Chongqing Zhifei Biological Products Announces $3 Billion Shingrix Distribution Deal with GSK, Sparking Market Frenzy

Immediately after the holiday ended, Chongqing Zhifei Biological Products Co., Ltd., a leading vaccine company worth over 100 billion yuan, announced a significant deal valued at more than 20 billion yuan.

On October 9, Chongqing Zhifei Biological Products Co., Ltd. announced that it had signed an agreement with GSK, becoming the importer and distributor of GSK's recombinant shingles vaccine within the cooperation region in China*. The term of this collaboration extends from October 8, 2023, to December 31, 2026, with a total procurement amount of 20.6 billion yuan.

Upon the release of the news, the A-share market surged. The stock price of Chongqing Zhifei Biological Products Co., Ltd. jumped on the spot, directly rising from the closing price of 48.67 yuan per share on September 28 to 58.40 yuan per share, with an increase of 19.99%.The total market value soared to more than 140 billion yuan, with a substantial increase of 23.355 billion yuan in just one day!This trend continued further, with the company's share price reaching as high as 60.45 yuan per share on October 11.

Subsequently, multiple securities companies made predictions, believing that with the boost of GSK's shingles vaccine (trade name: Shingrix), the performance of Chongqing Zhifei Biological Products Co., Ltd. will continue to grow, and they have maintained a "buy" investment rating.

Stock Price Changes of Chongqing Zhifei Biological Products Co., Ltd. Source: East Money Network

The investors' frenzy is historically justified. With the assistance of Chongqing Zhifei Biological Products Co., Ltd., Merck's HPV vaccines (human papillomavirus vaccines, including quadrivalent and nonavalent) have sold like hotcakes in China over the past few years, generating a total revenue of approximately 35 billion yuan, accounting for more than half of China’s entire HPV vaccine market. In the first half of 2023, the global sales of Merck’s two HPV vaccines surged by 47%, with China being a major driving force.

Despite criticism due to its revenue mainly coming from代理 products, the sales capability of Chongqing Zhifei Biological Products Co., Ltd. is impressive; the significant rise in stock price itself is also a recognition of its sales ability. Similar to the HPV vaccine, the shingles vaccine also follows the "internet celebrity" route, primarily marketing on the "filial piety" appeal.Will this product repeat the sales myth of the HPV vaccine after more and more people learn about shingles and the shingles vaccine?

01

"Internet Celebrity Vaccine" Stumbles in China

Although many people are unfamiliar with shingles and the shingles vaccine, such products have long become a "red ocean" in the R&D field.Behind the optimistic sentiment in the investment market lies a harsh reality: the global performance growth of GSK's popular vaccine has slowed, facing strong competition from domestically produced vaccines in China.

From the market performance, the shingles vaccine does have the potential to become a "big hit."

The shingles vaccine has long been a coveted product in China's industry. According to incomplete statistics from public data, at least 21 local companies have already positioned themselves in this product. Among them are not only Baike Biotechnology, but also strong players such as Shanghai Institute of Biological Products, Wantai BioPharm, Walvax Biotechnology, and CanSino Biologics. Even Chongqing Zhifei Biological Products Co., Ltd. has preclinical projects under research.

Data source: Public information, HuXiu Chart

Chongqing Zhifei Biological Products Co., Ltd. is now representing GSK's product "Shingrix," which has seen a rapid surge in sales since its approval in the U.S. in 2017. Not only did it achieve impressive sales of £7.84 billion (equivalent to $9.65 billion, or 7.05 billion RMB) in its first full year on the market, but it also maintained steady growth despite the impact of the pandemic. By 2022, annual sales of the product had reached £2.958 billion (equivalent to $3.643 billion, or 26.6 billion RMB), marking a year-on-year increase of 72%.

The company plans that by 2026, the sales of this vaccine will reach 4 billion pounds.

For Shingrix, the European and American markets are currently the mainstay. However, data shows that growth has shown signs of fatigue, especially in the U.S. market, where the growth rate in the first half of 2023 was only 10%, pulling the overall growth down to a low of 20%. In contrast, emerging markets such as China are very important drivers, with annual performance growth exceeding 100%.

However, the rapid growth momentum in China today has also been challenged.Although the sales growth rate of Shingrix in markets outside Europe and America remained above 100% in the first half of the year, it faces challenges in the potential market of China— in the first half of this year, "Ganwei," a shingles vaccine produced by Baike Biotechnology, obtained the approval document from the National Medical Products Administration.

