At the end of March this year, Zhongsheng Pharmaceutical released its 2021 annual report, in which the growth rate of net profit of more than 400 per cent became the biggest highlight of the company's financial report.
As for the reason for the profit growth in the annual report, Zhongsheng Pharmaceutical specifically mentioned in its announcement that it was because "the financial performance of the associated company was strong, and the group's share of the profit and loss of the associated company and the joint venture company increased significantly compared with the same period last year." This associate is Sinovel Zhongwei, which took a stake in Zhongsheng Pharmaceutical at the end of 2020, and the profit of COVID-19 vaccine sales of the latter is included in the profit and loss of Zhongsheng Pharmaceutical's associate.
However, "success or failure is also Xiao he." With the improvement of the vaccination rate of COVID-19 vaccine in China, market sales tend to be stable gradually, and the decline of vaccine sales is inevitable. Therefore, it is not difficult to understand why people who previously relied heavily on vaccine sales$Sino Biopharmaceutical (01177.HK) $Profits fell sharply in the first half of this year.
Stable performance and declining profits
Zhitong Financial APP learned that on Aug. 11, Zhongsheng Pharmaceutical issued a profit warning announcement: during the six months ended June 30, 2022, due to the lower financial performance of an associated company than the same period last year, the profit attributable to holders of the company belonging to the parent company decreased by about 78% to about 1.871 billion yuan compared with the same period last year.
Affected by the earnings warning news, Zhongsheng Pharmaceutical opened low in early trading on August 12, and its share price fell as much as 7.16% in intraday trading.
Although the decline in net profit of nearly 80% caused certain market fluctuations, the announcement mentioned that "the profits of the associated companies were reduced during the period, but the performance of the group's main business was in line with expectations." the emergence of the sentence "steady year-on-year growth" hedges the nervousness in the market to a certain extent.
As the leader of generics in China, Zhongsheng Pharmaceutical has been seeking innovation and transformation in recent years, and in terms of performance contribution, in addition to Sinovel, the company's own business also includes a variety of biological and chemical drugs, involving oncology, liver disease, orthopaedics, respiratory diseases and other diseases. These are also mentioned in its 2021 annual report.
In 2021, the total sales income of all kinds of products of the company reached 26.86 billion yuan, including 9.22 billion yuan for tumor products and 3.66 billion yuan for liver disease products, showing the characteristics of a decrease in liver disease income and an acceleration of tumor line income growth.
At the level of innovation and R & D, from the past financial statements, the R & D investment and proportion of Zhongsheng Pharmaceutical has been increasing year by year in the past 5 years.
In 2021, the company's R & D investment totaled 3.82 billion yuan, an increase of 34.5% over the same period last year (14.2% of income). Among them, R & D investment in innovative drugs and biological drugs accounted for more than 70%, the amount of investment increased by 64.7% compared with the same period last year, anti-tumor R & D investment reached 75%, and the amount of investment increased by 71.2% over the same period last year. In terms of innovative layout, as of March this year, there are a total of 34 clinical phase 2 and phase 3 trials, and 49 phase 1 clinical trials are being actively promoted, covering mainly tumors.
However, from the perspective of income structure, the proportion of innovative drugs in the process of transformation is still small, and the contribution proportion of sales revenue is basically stable at 1max 3.
The rest of the 2max 3 revenue is still related to generics and collection. Among them, Zhengda Tianqingzuo, as the core subsidiary of Zhongsheng, its generic drug products are most affected by collection. However, when talking about the impact of collection, Sino Biopharmaceutical said earlier that the impact of the first four batches of collection has basically been digested, and the subsequent face of a new situation of normalization of collection, and the impact of the fifth batch of collection will continue to be digested in 2022. At the financial level, the net interest rate of sales is relatively low, the overall sales cost shows a downward trend, and the positive factors begin to appear in the financial level.
