You don't have to be an infectious disease expert to know that Moderna (NASDAQ:MRNA) ranks among the leaders in developing a novel coronavirus vaccine. Moderna's mRNA-1273 vaccine was on the shortlist of COVID-19 vaccine candidates to receive federal funding as part of Operation Warp Speed. World Health Organization chief scientist Soumya Swaminathan thinks Moderna is in a close second place behind AstraZeneca in the race to develop a COVID-19 vaccine.
But while many people have heard of Moderna, there's a less well-known company that's also in the thick of efforts to fight COVID-19 -- Catalent (NYSE:CTLT). Is this under-the-radar stock a better coronavirus play than Moderna?
Selling "picks and shovels"
It's sometimes said that the best way to get rich back in the gold rush days was by selling picks and shovels. Supporting gold miners was more lucrative than mining itself. You can think of Catalent as selling "picks and shovels" to the biopharmaceutical industry.
Catalent focuses on providing delivery technologies and development solutions for a wide range of drugs, vaccines, and consumer health products. The company helps drugmakers accelerate the development process to get their products to market faster. And it's involved at multiple stages of development, from preclinical testing to manufacturing.
How successful has Catalent's business model been? The numbers speak for themselves. The company has been involved in nearly half of the new drugs approved by the FDA over the last 10 years. It makes close to 73 billion doses every year for nearly 7,000 products. Last year, Catalent's customers included 83 of the top 100 brand-drug companies and 21 of the top 25 generic-drug companies.
In fiscal 2019, Catalent generated revenue of over $2.5 billion with earnings of $137 million. Its share price has more than doubled in the last three years.
Unsurprisingly, Catalent has emerged as a central player in helping drugmakers develop COVID-19 therapies and vaccines.
In late April, Johnson & Johnson tapped Catalent to manufacture its lead COVID-19 vaccine candidate. J&J plans to advance its vaccine to clinical studies later this month. Only a few days later, Catalent announced a deal with Arcturus Therapeutics to make its COVID-19 vaccine candidate.
Small drugmaker Spicona partnered with Catalent in June to develop a virus-like protein (VLP)-based COVID-19 vaccine. Catalent is using its cell line development technology to produce the recombinant VLP for Spicona.
The two leaders in the coronavirus vaccine race have also teamed up with Catalent. In June, Catalent inked deals with both AstraZeneca and Moderna to manufacture their respective COVID-19 vaccine candidates.
Catalent hasn't just attracted vaccine makers, though. The company partnered with Humanigen to support late-stage testing of lenzilumab in treating COVID-19 patients with pneumonia. It's working with Ennaid Therapeutics to develop a powder-in-capsule formulation of Ennaid's antiviral drug ENU200. Catalent also is helping Biosig Technologies subsidiary ViralClear develop oral dosage forms of ViralClear's antiviral drug merimepodib.
Better than Moderna?
This flurry of coronavirus-related activity has helped drive Catalent's shares nearly 30% higher so far in 2020. However, that's much less impressive than Moderna's gains of almost 200%. But could Catalent be the better stock over the long run?
The analogy to the gold rush days is a good one to keep in mind. Picks-and-shovels sellers made money regardless of whether or not gold was found. They came out better than the many gold miners who never discovered a significant amount of gold. But the miners who found a major source of gold became much wealthier than the sellers of picks and shovels.
If Moderna's COVID-19 vaccine flops, the biotech stock will almost certainly underperform compared to Catalent over the next year or two. Catalent will make money from manufacturing Moderna's COVID-19 vaccine even if Moderna doesn't make any money. And if Moderna's other pipeline candidates aren't successful, you can rest assured that Catalent will deliver greater long-term returns.
But it's quite possible that Moderna will strike gold, figuratively speaking. In this scenario, Catalent's stock performance won't come close to matching Moderna's.
There are plenty of hurdles remaining for Moderna's COVID-19 vaccine. However, my hunch is that the biotech will achieve success. While Catalent is definitely the less risky pick, I think that Moderna will be the bigger winner over the next few years.