Transforming into a Global Bio Platform Company
The authors are analysts of Shinhan Investment Corp. They can be reached at shawn1225@shinhan.com and jhwon@shinhan.com, respectively. – Ed.
Transforming into a global bio platform company
SK Bioscience develops, produces, and markets vaccines and biological medicines, and operates the largest vaccine R&D center in Korea. The company completed the construction of L House vaccine plant, equipped with nine suites for production of undiluted vaccine solutions, in 2012. It entered into a co-development and licensing agreement with Sanofi Pasteur for a novel pneumococcal vaccine candidate in 2014. Based on its vaccine technology platform and production competitiveness, SK Bioscience secured contract development and manufacturing organization (CDMO) deals to make COVID-19 vaccines for global pharmaceuticals in 2020. The company is currently working to develop its own COVID-19 vaccine. The vaccine candidate GBP510, which is now in Phase III clinical trials, has been selected as the first next-generation COVID-19 vaccine development project funded by the Coalition for Epidemic Preparedness Innovations (CEPI). SK Bioscience should be able to provide interim data and acquire emergency use authorization (EUA) in various countries in 1H22.
Vaccine CDMO business in full swing, expectations for large GBP510 orders from COVAX
Preemptive investment in the L House has enabled SK Bioscience to meet the pandemic-triggered demand for vaccines and sign CDMO agreements with AstraZeneca and Novavax. With production capabilities and competitiveness proven in the market, the company should continue to benefit from growing demand for vaccines. We expect sales from COVID-19 vaccine CDMO contracts to remain solid in 2H21 as in the first half. Company-wide sales are forecast to soar by 203.7% HoH to KRW781.4bn and operating profit by 250.6% HoH to KRW420.3bn.
COVAX plans to produce 2.66bn COVID-19 vaccine doses through its vaccine sharing program by 1Q22, and deliver 5.94bn cumulative doses by the end of 2022. Only 240mn doses have been shipped to 139 countries as of September, which is far below the target. SK Bioscience, with enough production capacity, may win massive orders from COVAX upon the approval of GBP510 in 1H22.
Initiate coverage with BUY for a target price of KRW350,000
Our target price of KRW350,000 for SK Bioscience is based on the sum of the value of CDMO operations (KRW15.1tr), GBP510 (KRW8.2tr) and next-generation pneumococcal vaccine (KRW1.9tr) in the pipeline, and net cash holdings (KRW1.3tr). Only six out of the nine suites at the L House are included in the value of CDMO business (remaining three suites used to develop cell banks, next-generation pneumococcal vaccine, and varicella/ herpes zoster vaccines). We assumed production of GBP510 will continue until 2025, and estimated the probability of success at 80% in light of the vaccine candidate’s ongoing clinical trials and expected release in 1H22.