The first vaccine stock to be listed in the both Mainland China and Hong Kong will issue global depositary receipts (GDRs) in Switzerland

Key Takeaways:

  • After successful listings in Shanghai and Hong Kong, vaccine maker CanSino is preparing to move into Europe with a listing in Switzerland
  • Sales could surge for the company’s Covid-19 vaccines as China launches a nationwide campaign for a new round of boosters

By Molly Wen

After becoming China’s first vaccine maker to list in both Hong Kong and Shanghai, CanSino Biologics Inc. (6185.HK; 688185.SH) is looking to spread its wings beyond its Asian home. It announced its new flight plan last Tuesday, aiming to go public on the SIX Swiss Exchange using global depositary receipts, becoming the first Chinese GDR issue in 2023.

CanSino said details of the listing, including the size and implementation plans, are still under discussion. If confirmed, the plan would still need approval from the company’s board and its shareholders, as well as approvals from China’s securities regulator and the Swiss Exchange.

CanSino’s cash levels have declined in recent years, but its coffers are still relatively full with 3.6 billion yuan ($537 million) at the end of June 2022, down 19.7% year-on-year. Rather than using the new listing to raise cash, such plans are part of China’s efforts to encourage domestic companies to raise their global profiles by floating shares in overseas markets.

CanSino’s Hong Kong shares rose nearly 4% to close at HK$75 the next trading day after the announcement, marking the latest turn in a recent real roller coaster ride for the stock. The shares more than doubled from HK$53 to HK$112 over just eight trading days from late October as CanSino’s inhaled Covid-19 vaccine began getting administered in many places such as Shanghai and East China’s Jiangsu province.

But then CanSino management said on a Nov. 4 conference call that China has yet to issue a “fourth dose” Covid vaccination strategy that might spur new demand. Managers added that demand for the company’s newer inhaled Covid vaccine was not as high as the company expected, and it hoped the market would return its focus to its older non-Covid business.

That set the roller coaster on a downward track, with CanSino’s shares dropping 33% from their high to close at HK$79.40 on Jan. 16. The company’s latest market capitalization now stands at less than HK$10.5 billion ($1.35 billion), and its stock is down 82% from its all-time high of HK$449.60 in February 2021.

Fourth dose benefit?

China’s Covid infections have shot up dramatically since Beijing abandoned most of its strict pandemic control measures in early December. The nation began a new round of boosters in mid-December, representing fourth vaccine doses to complement most original two-part vaccines, for the elderly and immunocompromised groups. The latest schedule from the Chinese National Health Commission recommends nine vaccination regimens, including three doses of inactivated vaccine plus one dose of CanSino’s intramuscular or inhalation vaccine.

With the full launch of a fourth vaccination scheme, the market expects sales of CanSino’s Covid vaccines to take off again. Given the generally low booster vaccination rate in China, especially among the elderly, the government is now actively promoting new shots for the elderly first, and is expected to follow with campaigns for everyone else in near future, according to a research report by CSC Financial.

However, Chinese disease control specialists are pointing out that people infected with Covid should not receive boosters until at least six months after recovering. That means there may not be much room for growth in the vaccine market over the short term, considering the recent infection rate could be as high as 90% and most uninfected groups don’t meet current requirements of being over 60 or having preconditions that could lead to severe Covid infections.

CanSino’s transformation from a little-known, money-losing biological company to a leading Chinese vaccine manufacturer mainly owes to the fame of its Covid vaccine. When it listed in Hong Kong, the company’s vaccines focused on three main areas: meningitis, pneumonia, diphtheria-tetanus and pertussis. In February 2021, its co-developed adenovirus Covid vaccine was approved for conditional marketing, making it one of the first five Covid vaccines approved for use in China. The rapid development of its Covid vaccine propelled CanSino go from no-name drug maker in the first half of 2021 to market darling.

But basic vaccinations in China are now well in the past, and demand for boosters is relatively limited. Those factors, combined with growing competition as more products hit the market, are bringing down prices and pushing CanSino back into the red. Its revenue plunged 77.1% year-on-year to 707 million yuan in the first three quarters of last year. As that happened, it posted a net loss of 474 million yuan for the period, reversing a 1.33 billion yuan profit in headier times a year earlier.

Return to non-Covid business

CanSino still has some Covid aces up its sleeve, including a vaccine based on messenger RNA (mRNA) technology now in Phase 2 clinical trials with positive safety data. But the much larger Phase 3 trials lie ahead, which would be followed by commercialization if the vaccine is ultimately approved.

CanSino’s bigger pipeline contains 17 products covering 12 disease areas, including five that have been approved. In addition to its two approved Covid vaccines, it also has a vaccine for Ebola and two meningococcal conjugate vaccines, including MCV4. As the first quadrivalent meningococcal conjugate vaccine in China, MCV4 can provide better protection than bivalent vaccines developed by Chongqing Zhifei Biological (300122.SZ) and Walvax Biotechnology (300142.SZ). That vaccine was launched commercially last July.

On a conference call last November, CanSino said most of its third-quarter sales came from MCV4, with the rest from the intramuscular Covid vaccines. It said the inhaled Covid vaccine had yet to start contributing. But judging from its latest financial statements, revenue from the meningococcal conjugate vaccine, for the time being, is still far from sufficient to offset massive declines for its Covid vaccines.

Despite sinking well below its previous highs, CanSino’s shares are still valued higher than their peers. The company now trades at a dynamic price-to-earnings (P/E) ratio of 160 times, though that’s largely because it is rapidly sinking into the red and soon won’t have any P/E ratio at all. By comparison, industry leaders Chongqing Zhifei Biological and Hualan Biological (002007.SZS) trade at ratios of 22 times and 37 times.

Despite its fading Covid star, it seems investors still like the CanSino story, especially now that people are learning to co-exist with the virus and high-risk groups are getting regular vaccines. But over the longer term, the number of Covid drugs worldwide will only grow, and intensifying competition will make many of those uneconomical for their developers. That means Covid could hold less promise for the company longer-term, and it will need to focus on its older areas.

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