# Opinion: Investing in the Covid-19 vaccine companies? Here’s the great divide in the group

One big problem for all of us is that widespread use of vaccines is concentrated in the developed world.

“There are wide swaths of the planet that have not received any supply,” says Steven Slaughter, a biotech expert with Manulife Investment Management.

As long as this persists, those regions will serve as Covid-19 mutant laboratories that may produce more virulent variants that rip through highly-vaccinated countries.

“There is evidence that some variants have the capability to evolve to evade the vaccines,” says Slaughter.

People are also going to need booster shots every 12 months for a while, says Jing He, a biotech analyst at Gabelli Funds.

Here’s a look at what this means for investors.

The mRNA leaders

The clear winner in the Covid-19 vaccine contest so far has been messenger RNA (mRNA). This translates our DNA into signals that tell cells what to do. Vaccines based on mRNA tweak the signals to make cells produce antigen proteins that train the immune system to combat Covid-19.

These vaccines work really well. This success — and some concerns about the safety of competing vaccines — helps explain why mRNA leaders Moderna and BioNTech are trading near all-time highs.

But what now?

“The big question is what do they have in the pipeline that can confirm these valuations,” says He, the Gabelli analyst.

After all, things are about to get a lot more challenging for these two on the vaccine front. By definition, the booster market cuts demand in half, since only one shot is needed. Another challenge is not as many people will get vaccines and booster shots next year.

“Maybe half the number of people get vaccinated,” says Jefferies biotech analyst Michael Yee. “So revenue goes down by half because of one dose, and then half again because half the number of people get vaccinated and get a booster,” says Yee.

Moderna and BioNTech may offset this to some degree by raising prices. But will it be enough to allow them to hit analysts’ estimates? Who knows?

“They are really going to have to raise the price to make up that difference,” says Yee.

Meanwhile, competitors are on the way. CureVac 
CVAC,
-7.27%
will soon release data on its mRNA vaccine. Yee thinks it will show good efficacy — of around 80%. Novavax
NVAX,
-4.94%
will also soon post data on its vaccine.

Those are some big challenges for Moderna and BioNTech, but there are positives on the horizon, too. Moderna will soon release results of trials that test its vaccines against Covid-19 variants, which Yee thinks will be positive. If so, it will probably have a 2022 combo-vaccine that covers regular Covid and the South African variant.

Next, Moderna will post data on its seasonal flu vaccine in the second half of this year. It if works, there may be a combo Covid-seasonal flu vaccine. An improvement over the typical 40%-50% efficacy for flu vaccines would add interesting upside to the Moderna story since the flu vaccine market is worth $15 billion to $20 billion a year, says He.

Beyond Covid-19

And now that mRNA technology has been proven out, it’s worth taking a look at what’s in the pipeline beyond Covid-19.

“Covid validated the Moderna platform, and there are a lot of things they can do beyond vaccines that will drive growth down the road,” says He.

Both Moderna and BioNTech have cancer vaccines in early-stage testing.

“From an investor standpoint, we are desperate for an innovation in oncology,” she says.

Moderna has partnerships with Merck
MRK,
+2.25%
and AstraZeneca
AZN,
+1.36%
in oncology, a validation of the potential. Moderna is also testing a therapy for cytomegalovirus, a kind of herpes that causes of birth defects, and therapies that regenerate damaged tissue. Goldman Sachs has a “buy” rating and a $206 price target on Moderna, citing this pipeline potential.

BioNTech has an early-stage pipeline of over 22 drug candidates and several more not yet disclosed. About half of those are in clinical trials, mostly Phase I.

One really interesting angle is personalized cancer therapies. Those identify unique gene mutations behind cancer to develop customized genetic instructions that help the immune system attack cancer. BioNTech has partnerships with Roche
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+0.34%,
Bayer
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+2.81%,
Eli Lilly
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+2.45%,
Pfizer
PFE,
+0.05%,
Sanofi
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+0.32%
and Genmab
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+3.06%.
It also has a partnership with the Bill & Melinda Gates Foundation to develop vaccines for HIV and tuberculosis. Moderna is developing personalized mRNA cancer vaccines, as well.

