Zhifei Biological's Strategic Partnership with GSK: A Pivotal Move to Diversify Beyond HPV Dependency

On October 9, Chongqing Zhifei Biological Products Co., Ltd. announced that it had signed an exclusive distribution and co-promotion agreement with GSK. GSK will designate Zhifei Biological as the exclusive importer and distributor of the recombinant shingles vaccine within the cooperative region, and this agreement will continue until the end of 2026. Additionally, GSK will prioritize becoming Zhifei Biological's exclusive partner for the co-development and commercialization of any RSV vaccine for the elderly within the cooperative region (mainland China), and this strategic cooperation will be discussed and carried out as soon as possible.

In the next three years, the two parties have agreed on the minimum annual purchase amount for the shingles product each year, totaling 20.64 billion yuan over three years.

(Source: Announcement by Chongqing Zhifei Biological Products Co., Ltd.)

GSK is one of the undisputed global leaders in the vaccine field, and its Shingrix is the first vaccine approved in China and even globally.Recombinant herpes zoster vaccine (Globally, the only competitor is Merck, which has lost in the competition, and domestically in China, there is only Baike Biotechnology), and its Arexvy is also one of the only two globally launched.RSV vaccine product (the other one is Pfizer).

In this way, Chongqing Zhifei Biological Products Co., Ltd. will have the rights to import and commercialize domestically among the future top ten global vaccine varieties. Excluding COVID-19 vaccines in 2021, Merck's HPV nine-valent vaccine and GSK's shingles vaccine ranked respectively globally.FirstAndFifthIn addition, due to Arexvy's superior efficacy in the RSV vaccine field and being the first vaccine approved in the United States, the United Kingdom, and the European Union, institutions predict...ArexvyWill lead the market by 2030, with annual sales reaching$3.7 billion。

This news also strongly stimulated the stock price, causing Chongqing Zhifei Biological Products Co., Ltd. to hit the 20% upside limit on the same day.

01

Why is it called "defying fate and changing destiny"”？

Chongqing Zhifei Biological Products Co., Ltd. still hasn't shaken off the shadow of relying on a single product.

2019-2021,The proportion of Chongqing Zhifei Biological Products Co., Ltd.'s self-developed products in total revenue once showed a rapid catch-up situation compared to its agency products., increasing from 12.5% to 31.66%.

The 2022 report poured cold water,Self-developed ProductsRevenue reached 3.285 billion yuan (accounting for 8.59% of total revenue).）, a year-on-year decrease of 66.12%; on the other hand, agency products accounted for 91.4% of total revenue, a year-on-year increase of 67.09% (as is known to all, agency products are mainly HPV vaccines).。

(Source: Huatong Securities)

In recent years, the competition for HPV vaccines has become increasingly fierce. The bivalent HPV vaccines produced in China, developed by Wantai Bio and Walvax Bio, have already been approved. The quadrivalent vaccine produced in China, with products under research by the Beijing and Chengdu Institutes of Biological Products, is currently in phase III clinical trials.

The nine-valent vaccine with the largest market share, KangLeWeiShi, Jiangsu Ruike, Wantai Bio, and Bowei Bio are in Phase III clinical trials.In October 2022, the CDE released the "Technical Guidelines for Clinical Trials of Human Papillomavirus," which is expected to shorten the time to market for some domestically produced vaccines under research. Industry insiders pointed out that Chongqing Zhifei Biological Products Co., Ltd. may face competition from Wantai Biologics' nine-valent HPV vaccine by 2025 and from the Chengdu Institute's four-valent HPV vaccine between 2023 and 2024.

Despite the smooth progress of multiple products from Chongqing Zhifei Biological Products Co., Ltd., including 23-valent pneumococcal vaccine, quadrivalent influenza split vaccine, and rabies vaccine, most of its products...The technological route shows limited breakthrough innovations compared to already-listed players, and can still only capture market share through post-listing competition. Additionally, due to the excessively large revenue scale of Chongqing Zhifei Biological Products Co., Ltd.'s agency products (nearly 35 billion RMB in 2022), these self-developed products struggle to fully compensate. Moreover, the company’s key tuberculosis product under development has yet to mature, which means Zhifei needs at least two more blockbuster products to reshape its growth trajectory.

It is worth noting that this cooperation with GSK has significant emotional and expected value. The core significance lies in: 1) The company's management team is not idle but actively seeking new growth points; 2) Although a single product like the shingles vaccine cannot compensate entirely, there is still the expectation of an RSV vaccine, which can smooth out or hedge against the future decline impact of HPV products.

02

Can the Shingles Vaccine Break Through in China?

Herpes zoster is an acute inflammatory skin disease caused by the varicella-zoster virus infection, which is highly age-related. Data shows that over 90% of adults are at risk of herpes zoster, and the risk increases sharply for people over 50 years old.

