue growing at mid to high single digits. Alpha-1 and specialty proteins saw high single-digit growth, with Alpha-1 achieving mid-single-digit increases due to a favorable product mix and competitor supply shortages. We also experienced strong growth from our recent launches, such as the new anti-Rabies formulation, tablets, and fibrin sealant, which benefited from sustained demand, while our other regular products performed well, offsetting the FVIII tender pressures we are experiencing. Moving on to Diagnostics, performance was affected by one-off sales of NAT technology for COVID-19 detection and the end of mandatory Zika virus testing, though this was somewhat offset by strong 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 mentioned earlier, these two factors impacted consolidated gross margins by 250 basis points in Q3 year-to-date 2022. This, in addition to some country mix and pricing, was partially offset by growth in the Chinese market and increased donation volumes, resulting in a 35% growth in China year-to-date 2022. The Blood Typing Solutions division achieved strong growth of 20% due to solid performance across EMEA and U.S. regions, along with increased GelCard sales in Eastern Europe, as well as growth in China and the rest of Asia Pacific driven by higher donations and increased sales of GelCards and instruments. Recombinant proteins decreased primarily due to a joint business collaboration for a new R&D project. Concerning Bio Supplies, significant revenue growth was recorded in the third quarter, mainly driven by Bio Supplies Diagnostic, supported by plasma for diagnostics, cell media, and serum, along with the acquisition of Access Biologicals. However, Bio Supplies Biopharma declined due to lower sales of non-therapeutic albumin and Fraction V, which was partially offset by revenue from cell culture media related to the Access Biologicals acquisition. Now, I'll hand it over to Steve for his closing remarks. Thank you.
Steven Mayer, Executive Chairman
Thank you, Victor. I'd like to conclude by reiterating a few points that we've already made, but I think bear repeating. And 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 the know, 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, and to be crystal clear, I will be accountable for delivery, 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, and 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, and 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. We call that characteristic of our industry, these lower costs will in general be recognized in our operating results 6 to 9 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 to EUR 6 billion range, including Biotest, for about 7 months of the year. Adjusted EBITDA margin for the full year is expected to remain in the 20% to 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 7.1x by year-end, a significant drop from the 9x reported just 6 months ago. Also, keep in mind that this leverage ratio does not include any pro forma results related to the Biotest transaction. As you know, we 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 deleveraging 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 the quarterly earnings reports and calls. Thank you.
Operator, Operator
Thank you, Steve, and thank you all for your time. Let's begin. We are happy to take questions from the sell-side analysts who track our company, Grifols. Let's start with Vineet Agrawal from Citi.
Vineet Agrawal, Analyst
Can you hear me? Great. So this is Vineet here from Citi, on behalf of Peter. I have two questions. So first of all, on '23, can you give some preliminary thoughts around '23? And if the trends you're seeing persist, can you give us a sense of the scope of margin recovery you hope to see? Could it be in the 22% to 25% range or better? And 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?
Operator, Operator
Vineet, I think your question was a bit difficult to hear you because maybe you were too close to the mic, but I think your first question was on the primary margin and the timing associated with that, is that correct?
Steven Mayer, Executive Chairman
I think the question 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 you mentioned a couple, which I can respond to.
Alfredo Arroyo Guerra, CFO
So to your first question about margin progression, my comment is the following. The worst is already behind, so by focusing on the lower cost per liter, as I already mentioned, we see a significant decline moving forward, but remember that it will take time to flow through the P&L based on our long inventory cycle. So that means that we'll see meaningful gross margin improvements coming from a lower cost per liter more in the second half of next year, so backloaded. On the additional OpEx savings, yes, no. We will capture those since the beginning of the year, so that will help to improve our gross margin. But also if I move back to the P&L, by increasing the share of subcutaneous IG, which we will expect to be meaningful next year, this will help us improve the gross margin. Remember that there is a significant price gap between the regular IG and the subcutaneous IG. So this is going to help quite a bit about gross margin also starting next year. So that's what I'm going to tell now based on the gross margin as well as EBITDA margin, so the worst is already behind.
