Is the CSL (ASX:CSL) vaccine business under threat?

Could this be something for CSL shareholders to be concerned about?

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The CSL Limited (ASX: CSL) share price has been underperforming the ASX 200 in 2021.

Since the start of the year, the biotherapeutics company’s shares are down 2%. This compares to a 10% gain by the benchmark index.

Why is the CSL share price underperforming?

The main drag on the CSL share price is 2021 has been concerns over its plasma collections due to COVID-19 headwinds. Given that these are a core ingredient to many of its leading therapies, investors fear that margins could be squeezed in the near future due to collection constraints.

However, this morning one leading broker has brought up another potential cause for concern. This time it is with CSL’s Seqirus vaccine business.

What’s happening?

According to the note, Goldman Sachs believes new vaccines using mRNA could potentially disrupt the seasonal influenza vaccine market in the future.

Goldman notes: “Whilst vaccine development efforts using mRNA have been around for many years, the COVID-19 pandemic materially accelerated commercialization timelines, provided strong validation to the technology and considerably raised awareness across healthcare professionals, policy-makers and the general public.”

The broker notes that industry leader Sanofi, which had a 48% share of the 2020 influenza vaccine market, is making progress with its mRNA candidate.

It said: “Sanofi, partnered with Translate Bio, progressed its first mRNA candidate into Ph1 trials last month, and has just committed €400m of annual investment into a new mRNA Centre of Excellence (from which it expects to produce 6+ clinical candidates by 2025E).”

In addition, GlaxoSmithKline has partnered with CureVac for a 2nd-generation LNP/mRNA vaccine candidate that has demonstrated strong/durable immunogenicity in pre-clinical studies. GlaxoSmithKline’s share of the influenza vaccine market was 16% in 2020.

What about CSL?

The broker notes that little is known of CSL’s activities, which it appears a touch concerned about.

Especially given how it has a 29% share of the market and Goldman is estimating that this side of the business will contribute US$1.6 billion (16% of total revenue) and EBIT of US$430 million (14% of EBIT) in FY 2021.

Its analysts commented: “CSL is notable as the only major incumbent flu vaccine supplier without tangible information about its own mRNA program (currently ‘pre-clinical’ but with no further detail). If mRNA-based approaches can fulfil their potential in seasonal influenza, as appears increasingly possible, then CSL may need to develop/license its own viable mRNA program more quickly in order to mitigate the potential threat to its vaccine business.”

Is mRNA the real deal?

Goldman Sachs acknowledges that there are still a lot of unknowns with the technology. However, it sees significant potential in it.

It concluded: “Whilst there are many questions which must be answered around the prospects for mRNA in flu, the technology certainly offers the potential for one of the more meaningful innovations in the space since egg-based viral replication was first commercialised >70 years ago.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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