Could Covid Drugs Help Cure Financial Ills at Ascletis Pharma?

Ascletis Pharma has applied for U.S. FDA approval to start clinical trials on a new Covid drug, ASC10

Key Takeaways:

• Ascletis Pharma is ready to put its new Covid drug into clinical trials, but the firm is lagging in the race to bring similar medicines to market
• With mounting losses weighing on its share price, the company’s main hope for better sales lies in its ritonavir tablets used in existing Covid treatments

By Molly Wen

As Covid becomes an endemic illness, the global pharma sector is looking to develop a range of pills that can weaken the virus in the body, powering a potentially huge market in post-infection medicines.

But investors seeking to profit from the boom in antiviral therapies face a confusing array of manufacturers and products in the pipeline, compared with the early days of the pandemic. Among the Chinese contenders is Ascletis Pharma Inc. (1672.HK), a biotech that is working on several treatments to suppress the virus after a person has been infected.

Last Wednesday, shares in the biotech firm soared 7% after it announced it had applied for permission to proceed with clinical trials in the United States for its new oral drug ASC10, a so-called “small molecule” antiviral that targets a specific protein involved in virus replication known as RNA-dependent RNA polymerase (RdRp).

Could the share spike suggest that, as far as the market is concerned, Ascletis Pharma is improving its chances in the battle for the Covid treatment market?

The fight against Covid has already generated massive pharma sales. Vaccine maker Sinovac Biotech (SVA.US), for example, raked in net income of $14.46 billion in 2021. Demand for Covid testing triggered explosive growth in Andon Health (002432.SZ) and Kingmed Diagnostics (603882.SH).

Ascletis Pharma is seeking approval to start clinical trials for ASC10 in China, as well as submitting its application to the U.S. Food and Drug Administration (FDA) for trials there. The company owns full global rights to the prospective drug, which it developed in-house.

Ascletis Pharma said that ASC10, which acts as an inhibitor against the Covid RdRp enzyme, has demonstrated antiviral properties against multiple variants, including Omicron, in pre-clinical studies.

Several drugs targeting the RdRp enzyme to slow the progression of Covid have emerged during the pandemic. Remdesivir, the first approved treatment for Covid patients in the United States, and Molnupiravir produced by Merck & Co. (MRK.US), both use RdRp as the target.

Ascletis Pharma is also exploring the use of a different enzyme pathway to slow Covid infection, known as 3CL protease.  The company is expected to apply for clinical trials of its ASC11 drug using the 3CL protease method in the second half of the year. Pfizer’s (PFE.US) oral therapy for Covid, Paxlovid, has a main component – nirmatrelvir – that also uses a 3CL protease inhibitor to suppress the spread of the virus through the body.

Fierce competition

Drugs to dampen Covid infections are likely to be in strong demand as the world battles repeated waves of the pandemic. Dongxing Securities says the Covid resurgence in 2021 swelled demand for vaccines and drugs, as illustrated by Pfizer’s $40 billion worth of mRNA vaccine sales, and that oral treatments could be the biggest growth market in the global pharmaceutical industry this year.

But competition is fierce.  In the domestic Chinese market, Ascletis Pharma is up against more than a dozen pharmaceutical companies, including Kintor Pharmaceutical (9939.HK), Junshi Biosciences (1877.HK, 688180.SH), Simcere Pharmaceutical (2096.HK), and Everest Medicines (1952.HK).

And new entrants are raising the stakes. Shionogi, a Japanese pharmaceutical company, announced on July 4 that it had applied to China’s National Medical Products Administration to market its oral treatment for Covid-19, looking to steal a march on Chinese rivals.

Other firms could also beat Ascletis Pharma to market, being further along in the development process for their Covid therapies. The drug VV116 from Junshi Bioscience has reached the end of a phase 3 study, while pruxelutamid from Kintor Pharmaceuticals and zidovudine from Genuine Biotech all have completed clinical trials. The firms are expected to file new drug marketing applications for all these treatments in the near future.

Ascletis Pharma has long focused on its mainstay viral hepatitis treatments, while ASC10 and ASC11 are all still in pre-clinical research, leaving a question mark over their future effectiveness. With many domestic oral treatments for Covid about to be commercialized, how could Ascletis Pharma ignite a market rally merely with news of an application for clinical trials?

The market is actually looking to another of the company’s product lines, ritonavir, to burnish the upcoming half-year earnings. Ritonavir is one of two key drugs used in Paxlovid, Pfizer’s oral combination medication. Ritonavir works by helping to prolong the antiviral effects of the other drug in the treatment package, nirmatrelvir.

Ascletis Pharma’s ritonavir pill is the only such product in China to pass a bioequivalence study and was approved by Chinese regulators for marketing in September 2021.

Pfizer predicts that Paxlovid, which gained marketing approval in China in February, could reach $22 billion in annual sales. Five Chinese pharmaceutical companies, including Huahai Pharmaceutical (600521.SH), Apeloa Pharmaceutical (000739.SZ) and Fosun Pharmaceutical (2196. HK), were authorized to produce generic versions of nirmatrelvir, but only ritonavir tablets made by Ascletis Pharma were approved for marketing in China.

In March, the company announced it had expanded production capacity for ritonavir to approximately 530 million tablets to meet increasing domestic and global demand. Ascletis Pharma has applied to 12 European countries and Hong Kong to market ritonavir, although it has not yet received orders from other pharmaceutical plants in China.

Sluggish stock performance

Ascletis Pharma was the first biotech stock to join the Hong Kong Stock Exchange in 2018 after listing rules were changed to allow unprofitable biotechs to gain entry.  But its share price plunged 44% within a month of listing, and the price has been languishing since then. In recent months the stock has hovered at HK$3 to HK$4, only between 20% to 30% of the HK$14 IPO price.

Mounting losses have weighed down the share price. The firm’s accumulated losses reached 408 million yuan ($61 million) in the past two years, much higher than the 7.25 million yuan and 95.97 million yuan losses in 2018 and 2019.

Three drugs have generated sales revenue for Ascletis Pharma. These are danoprevir and ravidasvir for the treatment of chronic hepatitis C, and pegasys, a long-acting interferon used to treat chronic hepatitis B and C.

However, sales of danoprevir tumbled when it was not included on a list of drugs covered by the Chinese medical insurance system. Combined revenue for danoprevir and ravidasvir in 2021 was only 33,000 yuan, while pegasys brought in about 71 million yuan, accounting for 92% of the company’s total revenue.

Ascletis Pharma has been in sustained deficit for years, with a price-to-sales (P/S) ratio of 47.8 times, a stark contrast with unprofitable biotech companies that are also developing Covid treatments, Kintor Pharmaceuticals and Brii Biosciences (2137.HK) have P/S ratios of 162 times and 68 times, respectively.

The relatively low valuation indicates the market has limited confidence in the company’s ability to commercialize its drugs. Therefore, investors will wait to see if ritonavir proves to be an effective antidote to the flow of red ink in the upcoming earnings report.

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