Baike Biotech currently has approved vaccine products such as varicella vaccine, nasal spray influenza vaccine, and herpes zoster vaccine. Herpes zoster vaccine is a new product, and it is in the large-scale period, which has successfully driven the performance to rise in 2023, and the varicella vaccine and nasal spray influenza vaccine are highly competitive and have limited growth space.

Wen Jingchuan

Source: Manager Magazine

Herpes zoster is an acute infectious skin disease that is rooted in the reactivation of the varicella-zoster virus (VZV), which was previously latent in the body, when the body's immune system weakens. The pain caused by this disease is unbearable, and half of the patients with herpes zoster will have long-term neuralgia after being cured, which may last for more than a year, and even some patients will have pain for ten years or more.

Although the current clinical treatment of herpes zoster mainly relies on antiviral, analgesic and anti-inflammatory methods, unfortunately, there is no specific drug that can cure it. Therefore, the first option for effective prevention of shingles is vaccination. Previously, there were two herpes zoster vaccines available worldwide, namely Merck's Zostavax and GlaxoSmithKline's Shingrix.

In 2014, 100 grams of biology (688276. SH) obtained the approval for clinical trials of live attenuated herpes zoster vaccine, and received the Notice of Acceptance for the vaccine marketing authorization application in April 2022. In January 2023, the company's marketing authorization application for herpes zoster vaccine was approved. Prior to the approval of Baig Biotech's herpes zoster vaccine, only one recombinant herpes zoster vaccine (CHO cell) was approved in China, namely Shingrix developed and manufactured by GlaxoSmithKline (the vaccine was launched in China on June 28, 2020).

Baig Biotech's domestic herpes zoster vaccine has become the first herpes zoster vaccine suitable for people over 40 years old in China, breaking the monopoly of domestic herpes zoster prevention products by imported vaccines, and also filling the gap in the protection of herpes zoster vaccine for people aged 40 to 50 in China.

Reversing the decline in growth

Baike Biotech currently has approved vaccine products such as varicella vaccine, nasal spray influenza vaccine, and herpes zoster vaccine. Among them, the market share of chickenpox vaccine has been in the leading position for many years. From 2018 to 2020, the revenue of the company's varicella vaccine accounted for 84.96%, 97.06% and 76.83% of the operating income respectively, and the main business income mainly came from the production and sales of varicella vaccine, and the product structure was relatively simple.

After its listing in 2021, Baike Biotech's performance was poor: from 2021 to 2022, the company's operating income was 1.202 billion yuan and 1.071 billion yuan respectively, a year-on-year decrease of 16.6% and 10.86%; The net profit attributable to shareholders of listed companies was 244 million yuan and 182 million yuan respectively, down 41.77% and 25.46% year-on-year. It is not until 2023 that Baike Biotech successfully reversed the decline in growth - revenue and net profit attributable to the parent company were 1.825 billion yuan and 501 million yuan respectively, a year-on-year increase of 70.3% and 175.98% respectively.

Chickenpox vaccine and nasal spray influenza vaccine, as the main products in the early stage, are not enough to support the performance of Baig Biotech, and the rapid growth of herpes zoster vaccine and high gross profit margin are the main reasons for Baig Biotech to reverse the growth decline in 2023. Since the herpes zoster vaccine was approved for marketing in 2023, it has been accessed and sold in 30 provinces, autonomous regions and municipalities directly under the central government in China, becoming one of the important sources of income for Baig Biotech. (Figure 1).

Although the herpes zoster vaccine is a new product and is in the large-scale period, it has successfully driven the performance up in 2023. However, the company's main business currently only has three vaccines: chickenpox vaccine, nasal spray influenza vaccine and herpes zoster vaccine.

Moreover, as one of the company's main businesses, varicella vaccine, the market development is relatively mature, and the current varicella vaccination rate in some coastal provinces is relatively high, if the number of newborns continues to decline in the future, the progress of the two-shot method is not as expected, or the immunization program policy is unfavorably adjusted, the growth space of the chickenpox vaccine market may be greatly limited. At present, the internal competition pattern of the varicella vaccine market is relatively stable and fierce, with the annual sales expense rate of the product being about 40%, and its gross profit margin is not as good as that of the herpes zoster vaccine. As for the nasal spray influenza vaccine, it is a product launched by the company in 2020, and there are many influenza vaccine manufacturers on the market at present, and the subsequent growth space is relatively limited.

