After Zhifei's performance stalled in the first quarterLatestcryptogames, Watson Biology (SZ300142, 13.Latestcryptogames.84 yuan, with a market capitalization of 22.246 billion yuan) handed over a quarterly report that made investors more "dumbfounded". In the first quarter of this year, Watson Biological achieved a total operating income of 600 million yuan, down 28.02% from the same period last year, and its net profit was 14.1275 million yuan, down 91.79% from the same period last year. On the same day, Watson Biology also announced the termination of the research and development of recombinant novel coronavirus vaccine (gorilla adenovirus vector).

Watson Biology did not report specific variety sales changes in its first quarterly report, but according to the company's 2023 annual report, the decline in bivalent HPV vaccine revenue has greatly affected the company's performance. Another domestic company specializing in bivalent HPV vaccine, Wantai Biological (SH603392, share price 63.40 yuan, market capitalization 80.404 billion yuan) has not yet released its first quarterly report, but from the annual report, I am afraid the results are not optimistic.

Affected by market competition, the profitability of bivalent HPV vaccine has declined, but Zhifei (SZ300122, with a share price of 34.21 yuan and a market capitalization of 81.892 billion yuan), which represents nine-valent vaccine, has always been regarded as the "king" of domestic HPV vaccine, but its performance also turned downwards in the first quarter of this year.

The performance of bivalent HPV vaccine enterprises is collective "dumb fire"

On the evening of April 24, Watson Biology released its quarterly report for 2024. In the first quarter of this year, the company achieved total operating income of 600 million yuan, down 28.02% from the same period last year; net profit from its mother was 14.1275 million yuan, down 91.79% from the same period last year; and non-net profit was 84.0338 million yuan, down 37.37% from the same period last year. The net cash flow from operating activities was-75.5934 million yuan, compared with 203 million yuan in the same period last year.

Watson Biology said in an announcement that the decline in revenue was mainly due to a decline in sales of vaccine products compared with the same period last year. In addition, the fair value change loss of the company reached 84.8179 million yuan in the first quarter, due to the decline in the end-of-period price of the company's shares of San Nuo Pharmaceuticals (02257.HK, HK $6.06, HK $530 million), resulting in the combined effect of fair value change losses during the reporting period and changes in the fair value of other equity assets held by the company.

The sharp decline in net cash flow from operating activities is due to a decrease in sales rebates for the company's vaccine products compared with the same period last year.

Although Watson Biology did not disclose changes in the sales of specific vaccine varieties in its quarterly report. However, according to the company's 2023 annual report, the company's performance has declined last year-after six consecutive years of double-digit growth, revenue fell 19.12 per cent year-on-year and net profit fell 42.44 per cent.

99% of Watson's biological income is made up of independent vaccine products, of which the main products are 13-valent pneumonia conjugate vaccine and bivalent HPV vaccine. For the whole of last year, sales of Watson's autonomous biovaccines fell 19.02% from a year earlier. The company said in its annual report that due to the decline in the number of newborns in China and the intensification of market competition, the sales volume of its 13-valent pneumonia conjugate vaccine products decreased compared with the same period last year; at the same time, due to the aging of nine-valent HPV vaccine and a substantial increase in import quantity, its bivalent HPV sales fell short of expectations, resulting in a decline in business income and net profit of its vaccine products compared with the same period last year.

In the same period, Watson Biology also set aside 250 million yuan for impairment of inventory, accounts receivable and other related assets generated by bivalent HPV vaccines and other vaccines, accounting for 42% of the total profits, affecting the company's net profit performance.

Watson Biology is not the only one whose performance has been "dumb" because of the decline in the performance of bivalent HPV vaccines. Another domestic bivalent vaccine manufacturer Wantai Biology is not optimistic. In 2023, the company's operating income and net profit both declined, of which operating income was 5.511 billion yuan, down 50.73% from the same period last year, and home net profit was 1.248 billion yuan, down 73.65% from the same period last year. According to Wantai Biological disclosure, the company's bivalent HPV vaccine revenue last year decreased by about 4.2 billion yuan compared with the same period last year.

Wantai's quarterly report is expected to be released on April 26.

Life for nine-valent vaccine agents "is not easy either."

Affected by the market competition of bivalent vaccine and the squeezing effect of nine-valent vaccine, domestic bivalent vaccine has ushered in a sharp decline in unit price in the past few years.

