There is no longer any pretending that US President Donald Trump and his vaccine-sceptic health secretary, Robert F. Kennedy Jr, are solely to blame for the massive destruction of wealth for investors in Australia’s biotechnology champion, CSL.
A trade war with Trump, including his threats to put tariffs of up to 250 per cent on pharmaceuticals and the unprecedented decline in US vaccination rates, grabbed headlines last year as CSL shares plunged.
But vaccines were not mentioned when CSL unveiled its latest downgrade on Monday, which sent its share price plunging as much as 20 per cent to a decade low of $93.63. It means investors had lost a collective $88 billion on the stock since the first signs of trouble became apparent in August last year.
For years, CSL appeared impregnable. Founded in Melbourne in 1916 as the Commonwealth Serum Laboratories, CSL was privatised in 1994 and became a global biotech giant by leveraging high-volume plasma collection and R&D focused on vaccines and plasma-based therapies used to treat rare diseases.
From 2010 to early 2020, its shares soared about 950 per cent to $336 a piece as the company dominated the blood plasma business – crucial to many modern therapies – and expanded from there. It bought vaccine maker Sequirus in 2015 and followed it up with the Swiss company Vifor, which makes kidney treatments in 2022.
Now, though, both divisions are underperforming. The latest downgrades suggest blame lies within CSL’s management ranks and the problems go to the core of its business.
And the revelations from acting chief executive Gordon Naylor on Monday may explain why his predecessor Paul McKenzie announced his retirement, effective immediately, in February after a poor half result and $US1.5 billion in writedowns.
Naylor slashed another $US5 billion ($6.9 billion) in value from CSL’s assets, reflecting questionable investments and rising competition, which meant both its US and China divisions contributed to the downgrade of revenue and earnings.
Revenue for the year ending June 30 will be around $US15.2 billion, too, compared to analyst estimates of $US15.8 billion. Net profit will be $US3.1 billion, about $US200 million less than the market had forecast.
As CSL executives acknowledged on Monday, the growth ambitions they had declared for the current half year at the February results “have not been realised”.
It triggered a scathing tweet from Castlereagh Equity investment manager Peter Phan.
“Does the current board retain any credibility whatsoever?” Phan wondered. Strong ambition for the second half, he said, had turned into a “strong downgrade”.
Naylor told investors that his 90-day review of the company, which he began when he took on the job, had revealed some unexpected weaknesses.
“Competitors have strengthened their supply chain and they’ve been able to be more reliable,” he said.
“In addition to that, they have developed products which have challenged our lead position as an innovator in the space which has made the competitive pressures that the organisation had faced in key markets more difficult, and the organisation I think has been slow to respond to that.”
Naylor also says some high-profile product failures have not helped with investor confidence.
In 2024, CSL announced the failure of its phase 3 trial for a heart attack drug, which prompted a massive research restructure last year and triggered the loss of 3000 jobs.
“The failure of several late-stage research and development projects, along with some market share losses in key markets, has contributed to a loss of confidence in the growth prospects of the business,” he said.
Just as damning were Naylor’s findings that part of CSL’s growing asset base had been “less productive than anticipated” and “the company had overbuilt organisational capacity.”
Part of this growing asset base that has proven problematic was the $US11.7 billion acquisition of Vifor – a company specialising in treating iron deficiency and kidney disease – in 2022.
CSL executives admitted that there is still uncertainty over the scale of writeoffs and business impacts, which is why some of the pain will impact in the 2027 financial year.
Chief financial officer Ken Lim warned that “in some cases, the drivers of those impairments may not be fully clear or understood at the time we close our accounts in June of 2026”.
There is also uncertainty in relation to the impact of generic competition on its iron-based products in the US market, with Lim saying its current assessment of the impact is “obviously [a] judgment call, where we’re looking to get some more data points”.
CSL’s vaccines business is in trouble too, despite severe flu seasons in the United States, where it generates about half its revenue. “Did we think the declines we’d already seen in the last two years in the key US market … given the severity of the disease last year … did we expect that vaccination rates would drop another 14 to 15 per cent? Remarkable, but it’s our reality,” Dr Brian McNamee, CSL’s chairman and former chief executive, told investors last October.
As a result of that tumult, the group was forced to shelve plans to spin off its vaccine business, Seqirus.
The only salve for investors was the drastic surgery that has been underway since last year is on track, including up to $US550 million in cost savings and plans to spin off Seqirus when and if the US market recovers.
Naylor still insists that the fundamental characteristics that made CSL a global success story – and one of the biggest companies by market valuation on the ASX – are still in place.
“The unique microeconomics of the sector are unchanged. The industry is fundamentally structurally stable and growing,” he said.
But even he admits, it won’t be a quick turnaround story.
“Our green shoots are encouraging, but there is considerable work ahead before our current financial performance can be considered satisfactory and CSL returns to sustainable profitable growth.”
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
