Can the New Vaccine Rollout Change this Beaten Down Pharma MNC's Fortune in 2023?

It's tough being a pharma company these days...

The pharma sector, which once used to be the star of the street, has been witnessing bad times since 2022.

Pharma stocks significantly underperformed last year and the new year too has failed to turn their fortunes till date.After losing nearly 11% last year, the Nifty Pharma index has been flat since the beginning of 2023.

Yet, there has been a growing consensus among experts that the year 2023 holds a positive outlook for India's pharmaceutical industry, with a deeper focus on quality manufacturing, affordability of drugs and adoption of innovation and technology.

And even within the pharmaceutical industry, there are certain businesses that may outperform the overall sector.

In the past 20 years, the vaccine business, a former laggard in the pharmaceutical business, has shown remarkable growth powered by new innovative vaccines coupled with superior pricing strategies.

While the vaccine industry is relatively small, compared to the pharmaceutical industry, it has been growing.

'Vaccine' has become one of the most important buzzwords in recent years. Most recently, people all over the world were amazed by how quickly vaccines were developed to combat the Covid-19 pandemic.

And because there are so many possibilities, the spotlight on vaccines is now brighter than ever.

Before the pandemic, the majority of people quickly conjured up images of babies or young toddlers waiting with their parents at the doctor's office when they heard the word "vaccine."

Even though a lot of people were vaccinated as children, they weren't always aware that vaccination is crucial for adults as well.

Protecting adults by vaccination has never been considered in India a preventive strategy likely to have a great impact on population health.

This is true even in developed countries, although efforts have been made in this regard in US and Europe.

Hence, while adult immunisation has been the most ignored part of healthcare services in India, the pandemic has brought about a shift in this mindset.

And there is one company that is hoping to benefit as its all set to launch its best global performing vaccine in India over the coming weeks.

Shingrix - Could it be the Jab that GlaxoSmithKline Desperately Needs?

GlaxoSmithKline Pharmaceuticals Ltd (GSK), the Indian subsidiary of GSK plc has been present in India for almost a century.

GSK plc is a British multinational pharmaceutical and biotechnology company, and is among the ten largest pharmaceutical companies in the world.

Over the last few years, the company has underperformed relative to its peers due to a series of challenges, including oncology clinical failures and missing out on the lucrative market for the first Covid-19 vaccines, despite being one of the world's major vaccine makers.

Being a GSK shareholder has meant acquiring the patience of a Zen Monk over the last few years.

Confidence in the company's prospects has been dimming for some time due to muted sales performance.

The GSK stock has been flat, gaining just 3% over the last 5 years as supply issues and policy headwinds from regulatory pricing hit the firm.But there seems to be a ray of hope for the company as its global block buster vaccine, Shingrix, has finally been launched in India this week.

Optimistic investors waiting on the fringes for the dust to settle on the stock would like to believe this could possibly be the moment of reckoning.

Since 2022, there has been a major change at GSK...

In July 2022, GSK demerged its consumer healthcare business, Haleon to become a fully focused biopharma company.

Since then, the company has set its sights on four therapeutic areas: infectious diseases, HIV, oncology, and immunology.

It is now a much leaner and more-focused company after its massive restructuring.

Over the next decade, GSK aims to position itself as the world's leading vaccines company.

And if one was to look at the global business, it seems like the company is finally finding its groove after years of stalling.

GSK plc reported better-than-anticipated revenue for 2022, thanks in significant part to its blockbuster Shingrix shingles vaccine.

Shingles vaccine, Shingrix has been GSK's star growth driver since its introduction in 2017, so much so that the British pharma was at one point, struggling to produce enough doses to meet surging demand.

In 2022, Shingrix, alone generated nearly £3 billion, growing 72%. By 2026, GSK plans to double that figure.

Closer home, when launched in China, prior to Covid-19, "unprecedented" demand for Shingrix had outstripped supply.

The Shingrix vaccine is now available in 26 countries and contributes to more than 1/3^rd of global vaccine sales for GSK.

And this is why investors are hopeful that the introduction of Shingrix in India could be the much-required stimulus for GSK to shine once again in India.

But before we go any further, what exactly is Shingles?

You can think of Shingles as a double infection caused by the varicella zoster virus. The virus is responsible for both shingles and chickenpox.

Typically, a person who experiences shingles had contracted chickenpox years earlier.

Shingles can occur anywhere on your body. It typically looks like a single stripe of blisters that wraps around the left or right side of your torso causing debilitating pain.