The domestically produced shingles vaccine adopts the previous generation's live attenuated virus vaccine technology route. According to Baik Biology's response to investor inquiries, the effectiveness of this vaccine is "comparable to products using the same technical route," and in terms of safety, it has "fewer side effects compared to the recombinant technology route."

The company referred to a product of the same technical route, Merck's Zostavax, which was launched in 2006 and has now been withdrawn from the market. The data published in those years showed that the highest protection rate of this product was 69.8%. Before the approval of Shingrix, it was a product with annual sales of 600-700 million US dollars. According to the instruction of the herpes zoster vaccine of Baike Biotechnology, its protective power for people over 40 years old is 57.63%.

More importantly, the price of domestically produced vaccines is more affordable — the single-dose price of Shingrix is 1,598 yuan, with a total of two doses required for full immunization, amounting to around 3,200 yuan; whereas Ganwe only costs 1,369 yuan per dose and requires just one shot. Additionally, in terms of application scope, Shingrix is suitable for people aged 50 and above, while Ganwe also covers the age group between 40 and 50.

Although the data alone suggests that Shingrix has better protective efficacy, in practice, Recombinant Zoster Vaccine has already demonstrated significant market competitiveness.

According to research data from Zhongtai Securities, the batch release volume of domestic herpes zoster vaccines in just the first half of the year reached 1.22 million doses, with Ganwei accounting for 40%. Data from the Institute for Food and Drug Control shows that as of September, China has approved 26 batches of herpes zoster vaccines this year. Although this represents an increase compared to last year, the proportion has declined. The number of batch releases by Baike Biotech already accounts for 69%.

The entry of Chongqing Zhifei Biological Products Co., Ltd. not only broke the *advantage of Shingrix in China, but also rapidly eroded the market that might have belonged to Shingrix. LZ901 (the core product of Green Bamboo Biotech), also a recombinant protein vaccine, is simultaneously preparing for a "head-to-head" study with Shingrix and planning to set its price at a new low of 500 to 800 yuan.

It can be said that the Chinese shingles vaccine market will soon enter a phase of intense competition. Before the first-mover advantage completely fades, it has become imperative for GSK to quickly bring in a strong sales partner.

02

Huddle for warmth

In fact, Shingrix is widely recognized as an excellent product — earlier published data showed that the protection rate of Shingrix can reach up to 97.2%. Moreover, due to the inherent characteristics of its technical approach, as a recombinant protein vaccine, Shingrix can also be used for patients with immunodeficiency or immunosuppressive conditions who cannot receive live attenuated vaccines.

Six years ago, this product directly pushed Zostavax, which had been on the market for more than 10 years, out of the U.S. market due to its overwhelming superiority in the protective efficacy of live attenuated vaccines. It quickly became a blockbuster product with annual sales exceeding $1 billion.

Chongqing Zhifei Biological Products Co., Ltd. has a successful track record of "managing" the HPV vaccine market, which has led to seven consecutive years of profitable performance.

However, the cooperation between the two is more about seeking mutual support in adversity than a powerful alliance.

After 2015, under the reform of China's new drug research and development evaluation and approval system, the speed of new drug development in China has far exceeded the past. This has also shortened the window period for new products from multinational pharmaceutical companies. GSK's wrong choice of partner also led to Shingrix failing to fully capitalize on its first-mover advantage.

Data shows that Shingrix was launched in China in 2019. Besides its own vaccine team, they initially chose Shanghai Pharmaceuticals as the agent.

According to the 2020 annual report of Shanghai Pharmaceuticals, Xin An Li Shi started its vaccination in early July that year. The total sales for the year reached 487 million yuan, accounting for 9.3% of the company's vaccine business revenue that year, showing relatively outstanding performance.

Thereafter, Shanghai Pharmaceuticals’ financial reports did not disclose further details about the sales of Shingrix. Judging from the overall decline in its import agency vaccine revenue, the sales outlook is not optimistic — this segment of Shanghai Pharma's income stabilized at around 4.4 billion yuan in both 2021 and 2022, a significant drop compared to 5.2 billion yuan in 2020.

In particular, Shingrix belongs to Category II vaccines (vaccines that require out-of-pocket payment), and the announcement by Shanghai Pharmaceuticals also explicitly stated that the sales of such products have been affected by epidemic control measures.

Obviously, the already extremely short "window period" for Shingrix has been wasted like this.

