As of May 27, COVID-19 has killed more than 100,000 Americans. Meanwhile, there are now over 100 experimental vaccines being investigated worldwide targeting the SARS-CoV-2 coronavirus, which causes COVID-19. Out of this candidate pool, only 10 vaccines have made it to the clinical or preclinical stages.
Today, let us look at two companies investigating SARS-CoV-2 vaccines in current or upcoming clinical trials, and determine which one is a better buy.
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Two pharmaceutical giants
First on the list is GlaxoSmithKline (GSK +2.22%), which, together with Sanofi (SNY +1.63%), is developing an adjuvanted vaccine (that means it contains an ingredient to help achieve better immune response) targeting SARS-CoV-2. A press release from Sanofi explained the partnership:
Sanofi will contribute its S-protein COVID-19 antigen, which is based on recombinant DNA technology. This technology has produced an exact genetic match to proteins found on the surface of the virus, and the DNA sequence encoding this antigen has been combined into the DNA of the baculovirus expression platform, the basis of Sanofi's licensed recombinant influenza product in the US.
GSK will contribute its proven pandemic adjuvant technology to the collaboration. The use of an adjuvant can be of particular importance in a pandemic situation since it may reduce the amount of vaccine protein required per dose, allowing more vaccine doses to be produced and therefore contributing to protect more people.
The partners plan to enter phase 1 clinical trials by the second half of 2020. If they're successful, GlaxoSmithKline and Sanofi hope to make the vaccine available by the second half of 2021.
Meanwhile, GlaxoSmithKline is in a great financial position. The company has a healthy 13% return on equity and a 16% net profit margin, and it boasts a dividend yield of 5%. These are impressive stats for a stock that is trading at only 15 times earnings. Investors afraid of another downturn due to the COVID-19 pandemic should seriously consider GlaxoSmithKline as a buy.
Pfizer's (PFE +2.36%) experimental vaccine is unique in that it features no biological material from the virus because it is based on messenger RNA technology. The University of Cambridge's PHG Foundation explains how mRNA vaccines work:
RNA vaccines use a different approach that takes advantage of the process that cells use to make proteins: cells use DNA as the template to make messenger RNA (mRNA) molecules, which are then translated to build proteins. An RNA vaccine consists of an mRNA strand that codes for a disease-specific antigen. Once the mRNA strand in the vaccine is inside the body's cells, the cells use the genetic information to produce the antigen. This antigen is then displayed on the cell surface, where it is recognised by the immune system.
Pfizer's vaccine candidate, BNT-162, is currently undergoing phase 1 clinical trials in 360 healthy volunteers. Pfizer expects top-line data for the vaccine to be released in June or July. If the results are positive, the company expects to move on to the next phase of the investigation, during which the vaccine will be tested in 8,000 volunteers.
Pfizer expects there will be millions of doses supplied by the end of 2020, and if all goes well, regulatory approval before 2021. The company has a successful track record of producing vaccines, with 69 million people worldwide receiving its vaccines in 2019 alone.
Pfizer's stock is trading at a fair valuation of 13 times earnings. That's quite cheap considering Pfizer's net profit margin is 31% -- well above that of its peers. The stock is also boasting a 4% dividend yield. For a company that generated $52 billion in revenue last year (albeit with a 7% year-over-year decline in the most recent quarter), these metrics are nothing short of exceptional.
So which company is a better buy?
Both Pfizer and GlaxoSmithKline are renowned large-cap pharmaceutical companies that should be in any healthcare investor's portfolio. However, if one were to choose between the two based on their merits of developing a coronavirus vaccine alone, then Pfizer is the way to go.
One important distinction is that GlaxoSmithKline has stated it does not intend to profit from the COVID-19 pandemic, and will reinvest any short-term profit it generates back into the global fight to find a cure. Pfizer, as yet, has made no such assurance. Given its great dividend and lucrative profit margins, positive data on its SARS-CoV-2 vaccine in June or July could indicate that Pfizer is an ideal coronavirus stock for the long term.
