Feds let CSL supply deal lapse

The federal government made a decision more than a year ago not to take up an option to extend its contract with CSL for the supply of blood plasma products to Australian hospitals for another five years.

But the decision wasn't made public until last week, when a report was tabled by the Australian National Audit Office criticising the Department of Health's decision not to extend the contract. The audit was initiated by the Joint Committee of Public Accounts and Audit as an extension of an earlier audit on the agreement, and was limited to planning and conduct of the extension option review.

The ANAO report said that the Department of Health had left the review of the extension option until too late, and that insufficient analysis was performed on the costs and benefits of the extension of the contract, a view refuted by the Department of Health. In addition, the report criticised the Department for not consulting with CSL about the extension option.

The current contract, known as the Plasma Fractionation Agreement (PFA), has the federal government paying CSL around $124 million per year to produce and supply the blood products, which are supplied free of charge to hospital patients and is scheduled to end in June 2004. A possible five year extension to the contract expired in June last year, meaning that a new deal will have to be negotiated between the government and CSL before the current contract expires next June.

According to CSL company secretary, Peter Turvey, the company has been in negotiations with the government for the last 12 months over a new contract. The contract is considered to be an important asset for CSL as it provides around 9.5 per cent of the company's total revenue.

"We feel that the Commonwealth and CSL need to put in place a new arrangement," he told Australian Biotechnology News.

But Turvey said the company had no position on the ANAO report, saying that it was an internal issue for the government.

CitiGroup Smith Barney analyst Andrew Goodsall said that the need for renegotiation of the contract was no surprise to analysts, and was unlikely to affect the share price of the company.

"Most of us have expected that it wouldn't be renewed. The company was making sounds that it would have to renegotiate," he said. "It's been a pretty favourable deal for them, so I don't think anyone thought they were entitled to get this [deal] again."