One risk here is that a lot of this work is based on a nonexclusive license of mRNA technology patents from the University of Pennsylvania. This means other companies could license the same technology to develop mRNA therapies, says Morningstar analyst Karen Andersen.

Pfizer partners with BioNTech on its mRNA Covid-19 vaccines, but it has little to no exposure to the rest of the pipeline.

“We expect Pfizer’s Covid-19 vaccine sales will create very strong growth in 2021, but likely weigh on growth by 2023 as competitive vaccines erode pricing and demand for Pfizer’s vaccine,” says Morningstar analyst Damien Conover.

On the upside, Pfizer is launching several potential blockbusters in cancer, heart disease and immunology.

“We expect 8% annual sales growth between 2020 and 2023 as new drugs offset generic competition,” he says.

The vaccine underdog

Novavax doubled in February to hit $331, after reporting positive results from its Covid-19 vaccine trails in the U.K. Since then, it has given back almost half the gains. What’s the issue?

The Food and Drug Administration (FDA) prefers U.S.-based studies. So Novavax has been conducting U.S. trials. It was supposed to release results in April. But April came and went with no data. The company has also reported bottlenecks at contract manufacturers producing its vaccine. All of this has brought investor doubts.

“There is under-optimism on Novavax,” says Charmaine Chan, a biotech expert at Cambiar Opportunity Fund
CAMOX,
-0.35%.
That’s putting it politely. Together, Pfizer, BioNTech and Moderna gained $70 billion in market cap because of their vaccine efforts, points out Chan. In contrast, Novavax currently has a market cap of only $13 billion.

The U.S. Covid-19 vaccine trail delays could be a sign of trouble. But is there any reason to think results in the U.S. would vary that much from U.K. results? President Biden alluded to a vaccine from Novavax soon, which I’ll take as another sign U.S. study results will turn out OK.

Yee, at Jefferies, thinks we will see U.S. trial results in May, showing results similar to the positive U.K. study.

“Novavax could be the third player for 2022, with a safe vaccine with no clots,” he says.

JPMorgan analyst Eric Joseph has an “overweight” rating on Novavax, which he described as “undervalued” when it traded at current levels in March.

Novavax has also posted positive Phase III data on a flu vaccine using the same platform, results now largely forgotten, says Jefferies analyst Kelechi Chikere. This means that, like Moderna, the company is in a good position to roll out a Covid-19-seasonal flu combo vaccine, says Chikere.

The adenovirus laggards

While AstraZeneca and Johnson & Johnson
JNJ,
-0.42%
deserve props for offering their Covid-19 vaccines at little to no profit, both face significant challenges in this space.

Reports of blood clotting were rare, but they no doubt cause lingering doubts. Another problem is that these two offer adenovirus vaccines. Those work by splicing snippets of the Covid-19 virus into neutralized adenoviruses. Then they’re put in the body to deliver the payload to spark an immune response. That’s all well and good. But the problem here is that it’s challenging to use the same adenovirus for booster shots, since the body recognizes and destroys them the second time around, before they can deliver their payload.

“So, they are out of the running,” says Chan, at Cambiar.

On the bright side, Johnson & Johnson’s medical device division makes it a reopening play of sorts. People who have avoided orthopedic procedures like joint replacement surgery because of Covid-19 will be heading out to get them. The company is rolling out robotic surgery instruments, says David Klinkerman, an analyst with Huntington Private Bank. JNJ’s pharma division has several solid cancer and immunology therapies on the market and more to come. Goldman Sachs has a “buy” rating on the stock and a price target of $204.

AstraZeneca also has a pipeline of potential blockbuster therapies and drug launches that may boost the stock, says Jefferies analyst Peter Welford. It will benefit from its buyout of Alexion, which has a good record of developing therapies for rare diseases.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned PFE. Brush has suggested NVAX, MRK, LLY, PFE and JNJ in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.