Covid pill no rival to vaccines just yet

money-glitz | Caroline Zheng 15 Nov 2021

When the first vaccines for the novel coronavirus were rolled out to a pandemic-weary world a little under a year ago, punters from east to west rushed to invest in them, sending these stocks on a dizzying rally.

But with new tablets that treat Covid -19 now coming on the market, is the party over for vaccine stocks and is it still worth investing in them?

Vaccine-related stocks fluctuated last week in Hong Kong after plunging last Monday following the news about Pfizer's breakthrough oral antiviral pill for Covid while several Chinese vaccine developers have already fallen between 30 percent to 60 percent from their record high set earlier this year.


Analysts say valuations of vaccine-related stocks have fallen to reasonable levels and Pfizer's new pill will have a limited impact on vaccine makers in the short to medium term as vaccines are still considered the primary weapon against Covid.

Vaccine-related stocks may not see a significant drop in the future after the recent downward adjustment which was triggered by the development of new Covid pills as well as the selloff by mainland investors including private equity giant Hillhouse Capital, says Andrew Wong Wai-hong, the chairman and chief executive of Anli Securities

Unveiled earlier this month, Pfizer's Covid pill is said to slash rates of hospitalization and death by 89 percent while Merck's new molnupiravir Covid pill, which halves the chances of dying or being hospitalized for those most at risk of contracting severe Covid, has now been approved for use in the UK.

Both these pills could potentially change the course of the pandemic.

But despite good news about antiviral pills, the vaccine is still regarded as the most effective way to prevent the pandemic by many medical experts, and the pills may not have a great impact on the fundamentals of vaccine manufacturers at present as most vaccine shots have already been ordered and revenues locked, says Ryan Hu, an analyst at SPDB International in Hong Kong.

In the longer term, the chances of Covid pills reducing demand for Chinese vaccines will depend on several factors including their availability and price once they hit the shelves, Hu says.

Companies with approved vaccines such as CanSino Biologics (6185) will be less impacted by Pfizer's pill than those whose vaccines are still undergoing clinical trials as it will take at least half a year for the pill to come to the market, says Kenny Ng, a securities strategist at Everbright Sun Hung Kai in Hong Kong.

CanSino Biologics has developed an adenoviral vector vaccine which has won approval for use in the mainland as well as in Pakistan, Mexico and Hungary. It posted a net profit of 1.33 billion yuan (HK$1.62 billion) in the first nine months of 2021, bouncing back from a net loss of 176 million yuan over the same time last year.

Wong, however, remains cautious about CanSino as he says it is more dependent on its vaccine for business and warns investors that its growth could slow next year.

CanSino's revenues in the third quarter fell by 35.8 percent from the previous quarter while its net profit dropped 58.3 percent over the same period but analysts expect its fourth quarter to improve as more nations roll out booster jabs.

Another stock that Ng recommends is Shanghai Junshi Biosciences (1877), which is developing Covid drugs based on neutralizing antibodies that have been approved for use.

Biotech firms are currently focusing on antibody treatments and antiviral pills in their battle against the pandemic in addition to Covid vaccines which are currently the first line of defense against Covid.


And many professors and immunologists believe that such drugs, together with an effective vaccine, can speed up the process of turning Covid from a killer disease into a more manageable seasonal illness like the flu in the not too distant future.

In February this year, Junshi's antibody drug etesevimab was granted emergency use by the US Food and Drug Administration and is now in used in 12 countries and regions.

Junshi's revenues surged 168.9 percent to 2.72 billion yuan in the first nine months driven by the sales of the antibody drug while its net loss fell to 392 million yuan compared to a net loss of 1.12 billion from a year earlier. Junshi's stock rebounded 13 percent last week.

China does not have any antiviral pill being specifically developed for Covid at the clinical stage but Kintor Pharmaceutical (9939) says its pill proxalutamide, which was originally developed for the treatment of prostate and breast cancer, has proven effective in curing Covid.

It reduced deaths in hospitalized Covid patients by 77 percent in a clinical trial in Brazil, according to a preprint published in June, although some scientists are skeptical about the results. The company is continuing phase III clinical trials globally and is expected to publish its results in February next year.

Kintor climbed for three consecutive days last week before taking a dip on Friday.

Meanwhile, among drug manufacturers, analysts remain optimistic about the blue-chip WuXi Biologics (2269), as it has solid fundamentals. The company raised its revenue and profit growth from 65 percent to 75 percent for this year and from 40 percent to 45 percent for the next year.

Credit Suisse and China International Capital Corporation also are bullish on WuXi Biologics, believing that the drop is mainly due to the short-term market sentiment.

CICC also says in a report that investors could snap up some potential bargains in the pharmaceutical sector, especially among Hong Kong-listed pharmaceutical stocks, following the significant correction.

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