Steven Mayer, Executive Chairman
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 2 classes of shares. We've already said that we think that equity is meaningfully undervalued today. That applies to both classes of shares, so we're not looking to a capital increase or equity issuance in today's trading range. And that also applies to the consolidation of the 2 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.
Operator, Operator
Okay. Now let's move to James Gordon, JPMorgan.
James Gordon, Analyst
One question was about the medium-term target. Last year, there were goals established in relation to the Biotest acquisition regarding revenues, EBITDA, and leverage. The targets included more than EUR 7 billion in revenues, EBITDA of EUR 2.8 billion, and leverage below 3.5x. I believe those targets were extended to 2025 during the CMD. Are we still anticipating that those targets can be met in 2025, or are they under review? Might it take longer to reach those goals? Additionally, could you provide an update on the status of the revenue, EBITDA, and leverage targets in the medium term? The second question pertains to the pipeline. There were prior plans for investing in various pipeline projects, including those related to outside diseases. Are all those plans still in progress, or might there be adjustments to the pipeline priorities as well?
Alfredo Arroyo Guerra, CFO
Regarding the first question about leverage, by 2025, we anticipate a combination of organic and non-organic growth. Our goal is to maintain a leverage ratio below 4x. Additionally, we will need to approach the market to refinance a portion of our debt, so it is essential to achieve a strong leverage ratio by that time through a mix of both strategies.
Operator, Operator
And James, can you please repeat the second one?
James Gordon, Analyst
Sure. The second question was whether all the previous pipeline investment plans are still definitely going ahead or if Grifols is reviewing them. Could there be changes in the investment plans and pipeline?
Victor Grifols, Co-CEO
As we said in our Capital Markets Day back in July, we continue to believe very strongly in the progress that we are making on the different projects that we are undertaking. Very clear for Biotest products, fibrinogen and IgM. They continue basically on track. Regarding albumin liver disease, it continues on track as well. Secondary immunodeficiency for our IG products continues on track, and antithrombin III in sepsis as well continues on track. So overall, everything continues as we said in our last Capital Markets Day.
Operator, Operator
Okay, thank you, Victor. Now, Sarita Kapila from Morgan Stanley, please. Sarita?
Sarita Kapila, Analyst
Just to understand how we should think about increasing competition in the alpha-1 space, particularly from Inhibrx, following the FDA decision to grant accelerated approval and given that the data we've seen to date is quite encouraging.
Victor Grifols, Co-CEO
Regarding alpha-1, this is a project that still needs time to arrive at the market, which 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, it's an At Home profile so that patients can self-test and get the resources at home from these new tools. And we continue to develop as well some life cycle management formulations for the better convenience of our patients. So this is regarding alpha-1, how we see the landscape.
Operator, Operator
Thank you, Victor. And now we have Guilherme Sampaio from CaixaBank Equities. Guilherme?
Guilherme Sampaio, Analyst
Yes. Can you hear me?
Operator, Operator
We can.
Guilherme Sampaio, Analyst
Okay, perfect. So one question regarding the Grifols process of classifying the stake of GIC and Biomat. Where are we in this process, and whether are you still counting on this for your leverage target? And then 2 small questions on the results. So 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?
Alfredo Arroyo Guerra, CFO
In response to your question about GIC, I want to clarify that the intention of both parties at the time of the agreement was that this would be considered a financial instrument, specifically an equity. This understanding was clear to both sides. Subsequently, the auditors from KPMG reviewed the situation and ultimately determined, based on accounting rules, that this should be classified as debt. We do not anticipate any modifications to the agreement in the near term, but the possibility remains open. It’s important to note that this is a long-term agreement spanning 20 years, making it challenging to secure a debt for such an extended period. Therefore, it can be seen as equity or quasi-equity, which is not currently a focus for us.
Operator, Operator
Yes. And then on the FX impact?