Among them, Wantai biological bivalent HPV vaccine "Xinkening" is the first domestic bivalent HPV vaccine, which was approved in December 2019 and listed in May 2020. When it went on the market, the vaccine was priced at 329 yuan per dose, and two injections were given to women between the ages of 9 and 14, with a full cost of 658 yuan. The cost of three injections for women over 14 years old is 987 yuan.

Since then, Watson Biology's bivalent vaccine "Woze Hui" has also been approved for sale. In a number of local government procurement, two domestic HPV vaccines continue to refresh the lowest price.

This year, the Jiangsu government procurement network announced the open purchase price of domestic bivalent HPV vaccine-86 yuan per dose. Transaction notice shows that Wantai Biological successfully won the procurement, the purchase of goods for bivalent human papillomavirus vaccine (E. coli), the purchase quantity of 499200. The unit price of 86 yuan per unit has also refreshed the "lower limit" of the bivalent HPV vaccine purchase price that can be checked publicly.

Under the cruel price competition, Wantai and Watson obviously lose both sides. In addition to price reduction, two domestic enterprises also admitted that the aging of nine-valent HPV vaccine has also caused a squeeze on the bivalent vaccine market.

The nine-valent HPV vaccine originally developed by Mershadong is not only the only one on the market. In 2022, the vaccination population will increase from 16 to 26 years old to 9 to 45 years old. Merck's HPV vaccine sales in the international market rose from $740 million in 2017 to $6.8 billion in 2023, with China contributing the vast majority of the growth, according to the data. After aging, there is still a considerable amount of market space to imagine.

As the only domestic agent of Mershadong HPV vaccine, Zhifei has always been regarded as a "white horse". In 2022, the batch of Mershadong 9-valent HPV vaccine issued by Zhifei Biological Agent was 15.4772 million, and doubled to 36.5508 million in 2023.

The number of nine-valent vaccine batches reached an all-time high. Why did Zhifei turn downwards in the first quarter on the basis of positive growth in 2023? In fact, there are signs that Zhifei's performance has stalled. First, net profit grew in single digits last year, and Zhifei's homing net profit fell by more than 20 per cent year-on-year in the fourth quarter of last year and the first quarter of this year.

Behind the expansion of the scale and the decline in profits, "the nine-valent HPV vaccine is still easy to sell, but not so profitable." Although Zhifei is the exclusive domestic agent of Merck Sadong HPV vaccine, the gross profit level of the agency products is much lower than that of its own products. Take 2023 as an example, during the reporting period, the gross profit margin of the company's own products was 89.38%, while that of the agency products was only 25.68%. Not only that, last year, the gross profit margin of agency products also fell 10 percentage points compared with the same period last year.

In addition, the revenue of Zhifei's independent products fell nearly 70% last year compared with the same period last year, and the revenue of agency products increased by more than 48% compared with the same period last year. Zhifei's gold-absorbing capacity has been further weakened-according to the annual report, Zhifei's sales gross profit margin in 2023 was 26.92%, falling to a new low since listing, while the net sales margin was 15.25%, a seven-year low.

Not only that, in recent years, the inventory of Zhifei has been rising. As of the first quarter of this year, Zhifei's inventory had reached 12.607 billion, accounting for 23.53% of total assets.

For domestic bivalent vaccine manufacturers, promoting the listing of domestic nine-valent vaccine as soon as possible is the best solution. In April this year, Wantai announced that the company had received the results of phase Ⅲ clinical trials of nine-valent HPV vaccine, and preliminary analysis showed that the main results were in line with expectations. Affected by this news, Wantai biological shares rose by the limit on April 11.

Although Mershadong grabs the window market as soon as possible with aging, agent Zhifei also needs to consider the growth point after the growth rate of nine-valent vaccine is no longer available as soon as possible. Last October, Zhifei signed an "exclusive distribution and joint promotion agreement" with GlaxoSmithKline to represent GlaxoSmithKline's shingles vaccine, with a minimum purchase amount of more than 20.6 billion yuan in the next three years.

At present, only GlaxoSmithKline and Baike biological shingles vaccine has been approved and put on the market in China. In the first quarter of this year, Baike Bio performed well, and its net profit increased by 229.5% compared with the same period last year.

Source: daily Economic News author: Chen Xing