(Bloomberg) --
The largest stock on Australia's benchmark index is facing increased price pressure as it deals with rising competition in the global health care sector.
Biotechnology firm CSL Ltd., which makes therapies from human blood, became the highest-weighted stock on the S&P/ASX 200 Index this year as investors cheered its growth outlook. However, the company's valuation could be challenged by a slew of international players bringing competing products to market, according to analysts.
“CSL's future faces a much wider range of potential outcomes and in investing, when there is more uncertainty, this typically leads to a lower multiple for the stock,” Morgan Stanley wrote in a Sept. 29 note, adding that 45% of the firm's revenues may be threatened by therapies from peers like Roche Holding AG, Sanofi and Takeda Pharmaceutical Co Ltd.
CSL is among a handful of companies on Australia's benchmark that are forecasting growth this year even after the country's worst profit season since 2009. The only health stock among the nation's 15 largest makes up about 8% of the gauge, commanding a higher weighting than household names like Commonwealth Bank of Australia and BHP Group Ltd.
Blood Beats Banking With CSL Becoming Australia Biggest Firm
The firm collects plasma and turns it into therapies to help patients who have autoimmune disorders or problems with blood clotting. It also manufactures flu shots through its Seqirus unit, and has signed deals on potential coronavirus vaccines.
Rival products that are nearing commercialization could impair CSL's core immunoglobulin unit, according to Morgan Stanley. Roche's hemophilia treatment is already taking market share, while Sanofi is developing a therapy for the disease. CSL's drug for a rare swelling illness is also up against competition from Takeda.
Extra research and development may be a way for CSL to stand out, Morgan Stanley said. The firm spent $922 million, or 10% of revenue, on R&D in its last full fiscal year, according to data compiled by Bloomberg, while Roche invested about 12 billion Swiss francs ($12.9 billion), or 19% of revenue.
CSL shares fell 1.3% as of 10:23 a.m. on Friday.
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