The pace of gains in both the Moderna share price and BioNTech share price over the past 12 months has been absolutely staggering, as investors rode the move higher on the success of the vaccine rollout. In the past few weeks however, investors are now asking whether the valuations are in any way sustainable.
Historically, the pharmaceutical industry has been considered unexciting, and for years the sector has tended to attract a more defensive type of investor, so the last 12 months have been a bit of a wakeup call. The Covid-19 pandemic has changed that perception quite a bit, more by accident than design, given that it had been dominated by the big pharma giants of Pfizer, Roche, Novartis, Merck, Johnson & Johnson, GlaxoSmithKline and AstraZeneca, which accounted for about a third of total revenue in the sector in 2019.
The rush to create a vaccine brought some new players to the fore, alongside the more established players, with Moderna and BioNTech bringing new technology to market in the form of synthetic messenger RNA, which targets the virus by way of the spike protein, helping to stimulate the immune system to purge the virus. This is a fundamentally different approach to virus targeting, given that most vaccines are created by using weakened, or inactive versions of an existing virus, like the AstraZeneca/Oxford one.
The work of Moderna Biotechnology, a small company based in Cambridge Massachusetts and BioNTech, a small German company founded by a husband-and-wife team, based in Mainz, has been instrumental in the global response to the spread of the virus. For Moderna, its progress was boosted by the billions of US dollars thrown at it by the US’s Operation Warp Speed programme, but the technology remained untried and untested.
BioNTech share price soars
Events took a turn at the beginning of 2020 when reports of a virus in China started circulating and the race for a treatment, as well as a vaccine, started in short order.
In January 2020, BioNTech CEO Dr Sahin read an article in the medical journal the Lancet, about this new respiratory virus coming out of China, and quickly realised it had the potential, due to its pathogenic qualities, to turn into a global pandemic.
Within weeks, on 17 March, he had secured a deal with Pfizer to help the company with clinical trials, the announcement of which sent the BioNTech share price soaring. The first stage of trials began in April, while most of Europe was still in lockdown.
Moderna share price leaps on government backing
While Moderna had the backing of the US government, BioNTech got the backing of Pfizer, and the race to market a safe and innovative vaccine was on, driving the BioNtech and Moderna share prices into the stratosphere.
When it became clear that vaccine trials were underway in the summer of 2020, both the Pfizer and Moderna share prices started to generate a lot of investor interest, as reports leaked out about the efficacy or otherwise of the various testing outcomes. Then on 9 November 2020, Pfizer issued a press release that would reverberate like a gunshot around the world. It stated that a vaccine candidate had been found to be more than 90% effective in preventing Covid-19 in participants without evidence of prior SARS-Cov-2 infection.
The Pfizer and Moderna share prices soared, as markets had a proof of concept, with Pfizer/BioNTech getting UK vaccine approval before the end of the year, with Moderna not too far behind. As orders for the vaccine mounted up and AstraZeneca, which was the only other viable alternative, having PR problems of its own, the bean counters were already doing the order math on the two-dose regimen.
BioNTech, Moderna share price performances since July 2020
The biggest problems facing both companies was scaling their success in a way to meet demand, and while BioNTech can call on the resources of Pfizer, Moderna has no such luxury. Earlier this year Moderna raised its lower-end estimate for global production to 600m doses in 2021, with the hope it could deliver up to 1bn doses.
The question facing Moderna was whether it could build up its production capability to not only deliver on its Covid-19 vaccine, but would it also be able to deliver new vaccine candidates for seasonal flu, HIV and the Nipah virus using the same biotechnology?
Huge annual revenue rises expected
At the end of its last fiscal year, Moderna’s quarterly revenue rose strongly, coming in at $570.7m, well above expectations of $287m, which was a huge jump from $14.1m the year before, but losses widened as well to $272.5m, or $0.69 a share, from a loss of $0.37 a year ago. The bigger losses were because of Moderna boosting its productive capacity as it looked to deliver 1bn does in 2021, with R&D expenses for Q4 amounting to $759m. This was money well spent given that Q1 revenues jumped to $1.9bn, while profits came in at $2.84 a share.
In April, Modena signed a deal with Sanofi to manufacture another 200m doses in the US for September this year. In Q2, revenues rose even further, coming in at $4.4bn, well above expectations, with the vaccine contributing $4.2bn of that number. Profit came in at $6.46 a share, with the company announcing a $1bn share buyback programme of $1bn over two years.
We also saw the latest vaccine data, which showed that the second Covid jab was still 93% effective six months after being delivered. A year ago, Moderna’s Q2 revenue was a mere $67m, illustrating how far this company has come in the space of a year. Full year capex for 2021 was expected to increase further to between $450m and $550m, up from Q1, as the company strives to add additional capacity. From annual revenues of $803m in 2020, Moderna is expected to post $20.3bn in 2021, and earnings of $14.8bn, quite a change of fortune.
BioNTech’s success has been no less positive, and with the help of Pfizer the company is on course to grow its annual revenue in 2021 to €16.2bn, another big jump from €482m at the end of 2020. Earnings are expected to rise to €12.4bn. In its most recent set of results, the company said it had supplied more than 1bn doses to more than 100 countries, with agreements for another 2.2bn does in 2021. Total revenues for Q2 were €5.3bn, with costs of sales and R&D amounting to €1.1bn, and profits of €2.8bn.
Are BioNTech and Moderna shares prices due a pullback?
There is no question that these two small companies have reaped the benefits of the pandemic bonanza, however questions are now being asked as to whether the two stocks could be victims of their own success.
The share price rises have been dizzying and with valuations of €88bn for BioNTech and $160bn for Moderna, one must question whether they are ‘one-trick ponies’ who are due a little bit of a pullback.
Last month Moderna entered the S&P 500 and while its progress has been impressive, it’s still valued at a premium over BioNTech. A lot of this will be anticipation of future growth potential, but booster doses are single-shot regimens, not the double dose that has driven the current bout of price appreciation.
Quite simply, future earnings expectations maybe too optimistic, and while the Covid-19 pandemic suited a need for a speedy rollout, new vaccines and treatments could find the trial and testing regimen much tougher, which aside from the success of the Covid vaccine, is still a very new and untried technology.
As we look ahead to the rest of this year, it’s quite possible that the big money has already been made, and that from here on in the potential for further upside could be slightly trickier.
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