Much has been written about the successes and failures, trials and tribulations around the COVID-19 vaccines. What proved to be an extremely efficient and effective development, trial and approval process for those candidates at the forefront of the development pipeline has now transformed into reports of success or disappointments on mass production, supply and overall safety of those vaccines and, ultimately, progress in vaccination of the general population. At an overall level, according to The Lancet website tracking Covid-19 vaccine development, there are 10 vaccines in use, 20 in phase 3 clinical trials and 30 in phase 1/2 trials.
But what of the companies behind these vaccines and how have they fared through the process? Before looking at individual companies, it must be recognised that, for the large part, the development, manufacturing and distribution of COVID-19 vaccines is being done at a for-cost or minimal profit basis, given the humanitarian need. While over the longer-term the most effective vaccines could become billion-dollar revenue lines for drug companies, much as flu vaccines are now, they will not be game-changers for the larger companies in terms of their overall revenue line. That said, for the smaller biotech companies, Covid-19 vaccine development has been, and will continue to be, material to their growth.
The big names that immediately spring to mind when talking about COVID-19 vaccines are the US giants Pfizer and J&J and the European large cap AstraZeneca. Sanofi, in partnership with GSK has a candidate in phase 2 trials. Another company in the spotlight is the mid-cap US biotech Moderna, while the small-cap stock to benefit most from vaccine development to-date is German-based BioNTech. Also in the near-term mix are the biotech companies Novavax and CureVac. Novavax recently released positive phase 3 trial results, while CureVac, has a candidate vaccine in phase 2/3 trials and recently signed an agreement with Novartis on vaccine production. It has to be remembered that Chinese biotech company Sinovac, the Gamaleya Research institute in Russia and Indian biotech companies have also developed apparently effective vaccines that are now in use.
For large cap companies the development of vaccines in general is part of everyday pipeline development, albeit with the Covid-19 vaccine taking place in the public eye. As such, it has been the underlying business that has, to a large extent dictated share performance over the period. Pfizer was first to the western market with a highly effective vaccine with partner BioNTech. Its share price sold off like all in the market in March 2020 and spiked when its vaccine was approved, but otherwise has been largely range bound over the past 15 months. Shares are down 7% on pre-pandemic levels.
AstraZeneca was the second to the western market with a highly effective vaccine, this time developed in partnership with Oxford University. While positive progress through development was advantageous for share price movement, subsequent production constraints have weighed on investor sentiment. That, coupled with underlying business dynamics, has the stock down 6% on pre-pandemic levels. J&J is the other large cap pharma stock with a vaccine close to the market. That stock is up 7% on pre-pandemic levels, again on underlying business dynamics (the company has a large healthcare division unlike Pfizer and AstraZeneca) rather than on vaccine specific catalysts.
While for large cap pharma, Covid-19 vaccine development has had little material impact on the stock, the same cannot be said for their smaller biotech partners, or those biotechs which have successfully developed their own vaccines. First to mind is Moderna, which was a loss-making biotech company until it successfully launched an effective vaccine onto the market. Having reported an adjudted EBITDA loss of $715m in FY20, it is forecast to report an EBITDA profit of $12.94bn in FY21! Not unsurprisingly, while off its all-time highs, the share price is up 680% from its pre-pandemic levels.
The second biotech in the news is BioNTech, Pfizer’s partner in vaccine development. This German-based biotech’s share price is up 167% on its pre-pandemic levels, again given the material impact the development of a vaccine will have on its business. The company is forecast to report adjusted EBITDA of €4.46bn in FY21 compared to an EBITDA loss of €272m in FY20. Novovax is also set to benefit from its vaccine development programme. It recently announced that its vaccine demonstrated 89% efficacy against Covid-19 in phase 3 trials and that it would be looking to submit its candidate for approval. Having reported an EBITDA loss of $418m in FY20, the market is now expecting Novovax to record $2.32bn in EBITDA in FY21. The stock is up 4,980% on pre-pandemic levels on such a potential turnaround in its business fortunes. On the back of its Covid-19 vaccine progress, CureVax listed at $16 in mid-August 2020, the share price spiking to $136 in early December 2020. While off this high, its current price represents a 498% upside from the list price seven months ago.
What this review illustrates is that in the pharma and biotech sector, development of specific treatments are not material issues for large cap companies with a broad stable of drugs and healthcare services. While this is well known in the industry, it has played out in the public eye over the past 15 months as Covid-19 vaccines have been developed, approved and distributed for general use. Conversely, such developments are material to small biotech companies with little revenue and/or range of products and services on the market.
Looking forward, for steady long-term performance and in most cases a decent return to shareholders through a dividend, we believe that investors should stick to the large cap pharma. Those, however, with a higher risk appetite looking for strong growth potential might be better served looking at the big pharma partners in drug and vaccine development. The difficulty here, however, is choosing the right one because often, putting resources into development of a candidate that does not gain approval could see a marked reduction in a small partner’s value and any investment in that stock.
Ian Hunter is a Research Analyst at Cantor Fitzgerald Ireland.
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