Alfredo Arroyo Guerra, CFO
The overall FX impact this year is expected to be close to EUR 100 million at the EBITDA level due to a significant dollar revaluation, particularly against the euro. Since most of our revenues and EBITDA are dollar-based, we anticipate this impact, which has already resulted in EUR 74 million of positive FX by the end of September. If the dollar trend continues, we expect to reach around EUR 100 million by year-end, which is very positive for this year. Looking ahead to next year, we expect a positive impact as well, though it will likely be less than this year, but still positive.
Operator, Operator
Thank you, Alfredo. Emily Field from Barclays?
Emily Field, Analyst
Just a couple. Just on the divestitures point, is there anything that is off the table? Because obviously, between Diagnostics and Shanghai RAAS, I know that was kind of asked earlier, but there's some complexity. So I just kind of was wondering, is there anything on the table if the satisfactory price can be obtained? And then 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?
Alfredo Arroyo Guerra, CFO
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. Some of 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. But clearly, there is room for improvement, and the team up to now is moving forward and is going to keep working on ripping off some of those savings. There are some low-hanging fruit there, both at the plasma cost side as well as the rest of the costs across the whole organization. So 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 attached.
Operator, Operator
Yes. And maybe on the first part of Emily's question, Steve, maybe you can take this one?
Steven Mayer, Executive Chairman
I believe the key point regarding what you mentioned as divestitures, which I might not use that term for, is that we have a collection of valuable assets. We also have a long-term strategy in place. Like any company, our goal is to optimize our asset portfolio to meet our financial aim of reducing debt while also achieving our long-term objective of enhancing shareholder value. In response to your question about whether there are any untouchable assets, aside from value considerations, anything that could significantly harm our long-term strategic shareholder value would be off the table. However, we are confident that there are various pathways to reach our strategic goals while considering different options for reducing debt.
Operator, Operator
Okay. Thank you, Steve. We have next in the line Thomas Jones from Berenberg.
Thomas Jones, Analyst
I have two questions, one for Alfredo and one for Steven. Alfredo, I was surprised by the difference between EBITDA and net income in Q3. Was this due to an increase in interest rates, or were there any significant one-off items that impacted Q3? The tax rate can be quite variable, and there can also be notable FX charges, so was there something unusual that prevented the EBITDA from translating to net income? My second question is for Steven. You have been on the Board for a long time and have observed this company in the industry even longer. What excites you about Grifols that you think investors might overlook? Investors seem to have a negative view of Grifols, so what do you believe the market is missing? Additionally, if you could change one thing about Grifols today, what would it be?
Steven Mayer, Executive Chairman
First of all, we don't believe the market is overlooking anything because we value all our shareholders, viewing them as owners of the business, and we think the market has more insight than any of us. We're not lamenting the lack of appreciation from the market towards Grifols over the past couple of years. Our focus is on driving performance and ensuring we are transparent and communicative as we improve. In the broader context, Grifols operates in an industry known for its resilience and growth potential. I believe that this growth will persist globally with significant operational leverage and a return to the profit margins we had before the pandemic. There may have been a lack of emphasis on operational execution and performance at Grifols, and while I'm not blaming the past, our attention will be sharply on that going forward. We have both long-term and short- to medium-term strategies, with the latter being heavily focused on execution. If I could fast forward, I would envision a highly accountable, incentivized, and performance-focused organization that is fully committed to execution and results, which we need to reinforce. However, when considering the overall picture, the platform and asset portfolio that Grifols holds, coupled with our long-term strategy, make me very optimistic. This is why I took on this role.
Alfredo Arroyo Guerra, CFO
Tom, in response to your first question, the decline in the EBITDA margin is largely due to a decreased Biopharma margin caused by increased plasma costs. It's important to note that there is a delay between the rise in plasma costs and its reflection in our profit and loss statement. Therefore, in the latter half of the year, including the third and fourth quarters, we will observe a decrease in Biopharma margin because of these higher plasma costs. Regarding net income, the decline is a result of additional financial expenses, which are linked to the rise in interest rates. Although only 35% of our debt is floating, we still felt the impact. This effect takes approximately 2 to 3 months to show in our profit and loss statement after interest rate changes are announced because we reassess interest rates quarterly. Consequently, we anticipate increased financial expenses in the third and fourth quarters, which accounts for the lower net profit in Q3.
