mRNA approval in China: it is now or never
22 April 2022
China is facing the most significant increase in Covid-19 cases since the start of the pandemic, but it relies on old vaccine technologies, and local mRNA vaccines are still under development. Instead, will they opt for the best-in-class mRNA vaccines by BioNtech/Pfizer and Moderna?
China is facing a surge in cases.
Since the beginning of March, China has seen a surge in mRNA cases, with over 23,000 per day, an all-time high since the pandemic; as a comparison, in March 2020, there were ~3,200 cases per day. Due to China's zero-covid policy, multiple lockdowns are being enforced.
A lengthy awaiting mRNA approval
While BioNtech/Fosun's application was submitted in the summer of 2021 and is still under review by the Chinese authorities, local mRNA candidates are still in the testing stage in China.
The most advanced is "ARCoV," the only local mRNA vaccine candidate to enter a large-scale Phase III clinical trial. Two Chinese biotech companies Walvax, and Abogen Biosciences, with the Academy of Military Medical Sciences' support, are developing this vaccine.
Impact on our Investment Case
Covid's cases rise call for an mRNA solution
Mainland China has high primo-vaccination coverage, with 89% of the population vaccinated, better than the U.S. and European Union, at 66% and 80%, respectively. Yet, with such a good vaccination rate, the question is why the country is facing this unprecedented number of cases, resulting in temporary business paralysis.
China relies solely on traditional inactivated vaccines produced locally by Sinopharm and Sinovac. Such kind of vaccines use inactivated (non-hazardous) virus particles to trigger an immune response. So far, China has not opened its market to foreign vaccines, not even to mRNA vaccines, which are considered the most effective vaccine technology against Covid-19.
During its Phase 3 trial, Sinopharm's vaccine showed 79% efficacy against symptomatic infection. BioNTech's vaccine achieved 95% in the equivalent study. With the Omicron variant, these figures are even lower after two doses for Sinopharm. Furthermore, nearly 3% of people aged 80 years or older who received two doses of the inactivated vaccine died after having Covid infection, compared to 1.5% of those who received the BioNTech vaccine.
But the use of inactivated vaccines is not the only reason for this sudden increase. Because of the zero-covid policy, the population has not been exposed to natural immunity. Recent studies have shown that natural infection combined with a double dose of vaccines is one of the best protections observed. This lack of natural immunity makes the development of reliable vaccines even more crucial.
In addition to the lack of natural immunity, only 48% of the population received the third booster dose. This booster shot could be of considerable help, even for the traditional vaccines. For example, the third dose of Sinovac is 98% effective against severe or fatal Covid in people over 60.
There is a critical need for China to accelerate the vaccination campaign. Beyond better efficacy and since variant-specific boosters might have to be administered regularly, it would make sense to have a more flexible and easier to manufacture technology such as mRNA also in China.
BioNtech and Moderna potential approvals
To get its hands on the highly promising mRNA technology that goes beyond Covid-19, China has two options: importing the technology developed by the two leading companies (BioNtech and Moderna) or developing it locally.
Given the tensions between China and the U.S., both western companies face fierce opposition. Although Moderna has four new subsidiaries in Asia (Singapore, Hong Kong, Malaysia, and Taiwan), the company is U.S.-based and does not have a local partner. Thus, we believe that Moderna has little to no chance to get Chinese approval in the near future.
On the other hand, BioNtech is a German biotech player. The company has two partners for development and distribution: Fosun, a Chinese multinational conglomerate company, and Pfizer, the U.S. big pharma. To conquer the Chinese market, it is with Fosun, not Pfizer, that BioNtech is seeking approval. Although Fosun/BioNTech's vaccine is already distributed since February in the Macao and Hong Kong administrative regions as well as Taiwan, mainland China remains out of reach.
One year ago, both Moderna and BioNtech submitted their application for approval. While China appeared on the verge of granting approval, the authorities backed down a month later (August 2021) and announced that they would develop the mRNA technology independently. The applications are still pending, and there has been no news on when they shall be granted or denied.
It appears to be purely a political issue, not related to the regulatory process. Indeed, the Chinese authorities even changed their internal rules to approve the Sinopharm and Sinovac applications within a week after submission.
The health authorities may fear a lack of public confidence in local vaccines if they approve foreign mRNA players. Moreover, the country has the opportunity to show the world its prowess in developing its version of this recent breakthrough in biotechnology, namely mRNA.
China developing its own mRNA
China's biotech sector is transforming, and the country is moving from copier to innovator, and the local mRNA vaccine would be further proof of this. The most advanced program is the one from Walvax and Abogen, ARCoVax, currently in Phase 3.
A recent study showed sufficient levels of antibodies produced but more side effects than the BioNTech injection. However, combining two doses of Sinovac with the third injection of mRNA provided substantial protection against Delta and Omicron. The approval date or results of phase 3 are not yet known.
Other mRNA projects are in the pipeline: CSPC Pharma and CanSino have just started their clinical trials. Sinopharm is also looking to develop an mRNA version of its vaccine to stay in the race. It is important to note, however, that caution is needed. Indeed, data released so far on Walvax concerns only a small number of volunteers (120) and are not complete, making it impossible to draw any comparisons or conclusions.
It is not so easy to master this cutting-edge technology; as we said last year, the recipe is not enough to "cook" the best mRNA vaccine! There are high barriers for any potential entrant: the manufacturing know-how and the lock-in of the supply chain by Moderna and BioNtech. A recent example is Curevac, another mRNA player and the oldest on the market, which finally released a surprisingly low efficacy of 47% in June, leading to a drop of more than 80% in stock price.
We do not believe that Moderna or BioNtech will get approval in mainland China until a local player is approved first. China has a strong desire to make the Chinese biotech sector a true innovator and change its copycat image. However, we believe that if local Chinese players fail, BioNtech and Fosun are best placed to enter the market. Sean Marett, BioNtech's chief commercial and business officer, recently said: "It's very difficult to really predict when we will get approval. [...] But China remains an extremely important market for us," he added. "We are very, very committed to it."
Should the BioNtech/ Fosun's vaccine be approved, it would be a 600mn doses opportunity in FY2022 based on 40% of the population (or 1.4bn) needing a booster mRNA dose. Assuming a price in the lower range, between $10-$20 a dose, it will represent a total Chinese revenue opportunity of 6-12bn$. BioNtech has a ~40% of gross profit-sharing agreement with Fosun in the greater China region.
We are well-positioned in our biotech 360 portfolios to potentially benefit from a Chinese approval, as we have more exposure to BioNtech than Moderna. Beyond this potential geographic expansion, BioNtech is also better exposed to the next mRNA indication expansion: cancer. As a reminder, BioNtech is among our year's favorites.
An approval of mRNA vaccine in China could trigger the country to ease the zero-covid policy and limit the economic impact of lockdowns for both China and the world.
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