Source: UBS, 2 October 2024 (multiples based on a price of EUR 110) (click on image to enlarge).
BioNTech’s issue is the same as that of Moderna. Personalised vaccines against cancer and other diseases may promise untold riches once they’ve been developed, but getting there has proven a rocky road for well over a decade.
For anyone interested in more details, in August 2024 the Financial Times published this excellent long-form article (worth reading in its entirety and including its infographics!):
“The Covid-era tech that could reinvent cancer care
It is early days for personalised vaccine technology and many hurdles remain. Making a personalised vaccine for each patient will be costly and come with supply chain challenges, while pharma groups are constantly advancing other drug types in the ever-competitive cancer field. While ‘it’s very attractive and very exciting’, said Miranda Payne, a melanoma specialist leading a Moderna trial at Oxford’s Churchill Hospital, ‘it’s a little bit hard to see how you’ll scale it up for everybody who might need it’.
Several companies have tried to develop cancer vaccine-style products in recent years but the products have struggled to induce an effective response to tumours, especially in late-stage cancer when the immune system is already weak. ‘Vaccines have historically been an abysmal investment,’ said Marek Poszepczynski, an oncology expert at life sciences investor the International Biotechnology Trust. ‘Cancers are very, very good at escaping the immune system.’
…
BioNTech and Moderna are hoping to succeed where others have failed as they seek to develop broad portfolios of cancer treatments.
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Although it rose to global prominence through Covid, BioNTech’s main focus since it was founded in 2008 has been cancer. ‘Personalisation of our mRNA vaccines is our most important innovation,’ Uğur Şahin, chief executive, told the Financial Times.
Moderna chief executive Stéphane Bancel recalled how he told staff late in the pandemic that ’10 years from now, people would have forgotten what we did for the world during the pandemic because we’ll be known as one of the most impactful cancer product companies.’“
Just like Moderna, BioNTech is a call option on these research efforts.
However, it seems that it’s currently the better call option. Judging the likelihood of success of these research projects is extremely difficult, but the market’s perception is currently in favour of BioNTech.
Interestingly, once you strip out cash, the potential opportunity is available at the same price as that of Moderna. Using the estimated 2028 figures provided by UBS, Moderna currently has an enterprise value of USD 15bn, and BioNTech has an enterprise value of USD 16.5bn. Given the different dynamics and the flexibility provided by BioNTech’s strong cash position, it would seem that BioNTech is the relative bargain, even after its share price rose 50%.
Source: The Times, 14 January 2024.
What about legal risks?
The issue that lingers in the air but which hardly any analyst addresses in any detail is the risk of lawsuits stemming from COVID-19 vaccines.
Interestingly, Donald Trump didn’t just pledge a role to RFK, but also to Dr. Jayanta “Jay” Bhattacharya, another outspoken and early vaccine critique. Bhattacharya was one of the initiators of the Great Barrington Declaration that criticised lockdowns, and was made a pariah during pandemic. He is now nominated as director of the National Institutes of Health – not exactly a household name but the single most important funder of biomedical research in the world, dispensing grants of nearly USD 50bn a year. On 6 December 2024, The Wall Street Journal published an insightful profile of Bhattacharya: “The Man Who Fought Fauci — and Won“.
Trump, RFK and Bhattacharya – the triumvirate that will make the triumvirate of vaccine stocks go to zero?
It’s not impossible, but it doesn’t appear likely.
Lawsuits involving damages caused by COVID-19 vaccines have been filed in a number of jurisdictions already. It’s incredibly difficult to make an assessment of the issue, but it does appear that none of the two extreme scenarios expected by the opposing camps of the vaccine discussion came true:
- The world didn’t see mass deaths among the vaccinated, as some had predicted.
- Just as much, it’s now clear that “safe and effective” was too bold a claim.
As with most things in life, this issue isn’t going to come out black or white. Just what hue of grey it is will probably be discussed for another decade or two. Given how skewed much of the data is, there is unlikely ever going to be clarity.
Cynics will say that for large pharma companies, suffering through lawsuits and paying off victims is just another cost of doing business. After all, there has been a long list of such lawsuits throughout the decades, and including actual criminal activity. It was GlaxoSmithKline that had to pay the highest ever settlement, USD 3bn in 2012. However, when it comes to criminal fines, the dubious honour of topping the list goes to none other than Pfizer. In 2009, the American firm had to pay USD 2.3bn to settle a case for falsely promoting some drugs, of which a stunning USD 1.3bn was a criminal fine. Speak of trustworthy corporations!
For developing and promoting the COVID-19 vaccines, the companies making them were given special immunity by the government.
Consider the history of large pharma companies treating expensive lawsuits as part and parcel of their business. What are the chances that these special immunities led to some corners in research and testing being cut, and some product claims coming out a tad better than they deserved?
RFK will be on a mission to address the overall issue, and he will soon have the power of his public office. Will the underlying government apparatus play along with RFK’s work, though? The negotiations seem to have started already: in December 2024, Pfizer CEO Albert Bourla had a “constructive conversation” with Trump and RFK over dinner.
There will probably be some sort of reckoning on some of the damage that these particular vaccines caused, but also an agreement to move forward and not sink one of the largest American companies. A four-year term in office wouldn’t be enough to achieve that, and large parts of the political establishment would not go along with it anyway.
RFK will likely try very hard to remove immunity for any future vaccines, but he’d struggle (and probably stay clear of) trying to remove the immunity for past vaccines. These companies were given immunity, after all. You can’t change laws retroactively.
That’s my guess, and it’s probably as good as anyone’s guess.
Then again, in a way, the stock market already indicates as much.
These stocks are cheap – and possibly worth a closer look
The stocks of Pfizer, BioNTech, and Moderna took a 10-20% hit when news about RFK’s involvement hit. However, they seem to have moved on since.
It’s also worth bearing in mind that large-cap pharma companies are already trading at a 35% discount to the S&P 500 when measured by their P/E ratios – increasing to a 45-50% discount if you remove Eli Lilly from the list (whose stock benefited from a blockbuster obesity drug).
In that sense, RFK’s future actions could already be yesterday’s news.
Over the past years, Western nations have not been particularly good at critically dealing with government failures. The more likely course of action in Europe (but also the US) has generally been to deal with an issue superficially and then sweep it under the carpet, while quickly moving on to focus the public’s attention on the next issue du jour.
With all that in mind, the time to short the stocks of vaccine makers has now probably come to an end. It’d be ironic if, in a few years, the appointment of RFK to a government position would also just about mark the lowest point of these stocks.
Pfizer could be an interesting turnaround play if Starboard Value’s thesis works out. As the Starboard investor presentation shows, Pfizer has fallen *far* behind the valuation of its peers. The company is now under pressure to change, and the low valuation multiples may be as good a starting point as Starboard’s outsized investment suggests.
