In the past eleven months, a few little-known biotech companies shot to fame as they raced to develop a vaccine to protect against the novel coronavirus. Though stocks like Moderna and Pfizer have a head start in approval, it’s possible other late-stage vaccine players will overtake them in the future due to easier storage and distribution requirements.
Which stock to buy?
The best vaccine stock to buy right now depends on
- How much of the revenue outlook is already built-in the stock price?
- The probability of approval of the vaccine
- The ease of distribution and storage of the vaccine (impacts volume and profitability)
- The current market cap of the company
As the scope of vaccine distribution is large and potentially similar for all the players, it is a level playing field where all the vaccine makers have the same opportunity to earn revenue if the vaccine is approved.
Moderna (NASDAQ: MRNA)
Moderna’s market cap has increased by over 60 billion during the pandemic. Since its inception, it has not generated any revenue, operates under significant net losses and its most recent quarterly report states that it has only enough cash to manage operations for a year. Moderna’s COVID-19 mRNA vaccine is the company’s best bet for now as its other medicines are still undergoing trials.
Opportunity Size: Assuming Moderna’s vaccine costs $25 per dose * 1 Billion vaccine doses committed in 2021 = $25 Billion
Analysis: The Covid revenue opportunity for Moderna is 4 times its pre-Covid market cap. So, the opportunity is huge. However, Moderna stock is overbought (the opportunity is already priced in).
Pfizer (NYSE: PFE) with BioNTech
Pfizer’s stock price barely moved in 2020 and the pharma giant saw its revenues drop 11% in Q2 and 4% in Q3 2020, as healthcare spending dipped in the US and abroad during the initial stages of the pandemic.
Opportunity Size: Assuming Pfizer’s vaccine costs $19.5 per dose * 2 Billion vaccine doses committed in 2021 = $39 Billion.
Analysis: Pfizer is a huge market cap company, the Covid opportunity is 15-20% of its pre-Covid market cap. It doesn’t have a lot to gain from the revenue opportunity of a single vaccine. It could be that the negative impact of Covid on revenue of its other products is overshadowing any gains from the Covid vaccine.
AstraZeneca (AZN) with Oxford University
AstraZeneca started strong in the vaccine race and was the first company to start Phase 3 trials, while others were still in earlier stages. It was considered the most promising front-runner until they encountered delays and dosing mishaps that forced them to push back. Its vaccine shows 70% efficacy and has been approved in the EU, UK and India. AstraZeneca stock lost many of the gains made in 2020, but it continues to beat revenue expectations in the second and third quarters of 2020 despite the ongoing pandemic.
The company has made it clear that it does not intend to profit from the coronavirus vaccine and plans to price the vaccine at $3-4 per dose. It has partnered with the world’s largest vaccine manufacturer, Serum Institute of India to manufacture 3 billion doses in 2021, available at low cost to the developing economies of the world.
Opportunity Size: Assuming AstraZeneca’s vaccine costs $3 per dose * 3 Billion vaccine doses committed in 2021 = $9 Billion
Analysis: At such a low price, revenue opportunity is minimal. AstraZeneca’s COVID Vaccine is a philanthropic venture and may add to the goodwill of the company.
Novavax (NASDAQ: NVAX)
Novavax is another small company in the race. After a lot of trial delays, it announced that its vaccine shows 89% efficiency in a phase 3 UK clinical trial, and the stock instantly soared to over $200. Novavax stock gained over 2000% in 2020, and is now over 17 billion in market cap.
Opportunity Size: Assuming Novavax’s vaccine costs $16 per dose * 2 Billion vaccine doses committed in 2021 = $32 Billion
Analysis: Huge lag between potential coronavirus revenue opportunity size for Novavax and its current market cap. There is scope for a run-up in stock price once it’s approved. Also, they can be stored under normal refrigeration unlike Moderna’s and Pfizer’s which means it will be available to a pool of developing countries, which will boost revenues.
Ocugen (NASDAQ: OCGN)
Ocugen stock price jumped after news of a partnership with Indian firm Bharat Biotech to develop its coronavirus vaccine candidate, Covaxin for the US market. It currently enjoys a market cap similar to what Novavax enjoyed before Covid.
Analysis: If one assumes the Covid revenue opportunity size is $5 Billion (1 billion doses at $5 per dose) then it’s 15-20 times revenue opportunity compared to the market cap of Ocugen. If it gets approval then there is a huge potential for run-up in stock price.
Risk: Vaccine may not get approval in the US which can restrict the upside significantly.
Conclusion
All vaccine stocks can be broadly grouped into three major buckets:
Big pharma – for which Covid is only a small opportunity and will have little impact on the stock price (like Pfizer, AstraZeneca, Johnson & Johnson)
Small companies but opportunity already priced in – New players with big opportunity size but have already seen significant price appreciation (like Moderna)
Small companies yet to see a run-up – who have the potential for big Covid revenue but this opportunity is yet to be reflected in the stock price (like Novavax, Ocugen). These are also awaiting approvals so risks remain.
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Written by: Grufity, a top stock market research platform for investors with latest stock prices, insider trading data, hedge fund holdings and 50000+ historical data series.