GSK’s senior management set a target as early as 2021 for Shingrix to achieve annual sales of £4 billion by 2026. One of the key markets driving this goal is China, where the market has just been warmed up to promote public awareness of the shingles vaccine. However, with competitors already stepping in and more new rivals on the horizon, GSK has been forced to reconsider its strategy.

In the face of upcoming fierce competition, Chongqing Zhifei Biological Products Co., Ltd. is an excellent choice.

Judging from the sales outlets alone, Shingrix has tremendous appeal. According to reports by the Beijing Business Today and other media, as of 2022, Shingrix had reached over 6,500 marketing points, covering 306 cities across China.

According to the 2022 annual report of Chongqing Zhifei Biological Products Co., Ltd., the company collaborates with over 30,000 grassroots health service points across China and has more than 3,000 sales personnel. Even during the pandemic control period, the batch release volume of Zhifei Biological’s distributed products (mainly HPV vaccines, pentavalent rotavirus vaccines, etc.) continued to grow. In 2022, the batch release volume of the two HPV vaccines maintained growth of over 50%.

One more critical point is that Chongqing Zhifei Biological Products Co., Ltd. will place significant emphasis on the market promotion of Shingrix, as they are currently at a bottleneck stage.

In terms of sales strength, Shanghai Pharmaceutical is not weak. As the second-largest giant in China's pharmaceutical industry, the company ranks among the top 50 in the global pharmaceutical sector.

For this large company with revenue exceeding 200 billion yuan, the importance of acting as an agent for imported vaccines is not that significant. Moreover, a subtle shift in focus of its vaccine business can be observed in the company's financial reports in recent years — the company’s layout of the vaccine industry chain has expanded from import distribution to production and research and development. Its subsidiary, CanSino, and its COVID-19 vaccine under research have become key areas of focus.

Chongqing Zhifei Biological Products Co., Ltd. has long relied on imported agency products, mainly HPV vaccines, for its performance growth. From the perspective of market competition, domestically produced nine-valent HPV vaccines are also accelerating their market entry, which will add pressure to the performance growth of Chongqing Zhifei Biological Products Co., Ltd.

In terms of data, although the company's revenue was still growing positively in 2022, its net profit had already shown negative growth. Although both revenue and net profit resumed positive growth in the first half of 2023, the magnitude was much lower than before.

For Chongqing Zhifei Biological Products Co., Ltd. at present, Shingrix also represents an opportunity to seek a second growth curve.

03

What are the other challenges?

Objectively speaking, there is a demand among the Chinese public for the shingles vaccine.

Herpes Zoster: An infectious skin disease caused by the reactivation of the varicella-zoster virus, which remains latent in the human body for a long time. The virus lies dormant in the dorsal root ganglia of the spinal cord or the cranial nerve ganglia and mainly spreads along peripheral nerves during outbreaks. It is colloquially referred to as "waist-wrapping dragon" in folk terms.

"It feels like using a needle to pierce from underneath the skin to the surface." Zeng Rongshan, a virology expert who once suffered from shingles, told Huxiu that the treatment of the disease usually takes at least one month, during which patients often struggle to sleep due to pain. Some patients have even expressed that the pain made them contemplate suicide.

A considerable proportion of patients will also have sequelae and complications such as neuralgia, which severely affects the quality of life. If herpes zoster occurs in areas like the eyes or ears, it results in ophthalmic herpes zoster or otic herpes zoster, which can seriously lead to facial paralysis, encephalitis, epilepsy, and even death – although the mortality rate is very low, with no more than 5 cases per million people annually.

Like most viral diseases, there is no "*cure" for this disease. Clinically, antiviral treatments mainly involve the use of drugs such as Acyclovir, Famciclovir, and Valacyclovir. Vaccines are considered to be the *effective means of prevention and control.

Research data shows that there are approximately 2.77 million new cases of herpes zoster in China each year.

Moreover, herpes zoster does not confer lifelong immunity after a single episode; 1% to 10% of patients may experience a recurrence. This also implies that individuals who have had herpes zoster still have a need for vaccination as a preventive measure.

According to Frost & Sullivan, by 2030, the market size of herpes zoster vaccines in China is expected to reach 28.1 billion yuan, increasing nearly 4600% compared to 2021, far exceeding the global market's growth of approximately 400% during the same period.

In the future, as aging deepens — by 2035, the number of people over 60 will exceed 400 million — and the trend of younger patients expands, the demand for herpes zoster vaccines in China is expected to continue growing. It can be said that the Chinese market is becoming increasingly important for global herpes zoster vaccine suppliers.

