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BioNTech’s Capabilities Questionable, Despite Vaccine Victory

BioNTech (BNTX) has, thanks to its COVID vaccine that it commercializes together with Pfizer (PFE), become a very profitable company that trades at a market capitalization of close to $100 billion. At that valuation, a lot of future growth seems to be priced in already, and even though profits are exploding upwards this year, the outlook over the next couple of years is very uncertain, which is why I am Neutral on the stock for now.

Poised for Profits?

BioNTech’s pipeline is, for a company that is valued at a market capitalization of more than $90 billion, relatively small. This could spell trouble in the long run, but on the other hand, some of the research areas are highly interesting. They could, if the company can continue its R&D efforts successfully, lead to the development of new, large-scale profit centers. This is, at least for now, far from certain, however.

BioNTech was, up to about a year ago, a relatively unknown, small-scale, R&D-focused biotechnology company located in Mainz, Germany. Thanks to an early success with its Comirnaty COVID vaccine (BNT162b2), BioNTech has become a completely different company over the last couple of quarters, however.

Comirnaty, which is co-commercialized with Pfizer, has proven to be one of the best vaccines against the current pandemic-driving coronavirus, and thanks to the combined efforts of BioNTech and Pfizer, vaccine output is strong. The two companies have raised their vaccine output goal for 2021 to 2.5 billion doses earlier this year, which will result in dozens of billions of dollars in revenue across these two companies.

Revenues are not shared 50:50, and BioNTech will get a smaller share of the revenues the vaccine will generate, but the biotech company will nevertheless generate massively higher revenues and profits this year, compared to 2020 and before. Current revenue projections by the analyst community see BioNTech generating sales of close to $20 billion this year, with most of that coming, unsurprisingly, from Comirnaty sales. The company has generated revenue of more than €5.3 billion during Q2 alone, which equates to a little more than $6 billion, thus an annual total of around $20 billion seems very much achievable.

Analysts are also forecasting earnings per share of $42 for the current year, which means that BioNTech is currently trading at around 7x forward net profits. This is a very low valuation in absolute terms, but there is, of course, a big question around the sustainability of these revenues and profits. With BioNTech’s high dependence on Comirnaty sales, it is far from certain that these profits will be maintained in the long run. In fact, with the current pandemic hopefully ending in the foreseeable future, Comirnaty sales will likely be significantly lower a couple of years from now, compared to today.

Even if the virus were to become endemic around the world, and if regular vaccination were required, BioNTech/Pfizer and their peer Moderna (MRNA) would likely lose some market share in the long run, as more competitors would enter this field. Analysts do thus, not surprisingly, see BioNTech’s revenue and profits peaking in 2022, with declining earnings per share being forecasted for 2023 and beyond.

BioNTech’s Other Drugs Questionable

BioNTech has not been working on COVID vaccines exclusively. The company is also investing in other areas, with a focus on oncology. Most of the company’s pipeline candidates, however, are in either the pre-clinical stage or in Phase I studies today. BNT111, BNT112, and BNT113, for example, are currently being investigated for melanoma, prostate cancers, and head and neck cancers, respectively. All three are still in Phase I studies, which means that commercialization is years away.

On top of that, there is, unfortunately, a statistically high likelihood that these drugs and others that are in early-stage development will not make it to the market. With no Phase III drugs in the pipeline and no other near-term candidates for commercialization, BioNTech is thus very dependent on Comirnaty for now. Even though that results in great growth for fiscal 2021, there is a high likelihood that sales and earnings will decline in 2023-2025, before the company may be able to bring new drugs, for other indications, to the market.

BioNTech undoubtedly was a great buy a year ago, but following steep share price gains, BioNTech seems like a relatively risky investment for now.

Turning to Wall Street, BioNTech has a Moderate Buy consensus rating, based on the 5 Buys, 7 Holds and 2 Sells assigned in the last three months. At $276.45, the average BioNTech price target implies 30.5% downside potential.

Disclosure: At the time of publication, Jonathan Weber did not have a position in any of the securities mentioned in this article.

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