Driven by the market launch of COVID-19 vaccines and a low base effect, Zhifei Biological (300122.SZ) reported an 80% year-on-year increase in net profit for the first quarter.
The latest financial report shows that Chongqing Zhifei Biological Products Co., Ltd. achieved a revenue of 3.927 billion yuan in the first quarter of 2021, an increase of 49.04% year-on-year; it realized a net profit attributable to shareholders of the parent company of 942 million yuan, an increase of 79.68% year-on-year.
Currently, Zhifei Biologicals’ revenue is derived from the distribution of blockbuster products from multinational pharmaceutical company MSD—namely, the 9-valent HPV vaccine and the 4-valent HPV vaccine, both of which are exclusive offerings. In 2020, revenue from the distribution of non-immunization program vaccines accounted for 91.86% of Zhifei Biologicals’ total revenue, reaching RMB 13.955 billion.
The increase in agency sales revenue from HPV vaccines contributed primarily to the performance growth. Data from the National Institutes for Food and Drug Control (NIFDC) show that in the first quarter of this year, the batch release volume of quadrivalent HPV vaccines reached 1.66 million doses, a year-on-year increase of 47.46%; the batch release volume of nine-valent HPV vaccines reached 1.21 million doses, a year-on-year increase of 191.02%.
Although the volume of vaccines approved for batch release cannot be directly linked to a company’s current-period revenue, it basically reflects the sales performance of Zhifei Biological Products’ distributed vaccines in the first quarter of 2020. The substantial year-on-year increase in batch release volume was partly attributable to the relatively low base in the same period of 2020.
Until now, the market demand for imported HPV vaccines remains high, and there are currently no domestic products posing a "threat" to the nine-valent and quadrivalent vaccines. Therefore, Zhifei Biological will continue to rely on HPV vaccine sales, with this portion of performance being relatively easy to predict.
On December 22, 2020, Zhifei Biological Products and MSD renewed their procurement agreement for HPV vaccines and other products, stipulating that the procurement amount for Zhifei Biological Products' HPV vaccines in 2021 would be RMB 10.289 billion, with the option to increase it to RMB 12.04 billion; the total procurement amount for the pentavalent rotavirus vaccine, 23-valent pneumococcal vaccine, and inactivated hepatitis A vaccine was set at RMB 1.318 billion, among which the procurement amount for the pentavalent rotavirus vaccine could be increased from RMB 1.04 billion to RMB 1.3 billion.
The procurement amount also directly determined the upper limit of Zhifei Biological’s performance in 2021. In 2020, the procurement cost of biological products distributed by Zhifei Biological reached RMB 9.009 billion. Assuming that the revenue growth rate of Zhifei Biological’s distributed products closely matched the growth rate of procurement amounts, the corresponding revenue growth range for its distributed products in 2021 was estimated to be between 31.72% and 51.15%.
Clearly, Zhifei Biologics’ performance has become an “open book.” Since 2020, the company’s stock price has still risen by more than 277%, primarily due to high market expectations for another blockbuster product—its COVID-19 vaccine.
The product developed by Zhifei Biological is the Recombinant Novel Coronavirus Vaccine (CHO Cell), with the brand name Zikewei. Zikewei is a recombinant subunit vaccine, which works by using genetic engineering techniques to cultivate cells in vitro to express effective antigen components.
Hepatitis B vaccine is the most typical recombinant subunit vaccine, characterized by the absence of live virus in its production process, which ensures a higher safety profile and facilitates large-scale manufacturing. Like the hepatitis B vaccine, ZKSW (Zhike Weide) requires a three-dose regimen, distinguishing it from other COVID-19 vaccines currently marketed in China.
The development of ZHIFIVAX took approximately one year. On March 9, 2021, Chongqing Zhifei Biological Products Co., Ltd. announced the initiation of Phase I clinical trials for its COVID-19 vaccine; on March 17, 2021, ZHIFIVAX received approval from the National Medical Products Administration, following expert review, for emergency use, becoming the fifth COVID-19 vaccine approved in China.
Next, Zhikeweide will begin contributing revenue, with production capacity being the key performance variable. Public information indicates that Zhikeweide's current annual production capacity has reached 300 million doses. Based on the full-year 2021 shipment volume of 225 million doses of COVID-19 vaccine and a price of RMB 50 per dose, Zhikeweide could contribute annual revenue of RMB 11.25 billion.
If calculated based on Zhifei Biological’s net profit margin of 22% in 2020, this portion of revenue would contribute RMB 2.475 billion to the net profit attributable to shareholders of the parent company, equivalent to 75% of the full-year net profit attributable to shareholders of the parent company in 2020.
Only in this way can Zhifei Biologicals potentially “digest” its current valuation. Assuming Zhifei Biologicals achieves a 100% year-on-year growth in performance for the full year, with net profit attributable to shareholders reaching RMB 6.6 billion in 2021, its price-to-earnings (P/E) ratio would still stand at a high 45 times based on a total market capitalization of RMB 299.2 billion. Notably, Zhifei Biologicals’ market capitalization had already surpassed the RMB 300 billion mark as early as July 2020.
Whether Zhikeweide can successfully achieve volume ramp-up is the biggest uncertainty for Zhifei Biologicals in 2021.