ZhiFei Biological's Herpes Zoster Vaccine R&D Falls Short of Expectations, Bets Big on GSK Agency Sales

Source: China Business Journal

Our Staff Reporters Chen Ting, Cao Xueping, Shenzhen

With the signing of an exclusive distribution agreement, the shingles vaccine market in China has been stirred up once again.

Recently,Chongqing Zhifei Biological Products Co.,Ltd.(300122.SZ) announced that the company has signed an "Exclusive Distribution and Co-Promotion Agreement" with GSK. GSK will exclusively supply Chongqing Zhifei Biological Products Co., Ltd. with its recombinant shingles vaccine and grant the company the rights to market, promote, import, and distribute the relevant products in mainland China as per the agreement. The agreement also stipulates that GSK will have priority to become the exclusive partner of Chongqing Zhifei Biological Products Co., Ltd. for the co-development and commercialization of any RSV (respiratory syncytial virus) vaccine for the elderly within the cooperation region.

In June 2020, GSK's recombinant zoster vaccine product Shingrix (Hibercell) was officially launched in China for the prevention of shingles in adults aged 50 and above. According to GSK's financial report, in 2022, Shingrix's sales in China increased by more than 100%; in the first half of this year, Shingrix's global sales reached 1.713 billion pounds.

It cannot be ignored that since entering the Chinese market, Shingrix has faced an increasing number of competitors in China. In January this year,Baike Biotech(688276.SH) The attenuated live vaccine for herpes zoster (brand name: Ganwei) has been approved for marketing, creating a competitive situation with Shingrix in the Chinese market.

It is worth mentioning that, as the agent of Shingrix, Chongqing Zhifei Biological Products Co., Ltd. has been conducting research and development on a recombinant shingles vaccine since 2019, with clinical trials expected to be approved in 2024. Regarding the potential competition between the company’s own products upon future market entry and its distributed products, Zhifei Biological did not provide any relevant explanation. Concerning the aforementioned related issues, a reporter from the "China Business Journal" sent a letter to Zhifei Biological. A relevant staff member from the Board of Directors' Office stated: “Regarding the interview matter, the leadership has not provided clear instructions, so we are currently unable to respond.”

　　Three-Year Contract Purchase Amount Approximately 20 Billion Yuan

The announcement shows that on October 8, Chongqing Zhifei Biological Products Co., Ltd. signed an agreement with GSK. The two parties mainly reached a cooperation on the supply, distribution, and co-promotion of GSK's recombinant shingles vaccine. GSK will designate Chongqing Zhifei Biological Products Co., Ltd. as the exclusive importer and distributor within the cooperation area to distribute and sell related products according to the terms of the agreement.

Regarding joint promotion matters, Chongqing Zhifei Biological Products Co., Ltd. shall be responsible for the marketing and promotion of the relevant products within the cooperation area. GSK has the right to independently decide to formulate and implement marketing and promotion activities outside of Chongqing Zhifei Biological Products Co., Ltd.'s market promotion activities. Each party shall bear its own related costs.

The term of the aforementioned cooperation agreement is from October 8, 2023, to December 31, 2026. Both parties agreed that the minimum annual purchase amounts for the recombinant shingles vaccine in 2024, 2025, and 2026 would be RMB 3.44 billion, RMB 6.88 billion, and RMB 10.32 billion respectively, totaling RMB 20.64 billion over three years.

Chongqing Zhifei Biological Products Co., Ltd. stated in the announcement that the agreement determined the minimum annual purchase amount for the recombinant shingles vaccine for the next three years, ensuring the basic supply of the products under the agreement. If fulfilled as expected, it is predicted to impact the operating revenue of the company’s agency business.Operating ProfitHave a positive impact.

On the other hand, Chongqing Zhifei Biological Products Co., Ltd. noted in the announcement: If the other party to the agreement fails to provide products as agreed or the company fails to meet the target volume as agreed, there will be risks of not fully performing the agreement; due to factors such as vaccine lot release and supply, the implementation of the agreement still has certain uncertainties regarding the improvement of the company's agency business operating performance in future agreement years; the minimum annual procurement amount agreement is not equivalent to an order and does not constitute a performance commitment.

Previously,Shanghai PharmaceuticalOnce代理Shingrix在中国的销售。据上海医药披露，2020年，其代理Shingrix的销售额达4.87亿元。此后，上海医药再也没有披露这一代理产品的相关销售情况。上海医药在年报中表示，2021年，公司进口疫苗代理业务中的二类疫苗销量受到疫情防控的影响。直至今年上半年，该业务逐渐回升。

According to GSK's financial report, in 2021, Shingrix's sales in China were 600 million yuan, and in 2022, it achieved a year-on-year growth of over 100%, meaning sales exceeded 1.2 billion yuan. In 2022, Shingrix's global sales increased by 72% year-on-year, reaching 2.958 billion pounds.

Chongqing Zhifei Biological Products Co., Ltd. has taken over the exclusive distribution and co-promotion of Shingrix in the China cooperation region. In its announcement, the company stated, "The achievement of this cooperation reflects the company’s market promotion capabilities, demonstrating that our professional and efficient market competence, as well as our vertically extensive marketing network, have gained recognition from more business partners." The company will fully utilize its marketing network to ensure the proper implementation of the agreement.

According toGuotai JunanThe securities research team estimates that, according to the minimum annual procurement amounts stipulated in the agreements signed for 2024-2026, the deals are expected to contribute profit increases of RMB 1 billion, RMB 2 billion, and RMB 2.9 billion respectively to Chongqing Zhifei Biological Products Co., Ltd. within the corresponding years.

