Three Key Questions on the Future Prospects of China's Vaccine Leader: Zhifei Biological

Oct 14, 2023 07:23 CST Updated 07:23

ZFSW

Vaccine R&D and Manufacturing Companies

GSK

Pharmaceutical R&D Manufacturer

Market Value Surges Over 23 Billion Yuan, First Near-Limit-Up Close in Three Years — On October 9, Chongqing Zhifei Biological Products Co., Ltd. Once Again Became the Focus of Public Attention with Its Outstanding Secondary Market Performance.

According to the disclosed information, Chongqing Zhifei Biological Products Co., Ltd. has signed an exclusive vaccine distribution and co-promotion agreement with GSK. In addition to obtaining the exclusive distribution rights for GSK's shingles vaccine Shingrix (Hibrix), it has also secured the priority commercialization rights for the RSV vaccine Arexvy.

Regarding the shingles vaccine, the initial term of the strategic agreement between the two parties is three years, with the possibility of renewal upon expiration. In terms of commercial scale, both parties have jointly agreed that during the period from 2024 to 2026, the annual minimum purchase amounts for the recombinant shingles vaccine are expected to be 3.44 billion yuan, 6.88 billion yuan, and 10.32 billion yuan, respectively, totaling over 20.6 billion yuan.

Stock Price Rises, Reigniting Public Recognition of the "Vaccine Leader's" Potential. Chongqing Zhifei Biological Products Co., Ltd. is the first vaccine-listed company in China to break through the 200 billion yuan market value mark. This success is largely due to its agency for Merck's HPV vaccine. Although the benefits from the agency of the HPV vaccine have diminished with the approval of more competing products, this "once successful" case is enough to make GSK willing to partner with Zhifei Biological Products for a trial.

Since entering the Chinese market in 2019, Shingrix, the first shingles vaccine available in China, has not performed optimistically, especially when compared to overall growth rates. The penetration rate in the Chinese market still has significant room for improvement. GSK hopes to leverage the local advantages of Chongqing Zhifei Biological Products Co., Ltd. to achieve a breakthrough. On the other hand, Zhifei Biological also needs GSK's key products to tell a new story—while Zhifei Biological remains the leader in China’s vaccine stock market, its market value has dropped to less than 140 billion yuan.

The question is, how much longer can the agency model continue? A review of Chongqing Zhifei Biological Products Co., Ltd.'s history reveals that the revenue fluctuations between agency and self-developed products have never disappeared. The success of the agency HPV vaccine has also amplified the company's anxiety over the lack of a strong self-developed pillar segment.

In the "post-HPV agent" era, Chongqing Zhifei Biological Products Co., Ltd. may need to provide an answer on whether to go left or right as soon as possible.

1
Can Zhifei help GSK expand the market in China?

Herpes zoster is caused by the reactivation of the varicella-zoster virus, which remains latent in the nervous system of most adults over 50 worldwide. As people age, the cell-mediated immunity specific to the varicella-zoster virus gradually declines, increasing the risk of developing herpes zoster and potentially leading to postherpetic neuralgia.

Vaccination against shingles not only effectively prevents the occurrence of shingles, but also reduces the risk of recurrence by approximately 50%. The recurrence rate for those who have not been vaccinated is about 4%-6%.

Given the huge market potential for the prevention and treatment of shingles and postherpetic neuralgia in the elderly, the shingles vaccine has always been considered a high-quality track.

China reports approximately 1.56 million new cases of shingles annually among people aged 50 and above, and aging will undoubtedly increase the burden of this disease. However, compared with developed countries, the vaccination rate for shingles among China’s population aged 50 and above is significantly lower.

Vaccine expert Tao Linapoints out that this is mainly due to the difficulty in promoting vaccination among the elderly population—on one hand, the herpes zoster vaccine is expensive, and on the other hand, the elderly have concerns about the safety of vaccines. As a result, the penetration rate of the herpes zoster vaccine in China has remained very low.

Currently, there are only two vaccines that have been approved for marketing in China: GSK's Shingrix and Baik Biologics' Ganwei.

Shingrix's commercial performance in China has not been particularly outstanding. This may be due to limited production capacity in the early stages of its launch, followed by the impact of COVID-19. Additionally, in January 2023, the launch of China's first domestically produced shingles vaccine, Ganwei, had a certain impact on it.