Although Baike Biotech has finally delivered a relatively bright report card with the help of the launch of the herpes zoster vaccine since its launch in 2021, whether it can continue to develop new products will become the key for follow-up investors to measure the investment value of Baike Biotech. To build a moat for long-term development, Baike Biotech needs to expand its product matrix.

Expand the product matrix

From the perspective of Baike Biotech's development strategy, the company focuses on human preventive vaccine products that are urgently needed for disease prevention and control, and selectively develops infectious disease-related antibody drugs and non-infectious disease therapeutic vaccine products.

Relying on this product development direction, combined with the company's research projects in Figure 2, it can be seen that its R&D pipeline is mainly based on three levels: upgrading, such as diphtheria-pertussis vaccine (three-component) and recombinant herpes zoster vaccine; Fill the gaps in China, such as herpes zoster vaccine, nasal spray influenza vaccine, etc.; Complete R&D innovations, such as tetanus monoclonal antibody, HSV-2 vaccine, Alzheimer's disease therapeutic vaccine, etc.

As of the end of 2023, Baike Biotech has a total of 16 projects under development, including 6 projects that have been approved for clinical trials and apply for registration. R&D investment in 2023 will be about 199 million yuan, accounting for 10.89% of operating income. R&D expenses increased by 48.34% over the same period of last year, and the company accelerated the progress of products under development, and the investment in recombinant herpes zoster vaccine, HSV-2 vaccine, RSV antibody and other projects increased more than the same period last year.

It is a feasible development path to build a moat for long-term development by enriching the pipeline under research, but whether this blueprint can be implemented smoothly is the core problem that Baike Biotech must solve.

From the perspective of the R&D level of the R&D pipeline, the projects of "upgrading" and "filling the domestic gap" are progressing relatively smoothly: the herpes zoster vaccine has obtained production approval and is on the market; The liquid nasal spray influenza vaccine is about to apply for marketing authorization, and the progress of the project is basically in line with the company's expectations; The diphtheria-pertussis vaccine (three-component) has completed phase I clinical trials and is preparing for phase III clinical trials; Rabies monoclonal antibody is in phase I clinical studies.

However, it is not enough for the vaccine pipeline to be "dedicated" in R&D investment, and the company must also demonstrate a forward-looking strategic layout and strong execution. There is still strong uncertainty about whether "completely R&D and innovation" projects, such as tetanus monoclonal antibodies, HSV-2 vaccines, and Alzheimer's disease therapeutic vaccines, can be successfully developed.

Vaccines have long been the golden track of pharmaceutical investment, and vaccine products have a long iteration cycle and can bring abundant cash flow to enterprises, which means higher investment certainty. However, according to the disclosure, the net accounts receivable of Baike Biotech at the end of 2023 will be 1.564 billion yuan, accounting for 69.66% of current assets, and the amount and proportion of accounts receivable are relatively high.

In the first quarter of 2024, Baike Biotech not only continued to be profitable, but also grew significantly. In the first quarter, the operating income was 270 million yuan, a year-on-year increase of 50.64%; The net profit attributable to shareholders of listed companies was 60.5651 million yuan, a year-on-year increase of 229.5%.

As for the reasons for the growth of performance, Baike Biotech said that the company's marketed vaccine varieties include live attenuated varicella vaccine, freeze-dried nasal spray influenza live attenuated vaccine, and live attenuated herpes zoster vaccine. During the reporting period, compared with the same period last year, new live attenuated herpes zoster vaccine products were added, which enriched the company's vaccine types and promoted the company's overall revenue increase.

It can be seen that the performance growth in the first quarter of 2024 is still brought by the three major vaccine sales in the past. Under the current layout and expansion of the pipeline under development, there has not yet been a new performance growth point, but combined with the progress of the vaccine pipeline, some projects are progressing relatively smoothly, and the liquid nasal spray influenza vaccine is about to apply for marketing authorization, and it is hoped that the follow-up Baike Biotech will use "innovation" to expand a broader market space.

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