Notably, apart from the recombinant shingles vaccine, Chongqing Zhifei Biological Products Co., Ltd. and GSK have also agreed to work towards further discussions on initiating a strategic cooperation to introduce GSK’s RSV vaccine for the elderly into the cooperation region as soon as possible. Zhifei Biological Products has agreed to grant GSK the right of first refusal to become its exclusive partner for the co-development and commercialization of any RSV vaccine for the elderly within the cooperation region. In May this year, Arexvy, an RSV vaccine developed by GSK, received FDA approval for marketing, becoming the world's first approved RSV vaccine.

　　Self-developed progress falls short of expectations

In the industry, Chongqing Zhifei Biological Products Co., Ltd. is known as the "King of Vaccine Agency". On the other hand, among its self-developed products, only the COVID-19 vaccine has stood out in recent years.

Regarding the exclusive distribution of Shingrix, Chongqing Zhifei Biological Products Co., Ltd. stated in its announcement, "The achievements in the company's agency business have laid a solid foundation for continuously increasing investment in independent research and development, promoted the continuous improvement of the company's R&D and innovation capabilities, and are conducive to the comprehensive, healthy, and sustainable development of the company's main business."

In fact, Chongqing Zhifei Biological Products Co., Ltd. is also developing related products for the herpes vaccine. The 2023 semi-annual report shows that the company's preclinical projects include a recombinant shingles vaccine (CHO cells) and an inactivated varicella-zoster vaccine, both of which were in the preclinical research stage in the first half of this year. Among them, the recombinant shingles vaccine project is expected to file for clinical trials in 2023 and receive clinical approval in 2024.

As early as in the 2019 annual report, Chongqing Zhifei Biological Products Co., Ltd. predicted that the recombinant shingles vaccine R&D project would complete preclinical research and apply for clinical trials in 2020, and obtain clinical trial approval in 2021. However, the current situation indicates that the development progress of this product has fallen behind the company’s previous expectations. Annual reports from 2020 to 2022 show that the recombinant shingles vaccine of Chongqing Zhifei Biological Products Co., Ltd. has remained in the preclinical research stage during these years without any progress, and the company has not provided relevant explanations. It remains unknown what impact the agency of Shingrix will have on the self-developed recombinant shingles vaccine by Chongqing Zhifei Biological Products Co., Ltd., and how subsequent cooperation will address competition from similar products.

However, compared to the potential future competition between self-developed products and agency products, what confronts Chongqing Zhifei Biological Products Co., Ltd. now is the competition that the research, development, and market launch of domestically produced herpes zoster vaccines in China pose to GSK's Shingrix.

Data provided by the National Institutes for Food and Drug Control shows that in the first half of the year, there were a total of 17 batches of herpes zoster vaccine lot releases in China, of which GSK and Baik Biologics accounted for 7 batches and 10 batches, respectively.

Recently, Baike Biotechnology announced that it is expected to achieve in the third quarter of 2023Operating RevenueRMB 640 million - RMB 740 million, resulting in归属于上市公司股东的Net ProfitCompared with the same period last year, the increase was mainly due to the launch of the attenuated live vaccine for herpes zoster, which enriched the company's vaccine portfolio and contributed to an expected year-on-year rise in overall revenue and net profit. The company forecasts a net profit between 188 million yuan and 239 million yuan for the third quarter of this year, representing an increase of 49.75 million yuan to 100 million yuan compared to the same period last year, a year-on-year growth of 35.99% to 72.88%, and a quarter-on-quarter growth of 102.15% to 156.98%.

BioRay Biotech announced in its report that during the reporting period, the company actively promoted the access and sales of its live attenuated herpes zoster vaccine across various regions in China. Access has been completed in 30 provinces, with sales and vaccinations gradually being implemented. Meanwhile, the company is actively expanding its promotional channels, building a digital marketing model, and taking multiple measures to increase the market coverage of this product.

Public information shows that in April this year, Baike Bio obtained the "Biological Product Batch Release Certificate" for its attenuated live herpes zoster vaccine. Compared with Shingrix, Ganwei has a wider range of suitable population, applicable to people over 40 years old. In addition, Ganwei is a single-dose vaccination program, priced at 1369 yuan per dose. Shingrix requires two doses, priced at 1598 yuan per dose.

Previously, Baike Biotech stated in an investor survey, "Based on the incidence rate of the control group in our Phase III clinical trial, the incidence rate of herpes zoster is 12.6 per 1,000 person-years. With nearly 700 million people above the age of 40, and referring to the vaccination situation of other adult-applicable vaccines like the flu vaccine, the market potential for the herpes zoster vaccine is sufficiently large. The key focus is to attract vaccine recipients and enhance public willingness to get vaccinated."

According to Frost & Sullivan, in 2021, the vaccination rate for shingles among China’s population aged 50 and above was 0.1%, significantly lower than the 5.2% in the EU and 26.8% in the United States. In terms of sales revenue, China's shingles vaccine market grew from 0 in 2015 (no approved products) to 600 million yuan in 2021. It is expected to reach 10.8 billion yuan by 2025, with a compound annual growth rate (CAGR) of 103.8% from 2021 to 2025, and may further increase to 28.1 billion yuan by 2030.

Facing a blue ocean market worth hundreds of billions in China, other vaccine development companies are also catching up. In September this year, Green Bamboo Biotech (2480.HK) launched a multi-center, randomized, double-blind, placebo-controlled Phase III clinical trial in China for its self-developed recombinant shingles vaccine (LZ901). The company expects to submit a Biologics License Application (BLA) for LZ901 to the National Medical Products Administration in the fourth quarter of 2024.

According to the data from Pharma Intelligence, as of now, companies involved in the research and development of shingles vaccines includeWantai Bio（603392.SH）、Kangtai Bio（300601.SZ）、Chengda Bio(688739.SH), etc.