As of September 10, Baik Biotech's Ganwei has been approved for 15 batches, with an estimated total of around 500,000 doses, while GSK's Shingrix was issued 6 batches before September 10. From 2020 to 2022, the number of batches issued were 16, 5, and 7 respectively. In terms of the number of batch releases, Ganwei has indeed put pressure on Shingrix.

Perhaps precisely because of this, GSK realized the need to choose a partner to "outsource" the commercialization of Shingrix. Can this choice help GSK expand its market in China?

From the perspective of the market landscape for herpes zoster vaccines in China, in addition to the already approved Shingrix and Ganwei, there are 14 other companies with competitive products in development. Shingrix is a recombinant protein vaccine, while Ganwei is a live attenuated vaccine, representing two different technological approaches.

Tao Linar believes that Shingrix has a clear advantage in terms of efficacy, with its various efficacy data almost comprehensively surpassing live attenuated vaccines. However, its disadvantage lies in its high price, and it also requires two injections, while Ganwei only needs one injection. Even though the unit price difference is not significant, the price of Ganwei is only half that of Shingrix.

Looking at the performance of Shingrix since its launch. In 2018, the first full year after Shingrix was launched, sales revenue exceeded 1 billion US dollars; in 2020, its sales revenue exceeded 2.7 billion US dollars; in 2022, sales revenue reached 3.2 billion US dollars, increasing by 72% year-on-year, with a 100% increase in China. In the first half of this year, Shingrix has achieved an income of 1.713 billion pounds.

Looking at the sales capability of Chongqing Zhifei Biological Products Co., Ltd., in 2022, the revenue from its agency products increased from 3.888 billion yuan in 2018 to 34.975 billion yuan, and the overall profit rose from 1.451 billion yuan to 7.539 billion yuan. These figures indicate that the company's sales capability is quite strong.

GSK has an advantage in product efficacy, while Chongqing Zhifei Biological Products Co., Ltd. excels in distribution. With strong product efficacy and superior distribution channels, it seems only a matter of time before Zhifei helps GSK expand its market in China.

As Tao Li said, Chongqing Zhifei Biological Products Co., Ltd. has strong sales capabilities, and GSK's vaccines have unique efficacy advantages. The two companies are a powerful combination, and the cooperation with Zhifei will address the shortcomings in the promotion of GSK's shingles vaccine. He believes that, in all aspects, it is a good idea for GSK to entrust Shingrix to Zhifei as its agent.

2
Is the RSV vaccine just "pie in the sky"?

In the cooperation between Chongqing Zhifei Biological Products Co., Ltd. and GSK, another noteworthy aspect is that Zhifei Biological Products has obtained the priority commercialization rights for the RSV vaccine Arexvy.

RSV is a common respiratory infection that typically causes mild cold-like symptoms but can also lead to death in severe cases. This highly contagious RSV mainly causes lower respiratory tract infections such as bronchiolitis and pneumonia in infants under 6 months, and may lead to life-threatening lower respiratory diseases in children under 5, the frail, and the elderly. Globally, RSV results in over 336,000 hospitalizations and 14,000 deaths among the elderly each year.

Since the 1960s, scientists have been working on RSV vaccine research, and it is only this year that the commercialization of RSV vaccines has finally brought a breakthrough. Currently, there are only two RSV vaccines approved for marketing worldwide, which come from GSK and Pfizer, respectively. These two RSV vaccines were approved in May and June this year. At present, GSK's RSV vaccine(AS01E Adjuvant System)Also approved for clinical trials in China.

In this collaboration, GSK has committed to prioritizing Chongqing Zhifei Biological Products Co., Ltd. as the preferred exclusive partner for the co-development and commercialization of any RSV vaccine for the elderly within the cooperation region. In terms of efficacy, GSK's Arexvy is considered to have a comparative advantage in comprehensive effectiveness among the three RSV vaccines that have successfully reached Phase III clinical trials globally.

In this sense, Chongqing Zhifei Biological Products Co., Ltd.'s priority seems to be a definitive positive. However, from a realistic perspective, Arexvy received clinical approval in China this June, and the road to market launch still appears to be long.

According to Tao Linav's prediction, it may take at least five more years for Arexvy to move from clinical trials to final commercialization in China. On one hand, Arexvy is currently mainly targeted at the elderly population, but there is relatively low attention on this group in China, making clinical research more difficult. On the other hand, RSV is not considered a legally defined infectious disease, and there is also a lack of policy support for pathogen diagnosis.

