Past the Peak? Covid Drugs Frenzy Cools As Pandemic Eases

Key Takeaways:

• The drugs Xiannuoxin and Mindewei have been conditionally approved for marketing in China. Despite the positive news, Simcere Pharmaceutical’s stock managed only a muted rise and shares in Junshi Biosciences fell for two straight days
• With the latest wave of the pandemic already abating, demand for Covid treatments may lag expectations

By Molly Wen

China is deploying more drugs in its battle against Covid, which is good news for patients. But as the pandemic subsides, the growing list of treatments spells trouble for makers of the life-saving medicines.

Returning from the Lunar New Year holiday, two pharmaceutical companies announced progress in bringing new Covid drugs to the market, but the news was greeted with little fanfare by the stock market.

Last Sunday, Simcere Pharmaceutical Group Ltd. SMHGF and Shanghai Junshi Biosciences Co. Ltd. SHJBF gained conditional approval from Chinese regulators to market their oral Covid treatments, both small-molecule drugs used to treat patients with mild to moderate symptoms.

The newly approved treatments join a growing arsenal of drugs on the Chinese market for fighting Covid, alongside Pfizer’s PFE Paxlovid, Merck’s MRK Molnupiravir and Genuine Biotech’s Azvudine.

However, as drug options have multiplied, market enthusiasm for Covid-related pharma stocks appears to have cooled. In the two days after the drug approval, Simcere Pharmaceutical’s shares rose a mere 1.3%. Meanwhile at Junshi Biosciences, the Covid drug progress was not enough to cheer up investors worried about the overall profit outlook. The stock price fell 5.5% and 3.7% in the days after the approval, after the company estimated a net loss for last year.

Infection numbers spiked across China after the government relaxed its zero-Covid policy in December. But the current wave looks to have peaked, with no major resurgence during the Lunar New Year holiday and no new strains detected, according to the Chinese Center for Disease Control and Prevention (CDC). As of Jan. 26, the official tally stood at 216,000 hospitalized cases of Covid including 26,000 severe cases.

But success in containing Covid means the market for drugs to treat the inflection could be less buoyant than previously expected. With demand moderating, can the latest two drugs manage to turn a profit?

Simcere Pharmaceutical was quick to get down to business. A day after marketing approval was granted, the Beijing Municipal Medical Insurance Bureau priced Simcere’s Covid drug Xiannuoxin at 750 yuan ($112) per pack, compared with an ex-factory price between 705 and 720 yuan per pack after tax. The company said it was ready to ramp up production and would sell through offline and online channels. By contrast, Junshi Biosciences has yet to release any pricing, although it vowed to start mass production and delivery of its drug Mindewei (VV116) soon.

Drugs with different bio targets

The two drugs use different pathways to fight Covid, but both methods are well-established in the research community. Simcere’s Xiannuoxin targets 3CLpro, an enzyme involved in virus replication. The treatment works in a similar way to Pfizer’s Paxlovid by combining two drugs to tackle the injection. The first drug, Simnotrelvir, inhibits 3CLpro while the second component, Ritonavir, enhances the anti-viral effects by slowing down the metabolism of Simnotrelvir.  The company produces its own Simnotrelvir, while Ascletis Pharma (1672.HK)supplies it with Ritonavir.

Simcere Pharmaceutical said clinical trials indicated that its drug speeded up recovery time, based on data from 1,208 adult Covid patients with mild to moderate symptoms. The patients given Xiannuoxin took 1.5 fewer days to be symptom-free than people in the placebo group. The 11 tracked symptoms included coughing, fever, headaches, diarrhea, muscle pain and full-body aches.  After five days of treatment, the viral load of patients in the drug group fell 96% and their Covid tests turned negative 2.2 days ahead of those in the placebo group. But the data from the clinical trials of Xiannuoxin have not been published in any academic journal yet.

The drug produced by Junshi Biosciences uses a different mechanism to obstruct Covid cells, targeting the same RdRp enzyme as Merck’s Molnupiravir and Genuine Biotech’s Azvudine.

The new drug Mindewei is an RdRp inhibitor, like the Covid drug Remdesivir which was approved in the U.S. for treating severe Covid conditions through intravenous injection. But by contrast, Mindewei can be taken orally and its active ingredient is a wide-spectrum coronavirus inhibitor recognized as safe and effective by the academic community.

Last December, the authoritative global journal “New England Journal of Medicine” compared Junshi’s Mindewei to Pfizer’s Paxlovid, based on the outcome of phase-three clinical trials for the Chinese drug. It found that Mindewei was not inferior to Paxlovid in treating Covid patients with mild to moderate symptoms and high risk factors.

Junshi Biosciences said its phase-three clinical trials showed that the drug shortened patients’ recovery time from Covid. In the study of 1,277 patients with mild to moderate symptoms, those treated with the drug were symptom-free two days sooner than their peers in the placebo group.  But detailed data have not been released in any academic journal.

Limited profit prospects

At the end of last year, China wrestled with a dire shortage of Covid oral drugs as infections mounted and severe cases surged. Paxlovid sold for 1,890 yuan per pack and was in extremely short supply to the point where its black-market price reached 50,000 yuan per pack. Paxlovid did not make it onto the list of  nationally insured drugs in January, while the Chinese drug Azvudine made the cut and was priced at 11.58 yuan per pill (3mg), down 35% from its initial marketing price and costing around 350 yuan for each course of treatment.

Xiannuoxin’s ex-factory price per course is about 720 yuan. The drug retails at a higher price than Azvudine but lower than Paxlovid and Molnupiravir. When considering the cost of ingredients, which make up about half the retail price, and the 502 million yuan in R&D costs, the drug would have to sell 1.7 million courses to turn a profit.

And crucially, the Covid drugs market is set to become more crowded, just as the infection curve moderates.

Among companies rushing to get their products approved are Guangdong Raynovent Biotech,  a subsidiary of Guangdong Zhongsheng Pharmaceutical (002317.SZ), Kexing Bioproducts (688136.SH) and the Japanese company Shionogi & Co., Ltd.. With more players boosting supply, profitability may well suffer.

In terms of valuation, Simcere Pharmaceutical has a price-to-sales (P/S) ratio of 4.3 times, lower than the 11.8 times for Junshi Biosciences. And the ratios of Zhongsheng Pharmaceutical and Kexing Bioproducts are 7.5 times and 3.3 times respectively. That means Simcere Pharmaceutical is not enjoying any premium simply because it is moving more swiftly with commercialization. On the contrary, investors appear to have more faith in the bigger innovative drug company, Junshi Biosciences.