Operator, Operator
Okay. Thank you, Alfredo. Now we have 3 more questions. So if you want to stay with us, we'll take these 3 and complete and to get the possibility to everybody. So we have Rosie Turner from Jefferies.
Rosie Turner, Analyst
Just thinking about your plasma collection volumes, up 25%. I noticed that 42 weeks of the year, so does that include Mexico and the border reopening? And kind of are you able to approximate how much of that is Mexico versus U.S. itself? Then following up on Alpha-1 competition, can we just recap the level of penetration? I think, is it 70% of patients currently going underdiagnosed? And then 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?
Victor Grifols, Co-CEO
Okay. I take the question 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 underdiagnosed. We hope that with, again, this enhanced tool with the diagnostic Alpha-1 ID At Home test, we can improve the level of diagnosis. I think this was the question regarding alpha-1. The other one is FcRn competition in myasthenia, where for Grifols, myasthenia accounts for, I think, only 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.
Operator, Operator
Thank you. And on the Mexican?
Victor Grifols, Co-CEO
Well, the Mexican, since September that now, we can operate regularly in our centers. For the border centers, we are seeing an accelerated return of these donors to our network. And we are seeing every other week a move, a progression on the level of volume being collected at those centers. And as you know, in pre-pandemic levels, those centers were roughly collecting around 1 million liters. And now we are in this ramp-up, and we are seeing the trend at some point we will hit this level of 1 million liters for those centers.
Operator, Operator
Okay, thank you. And Julien Dormois from BNP.
Julien Dormois, Analyst
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 margin levels or close to that. But do you plan to provide margin targets for the period 2023, 2025? Because over time, there's been some misunderstanding between Grifols and the investment community and some disappointments on profitability. So do you plan to provide key targets for us to build our models? For Victor, please, on the penetration for Xembify. Could you help us understand what you would do differently going forward to boost the penetration of this highly profitable product? Because it's been on the market for 3 years, so what can you do differently going forward in order to boost the penetration? And the last question for Alfredo is a housekeeping on net financial cost. 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 as net financial cost for the full year 2023 a good run rate? Or could it be higher than this?
Steven Mayer, Executive Chairman
Let me start by addressing the first point regarding whether we will provide guidance on EBITDA margins. We are currently in a somewhat turbulent environment, influenced by various macroeconomic factors that could affect those margins, including synergy, the Biotest initiative, our capacity to decrease the cost per liter of plasma, and when those costs will be reflected in our income statement as we transition them into inventory initially. The lengthy inventory cycle and the other cost reductions we are planning also play a role. Additionally, the timing of the approval and commercialization of the new Biotest proteins, along with global inflation, are considerations. Therefore, providing long-term EBITDA margin guidance at this time would not be wise. We will revisit this topic, particularly for 2023, in the coming weeks or months. However, at present, we are not prepared to offer any precise guidance beyond 2023, and we ask for your patience regarding 2023, as many factors are influencing it.
Victor Grifols, Co-CEO
Okay, thank you, Steve. On the question regarding the Xembify franchise. As you know, we unfortunately, at the launch of this new product coincided exactly with the pandemic period. So during the fiscal year of its launch has been very challenging, not being able to be present at hospitals and meet customers and so on. Said that, and 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 received by those patients, of course. And 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 a secondary indication for that franchise that will further improve the growth pace of this nice product.
Alfredo Arroyo Guerra, CFO
Regarding the financial expense, I'm talking about the interest because within the financial spend, there are deferred financial costs, there are FX, but just purely focused on the interest expense associated with our debt. Our quarterly run rate for this year is around EUR 75 million and is expected to grow, as I mentioned, because the impact on our accounts will be backloaded because of the timing of the interest rate hikes. So the expected quarterly interest expense run rate will be around EUR 100 million.
Operator, Operator
Thank you all for joining us today. We appreciate your participation. Our Investor Relations and Sustainability team is available to address any further questions or concerns you may have. We look forward to speaking with you again soon. Thank you.