"Entering the market" is a difficult shortcut to take, and it is also difficult to sustain the commercialization of a unique product. The valuation of LUZHU BIOTECH-B (02480) is under pressure.

After the market closed on August 29, LUZHU BIOTECH-B (02480) officially released its mid-term performance for 2024. The financial report shows that its net loss for the period was 110 million yuan, an increase of 38.5% compared to the same period last year. Subsequently, Luzhu Biotech's stock fell in the following two trading days, with a closing drop of 8.26% on September 2. However, despite the fluctuations in its stock price, Luzhu Biotech's trading volume has been dismal, with only 1200 shares and 5400 shares traded on August 30 and September 2, respectively. In fact, Luzhu Biotech's total trading volume since the beginning of the year has only been 3.4874 million shares. Apart from June and July, the stock trading volume of Luzhu Biotech has not exceeded 500,000 shares so far this year, and in August, the trading volume was only 33,000 shares. In terms of trading volume, Luzhu Biotech has clearly slipped to the edge of being forgotten by the market. In January of this year, Luzhu Biotech's application for domestic unlisted full circulation was approved, increasing the company's market capitalization of Hong Kong stocks. It was stated at the time, "If calculated based on the closing price of 29.70 Hong Kong dollars on January 17, the market capitalization of Luzhu Biotech's H shares reached approximately 5.99 billion Hong Kong dollars, just exceeding the 5.75 billion Hong Kong dollars required for inclusion in the Hong Kong Stock Connect. As long as the stock price remains above 28.5 Hong Kong dollars, it may be included in the Hong Kong Stock Connect." Being included in the Hong Kong Stock Connect is undoubtedly a fast way for Luzhu Biotech to improve liquidity, but it has not seized the opportunity. Since the beginning of this year, the company's stock price has been declining, falling below 25 Hong Kong dollars, and the market value has also dropped to 4.583 billion Hong Kong dollars, while the threshold for inclusion in the Hong Kong Stock Connect has reached 5.759 billion Hong Kong dollars. For Luzhu Biotech, if no one is interested in the stock, the Hong Kong Stock Connect is out of reach. For Luzhu Biotech, if the shortcut is not viable, it can only rely on attracting market attention through its own fundamentals. However, its core herpes zoster product has not yet been commercialized, and the company's future commercial prospects are unknown. Commercialization is in its final stage According to the latest 2024H1 financial report disclosed by Luzhu Biotech, the company has not yet commercialized any products, and the current main business income is still 0. However, the core product LZ901 has entered the pivotal Ph3 clinical trial stage, with enrollment of a total of 26,000 healthy subjects aged 40 and above. It is precisely because of this that Luzhu Biotech significantly increased its research and development expenses in the first half of this year, reaching 80.376 million yuan, a year-on-year increase of 142.4%, which also led to a net loss of 110 million yuan for the period, an increase of 38.5% year-on-year. In recent years, the investment logic in the biopharmaceutical sector of the Hong Kong stock market indicates that for a non-profitable Biotech company to have its value reassessed, the key lies in product commercialization and continuous hematopoiesis. Currently, Luzhu Biotech is still in the initial stage of promoting product commercialization. It is understood that the recombinant herpes zoster candidate vaccine LZ901 is currently the core pipeline product of Luzhu Biotech. It is expected to become the world's first herpes zoster vaccine with a tetrameric molecular structure, used to prevent herpes zoster caused by varicella-zoster virus (VZV) in adults aged 50 and older. From the pipeline progress perspective, in the short term, only this product can achieve "hematopoiesis" for the company, while the rest of the products are still in the phase I/II clinical stage and are unlikely to provide income support to Luzhu in the short term. The reason why the company has high hopes for LZ901 is that its benchmark GSK's herpes zoster vaccine Shingrix has seen continuous sales growth and became the world's third-best-selling single vaccine last year. Currently, in the global market, Shingrix's effectiveness in reducing infections among all age groups remains stable at over 90%, while Zostavax's effectiveness is lower and decreases with age of the recipients. Therefore, once Shingrix was approved for marketing, it quickly replaced Zostavax, achieving sales of 3.446 billion pounds in 2023, with a CER growth rate of 17%, and continuing its growth momentum. In February last year, Luzhu Biotech released head-to-head clinical trial data comparing LZ901 with Shingrix, showing significant advantages for LZ901. For example, in terms of safety, the observed rate and severity of adverse reactions in the high/low dose groups of LZ901 were similar to the placebo group and much lower than the Shingrix group; in terms of immune response, based on the immunogenicity data collected from the phase I clinical trial of LZ901 conducted in China, it has been proven that after full immunization with LZ901, the anti-VZV