Moderna (MRNA +4.47%) and BioNTech (BNTX 0.29%) have been hot stocks this year. Their share prices have enjoyed triple digit growth amid speculation stemming from their coronavirus vaccine programs. At the same time, as rumors swirl regarding the conclusions of each company's phase 3 clinical trials, investors everywhere are hunting for the best competitors in the rapidly expanding coronavirus market. Given that both Moderna and BioNTech have exhibited lightning-fast vaccine development, it's anyone's guess as to which has a better chance of winning the coronavirus vaccine race.
Unfortunately, this is a case where it pays to be cautious rather than greedy. While it's true that a successful vaccine would drive considerable revenue growth for each company, neither has much of a track record in drug development. Nor do they have any history of turning a profit, favorable fundamentals, or other products on the verge of commercialization that might justify the current prices. Savvy investors should probably steer clear of both companies -- and it's worth looking a bit closer at the details to understand why.
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1. Moderna's price is detached from its reality
Moderna has no recurring revenue because it has no drugs or vaccines that have made it through the clinical trial process. Its price-to-trailing sales (P/S) ratio is upwards of 236 compared to the biotech industry's average of 6.88. This isn't the only indicator that suggests Moderna is overpriced, however. The industry's average price-to-book (P/B) value is 6.2, and Moderna's is 9.5, which means that compared to an average firm, investors pay more for each dollar of value stored in assets when they buy Moderna.
As growth investors are taught to do, they may be purchasing Moderna for its expected future income rather than for its sales revenue or book value at the moment. But this could eventually prove to be dangerous advice. While its coronavirus vaccine candidate mRNA-1273 is in its final phase of clinical trials, the company has no other phase 3 programs. Of Moderna's few programs in phase 2, it only has the exclusive rights to one project, its cytomegalovirus vaccine candidate. This means that if Moderna succeeds in commercializing its other phase 2 programs, it won't capture the full value or benefit of each sale. More importantly, its cytomegalovirus vaccine is unlikely to be a powerful driver of revenue, because cytomegalovirus infections rarely cause symptoms in healthy people. In summary, Moderna isn't positioned for massive revenue growth for at least several years after its coronavirus vaccine hits the market.
2. BioNTech may be even more overpriced than Moderna
Like Moderna, BioNTech isn't profitable, nor has it ever successfully brought a drug or vaccine through the regulatory approval process. BioNTech's valuation measures are also unfavorable, as its P/S ratio has reached more than 144 and its P/B value lingers over 30. To make matters worse, BioNTech's coronavirus vaccine candidate in phase 3 of clinical trials is also its most advanced program. The company's lone phase 2 program is being pursued with the help of a larger collaborator that is likely to take the lion's share of the revenue from the final product. Given that Pfizer (PFE +0.21%) is BioNTech's major collaborator in the COVID-19 vaccine development process, it will only get a portion of the full benefit of sales revenue if the vaccine is commercialized.
While BioNTech does have a revenue-generating contract pharmaceutical manufacturing business unit that Moderna does not, this isn't much of a consolation for bargain-hunting biotech investors. Revenue from these manufacturing services has almost never made more money than the company spends on a quarterly basis, and its total revenue has yet to return to its high point of $63.77 million in the last quarter of 2018. In fact, from the end of 2018 to the most recent quarter of this year, BioNTech's expenses have ballooned from $42.02 million to $122.7 million. In short, BioNTech's price is based on overly optimistic hopes about the sales of its coronavirus vaccine rather than the hard financial realities facing its business as a whole, and investors who disregard its sparse pipeline and considerable underperformance risk substantial losses.
