[In the Stocks] Samsung Biologics, Why the Stock Price Declines Despite Moderna Vaccine Production

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Samsung Biologics signed a contract with the U.S. vaccine manufacturer Moderna for the contract manufacturing of the COVID-19 vaccine, raising expectations for a positive impact on its stock price. However, the stock price has continued to weaken after the contract signing. This is interpreted as the market having already priced in the expectations and the lack of detailed contract information failing to strongly stimulate investor sentiment.

As of 9:25 a.m. on the 25th, Samsung Biologics was trading at 839,000 KRW, down 19,000 KRW (2.21%) from the previous day. The stock has been declining for four consecutive days. Although news broke over the past weekend that a contract was signed with Moderna for the contract manufacturing (CMO) of the COVID-19 messenger RNA vaccine (mRNA-1273) finished product (DP), the stock price direction did not change.

Stock Price Weakness Due to Pre-Reflected Expectations

The recent weakness in Samsung Biologics’ stock price is because expectations for COVID-19 vaccine contract manufacturing had already been priced in. Samsung Biologics had risen for seven consecutive trading days starting from the 6th. During this period, the stock price increased by 24%. The stock price, which was in the 700,000 KRW range, surpassed 900,000 KRW and on the 14th rose more than 9% to 948,000 KRW, setting a new all-time high. After reaching this record high, the stock price turned weak. Lee Jisoo, a researcher at KTB Investment & Securities, explained, “During the period from the 12th to the 14th, when there were two clarifying disclosures regarding rumors or reports related to vaccine contract manufacturing, the stock return was 16%, and the market capitalization increased by 8.7 trillion KRW. Since the content had been reported by multiple media outlets before the Korea-U.S. summit, expectations for this contract were partially priced into the stock.”

According to this contract, Samsung Biologics is expected to start full-scale aseptic filling, labeling, and packaging of hundreds of millions of vaccine doses for markets outside the U.S. from the third quarter. However, since specific contract details such as production scale have not been disclosed, it was insufficient to meet the market’s expectations, which had already priced in the contract signing anticipation.

There are also criticisms that this contract is limited to only the filling process. Vaccine CMO processes are divided into drug substance (DS) and drug product (DP), where DS involves highly technical transfer for raw material production, while DP is the final packaging stage of the vaccine. The DS production of Moderna’s vaccine is handled by Lonza in Switzerland. The researcher said, “Depending on the production volume ratio by dosage, Moderna’s final production capacity may vary in 2022, but the overall structure of DS production being internalized and monopolized by Lonza through long-term contracts is unlikely to change. While strengthening the Korea-U.S. vaccine partnership may lead to discussions on facility investment and production as well as mRNA vaccine research cooperation through two memorandums of understanding (MOUs) with Moderna, it is uncertain whether this will ultimately result in a DS contract manufacturing agreement through technology transfer.”

There is also a forecast that DS contract manufacturing could be possible after additional facility construction. Lee Dalmi, a researcher at SK Securities, said, “To produce the mRNA raw material, additional factory facilities need to be built, and after Samsung Biologics constructs these additional facilities, the possibility of raw material contract manufacturing is considered quite feasible.”

The future direction of the stock price is expected to depend on the detailed contract terms. Heo Hyemin, a researcher at Kiwoom Securities, said, “Since expectations have been continuously reflected due to media reports, whether the stock price will rise further depends on the detailed contract terms and production capacity.” Researcher Lee Jisoo said, “Since detailed information such as production volume, supply price, and contract period, which would affect estimated performance changes, has not been disclosed, the target price remains at 980,000 KRW. However, if accurate contract scale details related to Moderna’s contract manufacturing and additional contracts with other companies become available, allowing us to assess the value of DP CMO facility operation, we may consider revising the target price.” Samsung Biologics has been expanding DP production facilities with an investment of 28 billion KRW since last year, expected to be completed next year. The researcher added, “Since Samsung Biologics’ DP production capacity has been verified through this contract, there is potential for additional DP contracts with other biopharmaceutical companies besides Moderna after the expansion.”

Significant Performance Improvement Expected from Q2... Early Orders for 4th Plant Anticipated

Samsung Biologics’ first-quarter performance fell short of market expectations. Samsung Biologics recorded consolidated sales of 206.8 billion KRW and operating profit of 74.3 billion KRW in the first quarter. These figures represent increases of 25.9% and 18.7% year-on-year, respectively, but decreases of 30.5% and 19.3% compared to the previous quarter. Seo Geunhee, a researcher at Samsung Securities, analyzed, “Despite stable operation of plants 1 and 2 and increased utilization of plant 3, sales and operating profit slightly missed consensus due to the non-reflection of initial production volume sales from plant 3.”

From the second quarter, significant performance improvement is expected. Hong Gahye, a researcher at KB Securities, estimated, “Samsung Biologics’ second-quarter sales are expected to increase by 19.4% year-on-year to 367.5 billion KRW, and operating profit is expected to rise by 34.9% to 109.4 billion KRW. This reflects 80% utilization for plants 1 and 2 and 70% for plant 3, indicating a full-scale performance improvement.”

Expectations for the 4th plant are also growing. Researcher Hong said, “Along with expanded pharmaceutical production, the increasing likelihood of early orders for the under-construction 4th plant is another factor enhancing investment attractiveness. Recently, the number of customer order proposals for the 4th plant has increased to 22, and multiple early orders are expected before the plant’s completion.”

This content was produced with the assistance of AI translation services.