CanSino's Covid Vaccine Gets WHO Nod. But Is It Too Little, Too Late?

Key Takeaways:

• CanSino’s Covid-19 vaccine Convidecia will be admitted to the global Covax program following its approval by the WHO
• The approval could have limited benefits for the company as the pandemic fades and other products are widely available

By Jony Ho

As the Covid-19 pandemic recedes and countries start to reopen, the World Health Organization (WHO) has just granted an emergency-use license to yet another Chinese vaccine. But the timing looks just a tad on the late side, and thus may not provide a very big boost for CanSino Biologics Inc. (6185.HK; 688185.SH).

All that goes to show that timing is everything in the cutthroat world of drug development – even more so when the entire world is racing to find treatments and cures for a single malady.

CanSino announced last Friday that its recombinant Covid vaccine Convidecia obtained emergency-use authorization from the WHO, becoming the third Chinese vaccine to get the green light from the global health body after two rival products from Sinopharm and Sinovac SVA, which both use inactivated virus.

The WHO issued a statement affirming that CanSino’s vaccine had a 64% efficacy rate for preventing symptomatic Covid infections and was 92% effective at preventing Covid-related severe conditions. The WHO’s Technical Advisory Group for Emergency Use Listing concluded that benefits of the vaccine far outweighed its risks.

Having secured the license, the vaccine can now be admitted to the Covid-19 Vaccines Global Access (Covax) program, a mechanism overseen by the WHO, UNICEF and the Vaccine Alliance, charged with accelerating the development and production of Covid vaccines and ensuring equal access for all countries. The initiative can purchase large quantities of vaccines from pharmaceutical companies on behalf of a big group of countries, and allocate doses according to their populations. It has provided 2 billion WHO-approved doses to date.

Good for the bottom line

The WHO’s approval was good medicine for CanSino’s Hong Kong-listed stock, which rose as much as 20% the next trading day and ultimately closed up 9.8% at HK$78. Its mainland China-listed A-shares rose by the daily limit and were suspended after surging by 12.1%.

Founded in 2009 as a vaccine maker, CanSino went public in Hong Kong in March 2019 and listed on the Nasdaq-style STAR Market in Shanghai in August 2020, making it the first “A+H vaccine stock.” By the end of last year, it had 17 vaccines in development for 12 diseases.

The development of Convidecia and its wide distribution in China and many other countries lit a fire under CanSino’s business last year. Its revenue rose by an astounding factor of 231 to 4.3 billion yuan ($640 million) for the year, including 3.06 billion yuan in overseas revenue. That helped the company turn a 1.91 billion yuan profit for the year, reversing years of losses.

Unlike many vaccines developed by foreign pharmaceutical companies such as Pfizer PFE and ModernaMRNA, Convidecia is one of the few Covid vaccines that require just a single shot and minimal cold storage. The vaccines can be preserved in a 2-8 degree Celsius (36-46 degree Fahrenheit) environment for at least three months, making them easy to transport and store. That makes them better suited for subtropical developing countries such as Indonesia, Malaysia, Chile and Mexico.

Since the company was already doing quite well overseas, why is the market suddenly so excited about the WHO approval? Sinovac’s experience might provide some clues. Its Covid-19 vaccine was included in Covax last June, and a total of 380 million doses have been purchased by the program since then. The company has provided more than 2.7 billion doses globally, which includes China. More than 2.3 billion of those doses have been administered, mostly in developing countries like Brazil, Chile, Turkey and Indonesia, which had a hard time gaining access to vaccines previously.

As its Covax sales soared, Sinovac recorded $19.38 billion in revenue last year, a surge of 36.9 times the level from 2020. Its net profit soared by an even larger 77 times to $14.5 billion. The share of its revenue from China dwindled from 71.6% in 2020 to 56.3% in 2021, reflecting the success of its vaccine abroad. Though it’s difficult to quantify how much it benefited from having its vaccine included in Covax, the company’s remarkable vaccination record overseas suggests that the benefits are large.

Diminishing returns with passage of time

But in CanSino’s case, the timing of the WHO approval may be somewhat late since demand for vaccines has dropped considerably with the pandemic receding and many countries already vaccinating large parts of their populations, said Francis Lun, CEO of GEO Securities.

He pointed out that CanSino’s vaccine targets the original Covid strain and is not very effective against the more infectious Omicron variant. Moreover, 10 pharmaceutical companies, both Chinese and foreign, obtained the WHO’s nod before CanSino. In addition, more effective mRNA vaccines developed by Pfizer and Moderna are the most popular. “If you are the first to get the license, then the outlook is undoubtedly wonderful. But being the 11th to get there, CanSino can expect very little,” Lun said.

Some shareholders may have capitalized on the announcement to sell off their shares and pocket some profits. Two big transactions occurred on Monday before the Hong Kong market opened involving 9.43 million shares with a trading price of HK$70.50, around 10% lower than last Friday’s close. The stock closed down 9.6% on Monday, wiping out the Friday gains.

But CanSino isn’t stopping with the WHO approval, and continues to work on other Covid vaccines. It announced on Monday that the latest research results published in the international medical journal Lancet for its inhaled Covid-19 vaccine showed good safety performance, lower adverse reaction rate than inactive vaccines and the ability to generate more neutralizing antibodies. The company will actively pursue emergency use or conditional marketing authorization for the vaccine both at home and abroad.

In addition, CanSino’s self-developed mRNA vaccine was approved for clinical trials in China last week. That vaccine has been shown to induce neutralizing antibodies targeting multiple types of variants. A successful launch would make the company one of the few in China able to develop its own mRNA vaccines.

In terms of valuation, CanSino’s has a price-to-earnings (P/E) ratio of 8.7 times, following a 60% decline in its stock since early this year. Fosun Pharma (2196.H), a Chinese company with exclusive distribution rights for BioNTech’sBNTX mRNA vaccines in mainland China, Hong Kong, Macao and Taiwan, has a P/E ratio roughly double that at 16.4 times. Chongqing Zhifei Biological (300122.SZ), whose Covid vaccines have been approved for use in China and some other Asian countries, also has a higher P/E ratio of 13.2 times. Judging from valuation alone, investors seems cautious on CanSino’s prospects and are watching closely to see how things will unfold now that its vaccine has been included in Covax.