CSL share price drops lower despite announcing a new acquisition

The CSL Limited (ASX: CSL) share price has continued its poor form and has been unable to climb higher with the market on Tuesday.

This is even after the release of a promising announcement this morning.

At the time of writing the biotherapeutics company’s shares are down 2.5% to $277.99.

What did CSL announce?

This morning CSL announced that it has agreed to exercise its right to acquire clinical-stage biotechnology company Vitaeris.

Vitaeris is currently focused on the phase 3 development of a treatment for rejection in solid organ kidney transplant patients.

Both companies entered into a strategic partnership in 2017 to speed up the development of this program. This partnership included the option for CSL to acquire Vitaeris in full at a later date.

It has now exercised this option, which means Vitaeris’ research assets will now join CSL842 and CSL964 as part of CSL’s portfolio of products in late-stage development to address significant unmet needs in the transplant community.

What is Vitaeris’ treatment?

According to the release, Vitaeris’ lead phase 3 program is investigating the role that a monoclonal antibody called clazakizumab has in treating a naturally occurring inflammatory gene (interleukin6 or IL-6).

This inflammatory gene is the leading cause of long-term rejection in kidney transplant recipients.

CSL’s Executive Vice President and Head of Research and Development, Bill Mezzanotte, spoke positively about the acquisition.

He said: “Clazakizumab has been a promising monoclonal antibody in the Transplant therapeutic area since we started working with Vitaeris several years ago.”

“Acquiring Vitaeris and their associate expertise helps us to continue to grow our strategic scientific platform of recombinant proteins and antibodies. We look forward to continuing to advance this treatment candidate as a potential option for people experiencing rejection, an area where current treatment options for transplant recipients are limited, at best,” he added.

What now?

CSL notes that the cost of acquisition is modest and does not materially change its profit expectation for FY 2020.

The terms of agreement include sales-based milestones and the company will incur additional research and development expenses. These are associated with the completion of the phase 3 clinical trial.

In FY 2021, these additional expenses are estimated to be between US$30 million to US$50 million. While this might seem like a large expense, it isn’t in comparison to its overall research and development spend.

CSL traditionally spends in the region of 11% to 12% of sales on research and development activities. This led to the company pumping US$832 million into these activities in FY 2019.

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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 CSL Ltd. 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 Scott Phillips.

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