A challenger appears: Could this new entrant threaten the CSL share price?

Is CSL going to lose its market dominance?

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The CSL Ltd (ASX: CSL) share price might have a challenger in the coming years if Aegros is successful with its growth plans.

CSL is the biggest ASX healthcare share and it has operations across more than 100 countries and various healthcare areas such as medicines that treat hemophilia and immune deficiencies, as well as vaccines to prevent influenza.

CSL Behring operates one of the world's largest plasma collection networks. It uses "three strategic scientific platforms of plasma fractionation, recombinant protein technology, and cell and gene therapy."

What is Aegros?

Aegros describes itself as Australia's newest plasma fractionator. It says that its HaemaFrac offering can disrupt the market by halving the cost, reducing the environmental impact and enhancing product safety.

Aegros has highlighted one of the major problems with the current plasma process:

The 1980s HIV/AIDS blood supply contaminations resulted in regulator consent decrees which created the consolidated, highly automated, capital-intensive industry we have today. Existing fractionators are bound by these grandfathered approvals which effectively render any changes to the prevailing production process prohibitively expensive.

Today the industry is on the flat section of the cost curve, focused on fractional cost reductions. Currently, CSL is the industry leader, manufacturing up to six products in 10,000L batches.

What are the company's plans?

According to reporting by The Australian, Aegros has partnered with Cambodia's Royal Group to build a US$400 million plasma fractionation plant in Singapore.

This Singapore plant will reportedly be capable of processing more than 1 million litres of plasma when completed. Production is planned to begin two years after it finds a suitable location in Singapore.

Aegros co-founder and executive Chair Hari Nair said:

This deal represents Aegros' first overseas expansion and in another world first, will use plasma currently collected in Asia which cannot be processed by the existing fractionators.

This new facility could be very useful for the market because, according to Aegros, two million litres of plasma from Asia are discarded each year because they were not suitable for conventional fractionation. Could solving this problem be a game-changer for the global plasma market and harm the CSL share price?

The other Aegros co-founder, John Manusu explained that the company's technology had viral removal capabilities and that it has a disposable cartridge system, which means if there is an issue, only the cartridge is contaminated, not the whole facility. Manusu said:

Plasma is a national treasure and it is a travesty that existing processes can't deal with that.

The Asian market represents approximately 60 per cent of the world's population but only represents approximately 30 per cent of the therapeutic plasma product sales. It is a grossly undersupplied market.

Is Aegros going to list on the ASX?

It was planning to list this year, but now it's expected to happen late next year. Manusu said:

The ASX listing is not a goal. It is an outcome of what our goals are.

Those are all due to happen by March of 2024. That's the point where we will press the button and say 'let's go for our IPO'. If you just run through the rationale of that, we will list in that case probably in the September to December period next year.

CSL share price snapshot

Over the last six months, CSL shares are down more than 14%, as we can see on the chart below.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. 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 Scott Phillips.

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