antibody levels are not significantly different from Shingrix, indicating that the immunogenicity of LZ901 is not lower than Shingrix. From a market logic perspective, since Shingrix can quickly replace Zostavax with better clinical performance, LZ901 undoubtedly has the potential to accelerate the domestic substitution for Shingrix after it is launched. Currently, Luzhu is expected to submit a BLA application no later than January 2025 and achieve product commercialization in Q4 of 2025. However, considering the current market situation for herpes zoster in the domestic market, Luzhu Biotech may encounter some difficulties in accelerating market expansion after the product is launched. The Hidden Concerns Behind the Silence of the "Domestic Hit Product" within One Year of Launch On the evening of August 15 this year, Changchun Bcht Biotechnology disclosed its 2024H1 financial report: in the first half of this year, the company achieved operating income of 618 million yuan, an increase of 10.50% year-on-year; it achieved a net profit of 138 million yuan, an increase of 23.54% year-on-year. However, if we look at quarterly performance, Changchun Bcht Biotechnology saw a year-on-year decline of 8.44% in revenue and a drop of 17.16% in attributable net profit and 14.44% in non-GAAP net profit in the second quarter of this year. It is worth noting that in the first year of its herpes zoster vaccine being listed, Changchun Bcht Biotechnology achieved a 70.3% year-on-year increase in revenue, and the year-on-year increase in attributable net profit and non-GAAP net profit reached 175.98% and 195.86%, respectively. The current performance indicates that the high-speed growth of the domestic herpes zoster vaccine, which was just listed last year, has come to a sudden halt. Changchun's performance varies between the high growth stage in the first year of their product's launch and the subsequent decrease. Overall, Luzhu Biotech faces challenges in improving liquidity, attracting market attention, and commercializing its core product, LZ901. The company's success will depend on its ability to navigate these challenges and capitalize on opportunities in the biopharmaceutical market.The lessons from the predecessor of Bcht Biotechnology cannot be ignored and must be taken seriously by Green Bamboo Biotech.In fact, Changchun Bcht Biotechnology's market performance is inferior to GSK/Chongqing Zhifei Biological Products' Shingrix, and one reason may be the difference in clinical performance between the two products. Shingrix, which uses recombinant protein technology route, has better protection, with an efficacy of 97.2% for people over 50 and 91.3% for those over 70. In comparison, Changchun Bcht Biotechnology's Ganciwei uses the same attenuated live technology route as Zostavax, with the advantage of lower adverse reaction rates and a wider range of application (targeting people aged 40 and older). According to Bekte's self-description, "the vaccine's protective efficacy is equivalent to products with the same technology route; the overall incidence of adverse reactions is lower than products on the market." In other words, Bekte's clinical performance is better than Zostavax's, but still not as good as Shingrix's. To this end, Bekte has adopted a "trade volume for price" market strategy. In terms of vaccination costs, Shingrix requires two doses, with a single price of 1600 yuan, totaling 3200 yuan, while Ganciwei only requires one injection at a cost of 1369 yuan, showing a significant price advantage. However, the price advantage may not be enough to stop GSK's partner Zhifei from gaining ground in the end market. Data shows that with the help of Chongqing Zhifei Biological Products, GSK's Xinnanli batch issuance increased by 117% from January to May, with 26 batches issued, compared to Bekte's 23 batches. From the current performance of the competing products, Zhifei, relying on its advantages in end sales, has almost offset Bekte's price advantage, which is undoubtedly an important experience for the not yet launched Green Bamboo Bio. In terms of the market situation, the domestic herpes zoster vaccine market is expected to be a blue ocean in recent years, and the two domestic and imported products will not completely replace each other like in the US market. But considering Chongqing Zhifei Biological Products' strong promotion capability and Shingrix's high protective efficacy, Shingrix is unlikely to significantly change its large market share situation under the help of Zhifei. Although Green Bamboo Bio's LZ901 has relative advantages compared to Shingrix, due to the lack of first-mover advantage, it may be difficult to quickly increase market share in a short period of time. Furthermore, there are multiple domestic companies, including Beijing Wantai Biological Pharmacy Enterprise (603392), Walvax Biotechnology (300142), Meikang Bio, CanSino Biologics Inc., and Yidao Bio, etc., all laying out plans for herpes zoster vaccine. Even if Green Bamboo Bio's LZ901 is successfully launched in Q4 next year, it remains uncertain whether it can withstand the pressure from the two competing products on the market and the many in-development products in the future. In this context, relying on this product to deeply optimize Green Bamboo Bio's financial structure and fundamentals may face significant difficulties.