Vaccine shortage pushing up SK Bioscience shares

People wait in line for coronavirus tests at a temporary testing site in Seoul, July 28. AP-Yonhap

Pfizer, Moderna's vaccine price rise to benefit SK affiliate

By Kim Yoo-chul

Based on expectations that the South Korean government will ask Novavax to supply more COVID-19 vaccines in the latter half of this year, as the Delta variant could double COVID-19 patients' risk of hospitalization, analysts remained positive over the growth outlook for SK Bioscience.

SK Bioscience has a license agreement with Novavax to produce 40 million COVID-19 vaccine doses for the country as well as a contract development and manufacturing organization (CDMO) deal for the global supply. The SK unit handles the volume production of Novavax COVID-19 vaccines at its plant in Andong, North Gyeongsang Province.

“Depending on the situation, the government may ask Novavax to renew its vaccine supply contract with SK Bioscience, as SK manufactures COVID-19 vaccines at its plants in South Korea. The renewal of the contract may be possible if COVID-19 and the Delta variant continue to spread. The government is closely monitoring vaccine inventory levels to reach herd immunity by November as planned,” a senior government official said by telephone, Tuesday.

The Moderna, Pfizer, Johnson & Johnson and AstraZeneca vaccines have been or are currently available for shots for much of the Korean public. However, the government is pinning high hopes on the possibility of adjusting the Moderna and Novavax vaccine volumes, as these vaccines are being produced and packaged by South Korean CDMO partners: Samsung Biologics will produce Moderna and the SK Group affiliate will produce Novavax.

SK Bioscience's vaccine manufacturing plant in Andong, North Gyeongsang Province / Courtesy of SK Bioscience

In a study conducted in the U.S. and Mexico while the Alpha variant was the dominant strain, the Novavax vaccine was more than 90 percent effective, the company said. The firm added that clinical trials on the vaccine's effectiveness on the Delta and other variants were still in the midst of being conducted. The firm also said that it has seen no critical adverse side effects so far.

Investors hailed recent announcements by SK Bioscience as it said its second-quarter revenue reached 144.6 billion won ($125.8 million), up 277.2 percent year-on-year. Operating profit swung to the black as it reported 66.2 billion won ($57.6 million) for the April-June period. Buoyed by the impressive numbers, SK Bioscience shares exceeded the 200,000 won level on the KOSPI for the first time since its local IPO on March 18.

“Under the agreement it signed with the South Korean government, SK Bioscience is on track to develop the raw materials for use in the Novavax COVID-19 vaccines. Samsung Biologics and SK Bioscience will be the top beneficiaries of the government's assistance programs to make the country into the vaccine hub of Asia,” said Park Byung-kook, an analyst at NH Investment.

Pfizer and Moderna have both decided to increase the price of one dose of their vaccines supplied to the EU by 25 percent and 10 percent, respectively, according to reports. These decisions may result in the Korean government increasing its dependence on the SK affiliate, said officials and analysts.

Huh Hye-min at Kiwoon Securities expects the adaptability of SK Bioscience's in-house vaccine, GBP510, to be expanded in the latter half of this year, as the general consensus was that the government will approve the start of the third-phase clinical trials of the GBP510 vaccine no later than this month.