Moreover, in Tao Li's view, Arexvy has only been on the market abroad for a few months, and its effectiveness still needs clinical validation. Arexvy also faces safety issues, as antibody-dependent enhancement is a challenging aspect of RSV vaccine development. If widely applied, such incidents could still occur.

Before commercialization, Arexvy faces no shortage of potential competition. Zirubenew, developed by Ark Biopharmaceuticals, and Beyfortus, an RSV monoclonal antibody from AstraZeneca, were submitted for marketing approval in China in December 2022 and May 2023, respectively. Both have been granted priority review status by the CDE and are highly likely to be launched within a year. In this context, whether Arexvy can be the first to enter the Chinese market is crucial.

3
Can the "middleman" model continue?

Chongqing Zhifei Biological Products Co., Ltd.'s Q1 2023 financial report shows that during the reporting period, revenue reached 11.173 billion yuan and net profit was 2.032 billion yuan, representing year-on-year growth of 26.37% and 5.68%, respectively. However, on the same day, its stock price moved in the opposite direction, falling by 3.08% and dropping more than 65% from its historical high.

The reason behind this contrast may be the doubts and concerns about the business development model of Chongqing Zhifei Biological Products Co., Ltd. The company's substantial revenue mainly comes from代理 products, while the income from self-developed products is low.

Breaking down the revenue sources of Chongqing Zhifei Biological Products Co., Ltd. in 2022, the revenue from the agency product business amounted to 34.975 billion yuan, accounting for 91.4%. In contrast, its self-developed product revenue accounted for only 8.6%, appearing extremely thin. The self-developed product revenue includes income from the COVID-19 vaccine, which is not expected to be sustainable in the future.

In the past, the huge revenue of Chongqing Zhifei Biological Products Co., Ltd. mainly relied on the profits generated from the distribution of Merck's HPV vaccine. However, as the speed of China-produced substitution for the HPV vaccine accelerates, this part of the income is likely to decrease in the future.

Regarding the risk of Chongqing Zhifei Biological Products Co., Ltd. relying heavily on agency products, Tao Linapplied that such concerns are reasonable. However, he believed that most vaccines on the market are mainly for children, and due to the sharp decline in the number of births at present, the shrinking of this vaccine market capacity is an inevitable trend.

Two vaccines distributed by Chongqing Zhifei Biological Products Co., Ltd. include Merck's HPV vaccine for the general adult population and a shingles vaccine targeting the elderly. Both vaccines have relatively strong competitive advantages in China, while also avoiding the shrinking market for pediatric vaccines caused by the sharp decline in newborns. Based on this, Tao Li纳 (Tao Li-na) stated that, in terms of ultimate benefits, distributing superior products may far outweigh developing a highly competitive pediatric vaccine product with a continually shrinking market.

Moreover, he believes that the impressive performance of Chongqing Zhifei Biological Products Co., Ltd. in distributing Merck's HPV vaccine demonstrates its ability to "tell a good story." Regarding the shingles vaccine, the vaccine produced in China by Baik Biologics is highly safe, low-cost, and requires only one dose; however, these advantages seem slightly overshadowed when compared to its efficacy. He is confident that with Chongqing Zhifei Biological Products Co., Ltd.'s strong distribution capabilities, GSK's Shingrix can still gain traction in the Chinese market.

Therefore, Tao Li纳 predicted that the business development model of Chongqing Zhifei Biological Products Co., Ltd., acting as a "middleman," could last at least 2-3 years. However, the final outcome remains uncertain and will likely require continued market observation.

References:

1. The $10 Billion RSV Blue Ocean: GSK and Pfizer’s Competitive Review Approaching, Could Moderna Overtake Them?

2.Nature Sub-Journal: Peak Efficacy Exceeds 90%, RSV Vaccine Receives Milestone Approval

3. The Top Vaccine Player Defies Fate

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Three Key Questions on the Future Prospects of China's Vaccine Leader: Zhifei Biological

ZFSW

GSK

1Can Zhifei help GSK expand the market in China?

2Is the RSV vaccine just "pie in the sky"?

3Can the "middleman" model continue?

1
Can Zhifei help GSK expand the market in China?

2
Is the RSV vaccine just "pie in the sky"?

3
Can the "middleman" model continue?