Not vaccinatedHerpes ZosterThe recurrence rate of vaccinated patients is about 4% to 6%. Vaccination against shingles can effectively preventThe Occurrence of Herpes Zoster, while the risk of shingles recurrence in patients was reduced by approximately 50%.

DespiteShingrix was launched as early as 2017, butThe potential of the domestic market is just beginning to blossom, driven by the core logic of low vaccination rates and an aging population.

According to Frost & Sullivan data:2021The vaccination rate for shingles among people aged 50 and above in China is 0.1%, significantly lower than the 5.2% in the European Union and 26.8% in the United States; additionally, in terms of sales revenue, the domestic shingles vaccine market increased from 0 in 2015 (no approved products) to 600 million yuan in 2021.Expected 2025Will increase to 10.8 billion yuan, with a compound annual growth rate of 103.8% from 2021 to 2025.Expected by 2030Increased to 28.1 billion yuan.

At this point, some investors might ask: since the market is so attractive, wasn’t Shanghai Pharmaceuticals the original partner for GSK’s shingles vaccine? Why has it shifted to Chongqing Zhifei Biological Products Co., Ltd.?

It is speculated that there may be two levels of reasons. One is that the vaccine agency contracts are generally signed every three years.Shingrix was launched in 2020, and now the three-year period has ended, with both parties choosing not to renew the contract; secondly, GSK was not satisfied with the performance of the partner.Shingrix was initially constrained by limited production capacity upon its launch in China, and later affected partly by the pandemic. In the second quarter of 2023, its batch release volume was closely chased by a latecomer, Baike Biotech, which might have made GSK realize the need for a stronger and more aggressive partner to assist with its commercialization in China.

Since Shingrix entered the Chinese market in 2020, its sales have continued to grow, GSK's annual report shows:2021ShingrixIn ChinaSales amounted to 600 million RMB,In 2022, revenue growth exceeded 100% year-over-year, with sales surpassing 1.2 billion.

Baike Biotech's Shingles Vaccine "GSK"As the second approved product in China (January 2023), it also benefits from the rapidly growing shingles vaccine market. As ofIn July 2023, the cumulative batch release volume of herpes zoster vaccines in China reached 1.22 million doses, with Ganwei accounting for over 40%.The rapid increase in sales of Chongqing Zhifei Biological Products Co., Ltd. also enabled Baik Biotech to achieve success in the first half of the year.Revenue of 540-580 million yuan, andNet ProfitAn increase of 42.72-63.11% year-over-year

However, for Chongqing Zhifei Biological Products Co., Ltd., the annual minimum purchase amount agreed upon by both parties is also a challenge. Assuming 2023...Shingrix needs to achieve a compound annual sales growth rate of 72.8% from 2023 to 2026 to reach a procurement volume of 10.32 billion yuan by 2026, with the potential to achieve 20 billion yuan in sales.

If Chongqing Zhifei Biological Products Co., Ltd. can truly accomplish the task, then the revenue from the shingles vaccine alone will be able to cover approximately one-third of the revenue from HPV vaccines.

03

A Bigger "Pie": RSV Vaccine

RSV is a common respiratory virus that is widely present globally, primarily infecting individuals with weaker immune systems such as infants, young children, and the elderly, and is considered one of the three major respiratory diseases. Data shows: approximately 64 million people worldwide are infected with RSV each year, leading to about 160,000 deaths annually, including more than 100,000 children under the age of 5, imposing a heavy burden.

The reason why the RSV track is called a "highly promising billion-dollar market" is not only due to its wide population coverage and susceptibility to repeated infections, but also related to the previous scarcity of preventive and therapeutic drugs. Before the launch of the two RSV vaccines,RSV virus prevention drugs are onlyPalivizumab (used exclusively for RSV prevention in specific high-risk infants), despite its limited efficacy, still reached a sales peak of $1.6 billion.

Data from灼识咨询 shows that the global market size for RSV drugs (including both treatment and preventive drugs) is expected to grow from $1.8 billion in 2020 to $12.8 billion by 2030, with a compound annual growth rate (CAGR) of 21.4%.

For Chongqing Zhifei Biological Products Co., Ltd., GSK's RSV vaccine is not only the first product to be approved globally, but also the one with relatively superior overall efficacy among the three RSV vaccines that have successfully completed Phase III clinical trials worldwide.

GSK's RSV vaccine was approved for clinical trials in China in June 2023.ArexvyAs an imported vaccine, it still needs to undergo clinical trials to prove its efficacy for the Chinese population before it can be marketed (complete all three phases of clinical trials).）, so it will take at least about 3 years before its commercial implementation.

Currently, as there are no products on the market in China and pricing is also unclear, but with a large market demand, it adds a touch of "mysterious beauty" to Zhifei's future.

Conclusion:This cooperation agreement alone can only be considered a medium to short-term stimulus for a company of Chongqing Zhifei Biological Products Co., Ltd.'s scale. If it aims to "change its destiny completely," it is far from enough, but at least it has made some progress.Step 1。

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