Lower Expectations for COVID-19 Vaccines
The authors are analysts of Shinhan Investment Corp. They can be reached at shawn1225@shinhan.com and jhwon@shinhan.com, respectively. – Ed.
Decent 2Q22 earnings expected with removal of QA delay issues
SK Bioscience is expected to record sales of KRW140.4bn (-2.9% YoY) and operating profit of KRW64.3bn (-2.8% YoY, operating margin of 45.8%) for 2Q22, coming in line with consensus estimates. On a QoQ basis, sales and operating profit are projected to jump by 61% and 171%, respectively, with issues regarding delays in the quality assurance (QA) process for Novavax’s COVID-19 vaccine resolved in April. With no more delay issues, sales from contract development and manufacturing organization (CDMO) agreements should show stable growth toward 2H22. In addition, drug product sales are assumed to be flowing in from the Novavax vaccine supply contract with the government as domestic shipments continue.
Lower expectations for COVID-19 vaccines amid economic reopening
SK Bioscience is poised to obtain approval for SKYCovione (GBP510) from domestic authorities in June, and from the European Medicines Agency (EMA) and the World Health Organization (WHO) as early as 3Q22. We can expect gradual increases in drug substance sales from the KRW200bn pre-purchase contract signed on March 21 with the Korea Disease Control and Prevention Agency (KDCA) and sales from doses for the COVAX program. Nonetheless, sales expectations need to be lowered as countries around the world now hold large stocks of COVID-19 vaccines and have seen a sharp drop in booster shot recipients. In Korea, 87.4% of the population have received their first dose and 86.5% their second dose of the vaccine, while 64.6% have gotten their first booster shot and a mere 8.3% their second. Combined sales of current COVID-19 vaccines marketed by major pharmaceuticals are estimated to drop significantly from USD63.1bn (KRW80.1tr) in 2022 to USD33.6bn in 2023 and USD20.1bn in 2024.
Revised TP of KRW121,000 reflects downgraded value of SKYCovione
We revise down our target price for SK Bioscience by 33% to KRW121,000. The revised target price is based on the sum of the value of vaccine CDMO operations (KRW4.31tr), SKYCovione (KRW1.25tr) and SKYPAC (KRW1.99tr) in the pipeline, and net cash holdings (KRW1.75tr). We sharply downgraded the value of SKYCovione. Although the vaccine candidate is expected to obtain approvals from authorities at home and abroad in the near term, we significantly downward-adjusted its sales forecasts given large vaccine inventories and low booster vaccination rates around the globe. The company needs to have higher visibility of steep growth in vaccine sales, capacity additions, and expansion into new businesses for its shares to bounce back.