SFOSF - Innovative Drugs Soothe Fosun Pharma From Pain Of Fading Covid Vaccine

2023-04-04 10:00:00 ET

Summary

• Fosun Pharma’s net profit fell more than 20% last year due to a 30% drop in sales of its Comirnaty Covid vaccine and investment losses.
• The company’s innovative drugs generated more than 10 billion yuan during the year.
• Fosun Pharma’s broader strategy has won over big investment houses.

With China’s pandemic controls ending and the WHO adjusting its vaccination recommendations, demand for the company’s Comirnaty vaccine is plunging.

This pharmaceutical company saw one medicine cabinet closed but another older one opened wider in 2022.

That’s the feeling you get from the latest annual results for integrated pharmaceutical group Shanghai Fosun Pharmaceutical (Group) Co., Ltd. ([[SFOSF]]; 2196.HK; 600196.SH), which provided a mixed medical bag for investors. On the painful side, the company recorded a big drop in revenue from Covid vaccines. But that was nicely offset by advances for innovative drugs with longer-term potential.

Fosun Pharma’s revenue grew 12.7% last year to 43.8 billion yuan ($6.35 billion) for the year, but its net profit fell 21.1% to 3.73 billion yuan, down from the 30% growth for both revenue and profit in 2021. The company blamed the net profit reversal on depreciation of financial assets, led by 1 billion yuan in fair value losses from the sale of its shares in German biotech company BioNTech ( BNTX ). Excluding such one-time items, its net profit was up 18.4% to 3.88 billion yuan last year.

Fosun Pharma’s shares didn’t move much after the results were announced late last month, trading around the HK$22 level for four consecutive trading days. But the stock is down more than 70% from its peak of HK$82 in August 2021, not long after it announced its deal to sell BioNTech’s Comirnaty mRNA Covid vaccine in China, Hong Kong, Taiwan and Macau.

Its Hong Kong-listed shares trade at a price-to-earnings (P/E) ratio of just about 14 times, lower than 23 times for its Shanghai shares. Such gaps commonly exist between shares listed inside and outside mainland Chinese markets, reflecting stronger investor optimism among domestic stock buyers.

Fosun Pharma’s main businesses cover pharmaceuticals, medical devices, medical diagnostics and medical and health services. The largest of those is pharmaceuticals, which contributed 30.8 billion yuan last year, mainly from newly launched products as well as revenue from sub-new products, accounting for more than 70% of the total.

The category contained five drugs with annual sales over 1 billion yuan, including the Covid vaccine Comirnaty; Hanquyou for HER2-positive breast cancer field treatment; Hanlikang for non-Hodgkin lymphoma and chronic lymphocytic leukemia; the oral Covid drug Azvudine tablets; and heparin series preparations.

Comirnaty and Azvudine tablets are both designed to prevent and treat Covid infections. The former has been sold to Hong Kong, Macau and Taiwan since March 2021, recording sales of around 22 million doses, helping to drive a 32.1% increase in revenue for the pharmaceutical business in 2021.

But as the vaccination rate peaked, Comirnaty sales tumbled 30% to just 15.54 million doses last year. The Azvudine tablets, jointly developed with Genuine Biotech , took up some of the slack following their approval for emergency use in July. They launched just as China was heading into its year-end pandemic peak last year, registering 6.47 million vials in sales, partially offsetting the plunging vaccine revenue.

By therapeutic area, the company’s core anti-infection products generated revenue of 8.58 billion yuan last year, down 0.5%, marking a sharp slowdown from their 120% growth rate in 2021. With the World Health Organization (WHO) adjusting its vaccination recommendations for Covid vaccines to eliminate the need for boosters for non-high-risk individuals and vaccinations for healthy children, Fosun Pharma’s vaccine are likely to decline further.

Big global potential

Chairman Wu Yifang said that fundamental changes in the Covid situation should lead some products designed specifically for pandemic prevention and control to become regular products in the future. He also pointed out that innovative drugs and global sales will become main focuses for the company after innovative drug revenues exceeded 10 billion yuan last year, accounting for more than 30% of the pharmaceutical business.

The results showed the pharmaceutical business’ second-biggest breadwinner last year was its anti-tumor and immunomodulation products, most of which are also innovative drugs. Revenue from such products grew nearly 40% to 5.52 billion yuan, higher than all other types in that category.

In addition to growth in sales of sub-new products such as Hanquyou and Handayuan, the PD-1 monoclonal antibody Hansizhuang, which was approved as a first-line treatment for small-cell lung cancer in mainland China in March last year, recorded revenue of 300 million yuan to 500 million yuan in just over a half year since its launch. In January this year, that drug, combined with carboplatin and etoposide, was approved in China as a first-line treatment for late-stage small-cell lung cancer, showing another new revenue engine may be revving up.

Fosun Pharma began its transformation to making innovative drugs as early as 2009. The company sought to carve out a space by building up its capabilities to treat conditions involving tumors, immune regulation, metabolism and the digestive and central nervous systems using small molecule innovative drugs, antibody drugs and cell therapy. After 10 years of effort, it won approval for Hanlikang, its first self-developed drug, in 2019.

Since then, the company has won approval for more biosimilar and other innovative drugs each year. At the end of last year, it had six self-developed and four licensed drugs approved for sale in China and the U.S. A number of its innovative drugs have also been included in the latest edition of drugs covered by China’s national health plan.

Fosun Pharma has also set up drug clinical and registration teams in the U.S., Europe, Africa and India to assist its overseas drug registration and filing capabilities. As more of its drugs finish clinical trials, the company has accelerated certification for its domestic and international production lines using the international quality system and established marketing and sales channels in more than 60 countries around the world. Such efforts boosted its overseas revenue to 13.94 billion yuan last year, accounting for nearly 32% of the overall total.

Fosun Pharma’s broader strategy has won over big investment houses. Zheshang Securities has given the company a “buy” rating, pointing out it has already started preparations to sell Hansizhuang in the U.S. and is optimistic the product will be a global success. Sinolink Securities also has a rosy view on products like Hansizhuang and Hanlikang, believing they are likely to bring in over 2 billion yuan annually and help the company’s revenue rise 17.3% to 51.6 billion yuan this year. It also has a “buy” rating on the company.

Disclosure: None.

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