Why CSL Limited shares look a great long-term bet

Credit: Pictures of Money

Blood plasma product and vaccine researcher CSL Limited (ASX: CSL) released its Investor R&D (Research and Development) Presentation to the market this morning. Some of it will go straight over the heads of investors without medical knowledge (including myself), but there are a few useful takeaways.

First, is the company’s research projects:

source: Company presentation

source: Company presentation (click to enlarge)

At a glance, readers can see just how many products are in the works. A reasonable rule of thumb for the layperson would be to expect treatments to spend one year or more in each phase, with sales beginning in phase IV. As we can see, a number of treatments will be progressing from Phase III and Registration into the sales phase over the next year or two.

Second, we can see where the money is being spent:

Source: Company presentation

Source: Company presentation (click to enlarge)

Not only has CSL’s expenditure on R&D increased, most of it goes to new product development. I suspect this actually means that CSL’s growth is slowing. The resources allocated to new product research and existing product management have increased drastically, while ‘market development’ (expanding into new countries and finding new uses for existing treatments) is shrinking. This could suggest CSL has reached most major markets with its current products.

CSL also provided updates on a number of its clinical trials and new treatments (too many to list), although some of them such as CSL112 and a treatment designed to minimise the risk of rejection for donated (transplanted) organs have application and growing demand that will be obvious to the layperson.

Foolish takeaway

CSL’s growth may be slowing. Yet the company also has a very strong product pipeline, and we can see that some of its current treatments, such as Gardasil (approved in 2006 but licensed to Merck & Co) and Privigen (approved in 2008) have very long lifespans. They are are also still big players in their respective markets.

Once the company successfully develops its treatments, it has a niche which competitors can’t match without lots of time, research, and expenditure. Meanwhile, CSL is able to earn attractive returns on its investment for all of those years. Share prices will be volatile, as always, but CSL appears to have a strong future ahead of it.


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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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