Under the growth of its own business, after deducting the profits and losses attributable to the associated company and the joint venture company (excluding non-controlling interests) in 2021, the basic profit attributable to the holders of the parent company was 2.931 billion yuan, still an increase of about 26.6% over the previous year.
In other words, the "profit decline" in the profit and loss of Zhongbao is actually caused by the decline in the performance of Sinovel, a participating company, and has little impact on the business development of Zhongsheng Pharmaceutical itself.
COVID-19 's vaccine dividend is getting farther and farther away.
However, this time, the earnings police of Zhongsheng Pharmaceutical is also sending a signal to the market: COVID-19 's vaccine dividend has been drifting away.
According to statistics and analysis by Airfinit, an international scientific analysis company, and the International Federation of Pharmaceutical production (IFPMA), 11.15 billion doses of COVID-19 vaccine have been produced worldwide in 2021. Of these, about 4.5 billion doses are made in China.
In fact, as of December last year, China had provided nearly 2 billion doses of COVID-19 vaccine to more than 100 countries and international organizations, ranking first in the world. However, since the beginning of this year, affected by the overseas epidemic situation and changes in prevention and control policies, vaccine exports have also shown a sharp decline.
According to customs statistics, in terms of exports of "human vaccines", China's exports totaled more than 100 billion yuan in 2021, most of which were COVID-19 vaccines, but in the first six months of 2022, China's exports of human vaccines totaled only 5.18 billion yuan, a decline of 95 percent.
The decline in exports may be related to the imbalance between global supply and demand for COVID-19 vaccine. Although on the supply side, there is an ample supply of vaccines in the central European market, market demand is falling sharply.
As of June 5, 2022, the number of people worldwide who have received a single dose of COVID-19 vaccine is about 5.2 billion, and the number of people who have been vaccinated throughout the course is about 4.7 billion. In other words, more than half of the world's 7.75 billion people have been vaccinated against COVID-19. In this context, the related demand for COVID-19 vaccine this year is expected to be greatly reduced. According to Airfinity, global vaccine production may exceed 9 billion doses in 2022, but vaccine demand may drop to about 2.2 billion to 4.4 billion doses per year by 2023 and beyond.
COVID-19 vaccine follow-up market prospects are depressed, obviously lowered investors' expectations for the follow-up investment of this track, the secondary market plunge of related stocks is inevitable.
Zhitong Financial APP observed that on Aug. 9, Novavax (Novax Pharmaceuticals) reported that its revenue for the first half of 2022 was $890 million, down about 19% from a year earlier, of which revenue in the second quarter was $186 million, down 37.6% from a year earlier. The decline in revenue was mainly due to a decline in sales of its COVID-19 vaccine product NVX-CoV2373, which sold just $55 million in the second quarter, compared with $705 million in the first quarter.
The move comes a day after BioNTech reported revenue of 3.196 billion euros in the second quarter of 2022, down nearly 50 per cent from 6.4 billion euros in the first quarter. "the dynamic development of COVID-19 's epidemic has led to changes in COVID-19 's vaccine orders, which has led to fluctuations in quarterly revenue," Jens Holstein, its chief financial officer, said on a conference call.
Moderna Inc, who uses the same mRNA technology route as BioNTech, also reported a 20 per cent year-on-year drop in net income to $2.2 billion, saying the decline was due to a significant reduction in the number of vaccines provided to the Covax International Vaccine Alliance and delays in delivery to major customers such as the European Union.
The performance of the major vaccine manufacturers in the world has declined, and Sinovel is obviously no exception. The decline in profits of Zhongsheng Pharmaceuticals confirms from the side that the performance of Kerrifu, the COVID-19 inactivated vaccine of Sinovel, has fallen sharply. And due to the improvement of the vaccination rate, the follow-up performance of the company may be difficult to improve. For Shengsheng Pharmaceutical, the departure of the vaccine dividend also means that it is difficult to achieve a huge increase in subsequent profits, and the steady development of its own business will be the root of its rising profitability.