Shingles may lead to other serious complications including:

• Brain inflammation or facial paralysis if it affects certain nerves
• Eye problems and vision loss
• Pneumonia and hearing problems

But here is a scary and yet very interesting fact -

Most people born before 1980 have had chicken pox, even if they don't remember it and statistics show that 1 out of every 3 people will develop Shingles in their lifetime.

As per reports, hospitals in India record more than a million cases of shingles every year. The actual number of cases is likely to be much higher than this number of confirmed cases.

As per the company, about 260 million adults in India over the age of 50 can be protected from shingles and its complications.

Imagine a target audience of 260,000,000 people in India!

There is huge potential and the company is very hopeful that Shingrix will be as successful in India as it has been worldwide.

Shingrix: Jingle without Shingles

Over the years, GSK has maintained its #1 position in the vaccines self-pay market (where the cost of the vaccine will not be reimbursed or included on the government's national immunization program) in India.

Until a few years ago, the company was focused on mainly paediatric vaccines although it does have a strong adult vaccine portfolio as well.

The Covid-19 vaccination drive changed all that as it gave an impetus to adult vaccination.

With increased life expectancy and a growing segment of the elderly population, healthy aging is a big area of focus.

The company believes that a key intervention for healthy aging will be led by vaccination strategies.

With this in mind, the company is going all out to cash in on the launch of its already global block buster vaccine Shingrix in India.

The company has roped in Amitabh Bachchan to spread awareness of Shingles.

Further, the company has also put in place a 200-strong team, with specialised capabilities and experience just to support this vaccine.

The vaccine is being imported from GSK's plant in Belgium and will be available at healthcare practitioners and certain specialists like dermatologists, across the country.

One of the concerns cited by critics was that there would be few takers for the vaccine in India due to the high cost. Two doses of the vaccine in the US is priced at US$ 450.

However, the company has clarified that it intends to follow a consistent "India pricing strategy" and it has been reported that the vaccine in India will be priced at a "significantly lower price" than in the United States.

What makes Shingrix so special is that it is one of the first vaccines with an efficacy of 97% and offers protection for up to 10 years.

That sets the bar so high that the company feels there won't be any potential attempts by competitors to enter this market in the coming years.

GSK is also pursuing an expanded indication to treat immunocompromised people ages 18 and up, as well as a new liquid formulation that should put the shot even further out of reach of potential shingles rivals.

GSK believes that Shingrix will open up a new platform for growth in the creation of the adult vaccine category in India from which a lot of follow on vaccines will come up over the next few years.

Well, that's a lot riding on one vaccine! But not everyone is impressed...

Critics point out that despite vast improvements in childhood vaccination coverage in India, adult vaccination coverage is negligible.

While the pandemic has put adult vaccinations in the spotlight, the industry is still in the early stages of evolution.

Barriers to adult immunization include vaccine hesitancy, missed opportunities, and cost.

Additionally, while Shingrix could provide the jumpstart the company desperately needs, critics believe that the additional revenue generated from sales of Shingrix will only mitigate the losses expected from the inclusion of two of its best-selling drugs on the national list of essential medicine (NLEM) in late 2022.

NLEM is a list released by the Ministry of Health and Family Welfare and the medicines listed in the NLEM are sold below a price ceiling fixed by the National Pharmaceutical Pricing Authority.

The addition of Ceftum and T-Bact to the list will increase the NLEM impacted revenue from 33% to 42% resulting in a hit of approximately Rs 2.5 bn on the top line.

However, the company says that the loss will be compensated by volume increases in these products due to cost cuts, sales of Shingrix as well as cost optimisation measures.

In the past, the company has been able to grow volumes 2x-3x for some of its products post their inclusion in the NLEM.

Also, as the NLEM is released once in every 5 years, the company doesn't have to worry about any further impact of it for any of its products till 2027.

And let us not forget, GSK's primary business is in the general medicine segment which still contributes almost 80% to the revenue.

Four of the top fifty brands in the Indian pharmaceutical market belong to GSK - Augmentin, T-Bact, Ceftum, and Calpol.

GSK is very relevant to the Indian market, being the second biggest multinational organization in India with a significant footprint in a highly fragmented industry.

Starting with Shingrix and equipped with more adult vaccines, the company expects the contribution of vaccines to significantly increase over a three-four-year period from the existing 20% of revenue.

If one was to look at most of the markets where Shingrix has been launched since its introduction in 2017, the growth trajectory has been remarkable within the first six to twelve months itself.

Will Shingrix be a blockbuster in India like it has been the world over? Well, that remains to be seen.

For now, shareholders wait with bated breath for this yesteryear super star to deliver one more hit and restart its fledging career again!

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