However, as more and more domestically produced products enter the market, how much each company can earn will depend on their own abilities.

Chongqing Zhifei Biological Products Co., Ltd. Takes on the "Military Order" of Shingrix, the Challenge is Also Very Severe.

Based on the contract, Chongqing Zhifei Biological Products Co., Ltd.'s committed procurement amount for the first year reached 3.44 billion yuan. Calculating with approximately 1,600 yuan per dose, at least 2.15 million doses need to be sold, involving millions of people.

In the absence of competition, Shanghai Pharmaceuticals' performance was sales of 4.87 billion yuan in half a year, equivalent to approximately 300,000 doses, covering 150,000 people. According to a research report by Zhongtai Securities, the batch release volume of Shingrix in the first half of this year was only 720,000 doses. Industry insiders believe that Shingrix's sales in the three years since its launch may not even reach 2 billion yuan.

Behind it, being expensive is almost an original sin.

In recent years, public awareness of shingles has been increasing, and willingness to get vaccinated has also improved. However, among the various factors affecting the actualization of vaccination willingness, price remains the primary one.

This disease tends to occur when the human immune system is weak, and it is more common in middle-aged and elderly groups, cancer patients, and those receiving hormone treatments. In China, the incidence of this disease has been increasing year by year, with a trend toward affecting younger people. Young individuals who frequently stay up late, experience high life pressure, and have fast-paced jobs—especially business professionals—are also highly susceptible. However, the elderly remain the primary affected group.

A Review of the Clinical and Epidemiological Characteristics of Herpes Zoster by Liu Na et al. from the Chinese Center for Disease Control and Prevention shows that: In the population aged 50 and above, 14 out of every 1,000 people are affected, while in those aged 49 and below, only 4 are affected. Moreover, the population aged 50 and above is the most price-sensitive.

In a survey conducted in Chongming District, a relatively economically developed area in Shanghai, 475 out of 845 respondents (approximately 52.21% of the total) were unwilling to receive the shingles vaccine. Of these more than 400 individuals, nearly half (about 44.42%, or 211 people) were unwilling to get vaccinated due to the high cost of the vaccine.Researchers also pointed out that the vaccination cost of 3,200 yuan imposes a heavy economic burden on middle-aged and elderly people.

This actually provides room for domestically produced vaccines, which are less efficacious but much cheaper. Chang Rongshan believes that if similar domestic products enter the market, their price could be only 30% of Shingrix, and even so, manufacturers could still enjoy a gross profit margin of over 95%. This is also where the opportunity lies for more latecomers.

As for Shingrix's主打 "family ties" and "filial piety," these marketing strategies also face challenges amid the broader trend of consumer downgrade. Especially after the launch of a domestically produced vaccine in China, which follows the same recombinant protein technology route, demonstrates non-inferiority in “head-to-head” trials, and is priced significantly lower than Shingrix.

In this case, it is worth noting whether Chongqing Zhifei Biological Products Co., Ltd. can achieve a doubling of its performance within * years amidst competition from domestically produced alternatives. The procurement amount commitments of 6.88 billion yuan for the second year and 10.32 billion yuan for the third year will not only positively impact the company's operating revenue and profits but also bring significant pressure.

From this perspective, the frenzy in the secondary market regarding the recent collaboration between Chongqing Zhifei Biological Products Co., Ltd. and GSK may have come too early.

On the other hand, Chongqing Zhifei Biological Products Co., Ltd. entering the market through agency has also put pressure on local vaccine enterprises.In addition to price advantages, domestically produced products must also demonstrate higher quality.

The development of vaccines is difficult and costly, but because they are applied to a broader healthy population, their return rate is unimaginable for medicines. In the past two years, the market growth rate of COVID-19 vaccines has been fully demonstrated.As new technologies such as AI are integrated into vaccine development, the competition in the vaccine field is expected to intensify.Vaccines such as Respiratory Syncytial Virus vaccine and Meningococcal vaccine are all fields with fierce competition.

In China, the vaccine market is expected to reach a scale of 200 billion yuan. Medical experts have pointed out that "spending 1 yuan on prevention can save 10 yuan on treatment." By this calculation, the reduction in economic burden caused by diseases will also be considerable. The increasing number of strong competitors joining the vaccine competition will undoubtedly accelerate this process, which is indeed a cause for celebration.

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