Own CSL (ASX:CSL) shares? Here’s why the government won’t be extending the biotech’s AstraZeneca vaccine contract

Covid-19 vaccine

The CSL Limited (ASX: CSL) share price is edging higher today and is currently trading hands at $298.49.

CSL shares are crawling northwards amid reports the Federal Government will not be renewing its contract with the biotech company to manufacture more AstraZeneca Plc (LON: AZN) COVID-19 vaccine doses.

Here’s what we know.

Federal Government won’t renew contract past 50 million doses

In a press conference yesterday, Federal Health Minister Greg Hunt advised that the Federal Government would not be renewing its contract with CSL to manufacture more AstraZeneca vaccines past the 53.8 million doses currently stipulated.

The blend of total volumes is made up of a 50 million dose production run in Australia, and a 3.8 million supply from overseas.

According to CSL, it has already manufactured 20 million doses under the agreement, with the remainder expected for completion next year.

Whilst the government’s call may come as a surprise to some, minister Hunt explained it was “never contemplated that CSL would become a contract manufacturer”, alluding to a position in long-term vaccine manufacturing for the government.

“They have other important global vaccine roles, as well as Australian vaccine…roles to be playing” Hunt said. As such, the government will be searching for alternative sources to manufacture its COVID-19 vaccine supply – whether that be domestically or not.

Hence nothing fundamental has changed for CSL at all, only that the government was never seeking to establish a long-term manufacturing relationship with CSL on the COVID-19 front.

Perhaps this is why the market has been easy on CSL shares today despite the news, as the biotech will still realise the full cash amount stipulated under the deal.

In a brief statement on its website, CSL quoted remarks made by chair Brian McNamee AO at its AGM, saying that the company is “pleased to say that the Australian Government and AstraZeneca trusted us as their partners to help the country respond to the emerging crisis through the most effective solution available: vaccination”.

The rollout of AstraZeneca’s SARS-CoV-2 vaccine label, Vaxzervria, has lagged its Pfizer competitor – Comirnaty – in Australia significantly, despite CSL’s capacity to produce an additional 30 million doses.

For instance as of 10 October, of the roughly 30 million doses that had been administered in Australia, only around 41% of these were of the AstraZeneca label.

For reference, as of 14 October, 65.4% of the eligible population are double vaccinated against COVID-19 in Australia, with around 84% having at least one dose.

CSL share price snapshot

The CSL share price has had a difficult year to date, having posted a return of just 5.5% since January 1.

Despite this, it has slipped into the red by around 1% over the past 12 months.

These returns lag the S&P/ASX 200 index (ASX: XJO)’s return of around 19% in that time.

The post Own CSL (ASX:CSL) shares? Here’s why the government won’t be extending the biotech’s AstraZeneca vaccine contract appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions 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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