BioNTech (BNTX -0.51%) is a popular coronavirus stock with a return of 805.7% since the beginning of the pandemic in January 2020. With that pace of growth, many investors are already wondering if the company could one day become a trillion-dollar stock. After all, with a market cap of $84.56 billion, it's already nearly 10% of the way there.
I hate to disappoint the masses, but the golden age (or, rather, year) of investing in the coronavirus vaccine maker is probably coming to its end. So let's look at why BioNTech stock is a prime example of why past performance does not predict future returns.
Image source: Getty Images.
Holding onto its momentum
Enthusiasm for BioNTech isn't as high as for other notable coronavirus vaccine developers, such as Moderna (MRNA -0.22%). This is because BioNTech is only entitled to 50% of its COVID-19 vaccine's gross profits per an agreement with its research and development partner, Pfizer (PFE -0.40%).
Nevertheless, BioNTech has a lot of potential for growth. With Pfizer as a partner, the company secured a stunning 2.2 billion vaccine orders this year. In addition, it has an additional 1 billion doses of orders lined up for 2022 and beyond. It's worth noting that the vast majority of existing contracts are with the U.S. and EU, so there are many opportunities for it to take part in equitable vaccine distribution initiatives like GAVI, a global health partnership with the aim of making vaccines accessible to third-world countries.
Pfizer and BioNTech are also taking significant measures to innovate the vaccine, which is called Comirnaty. Multiple regulators worldwide have approved the storage of the vaccine at refrigeration instead of freezing temperatures for 31 days, improving its logistical picture. The two biotechs are also conducting clinical trials to evaluate the efficacy of booster shots. In one study in Israel, a third shot of Comirnaty had an overall effectiveness of 86% in patients 60 and older amid a sharp rise in coronavirus cases due to the spread of the delta variant. Finally, Pfizer and BioNTech plan to expand the vaccine's use into China where its regulatory submission is underway.
During the second quarter of 2021, BioNTech brought in about 5.31 billion euros in revenue and about 2.79 billion euros in net income from vaccine commercialization, compared to a meager 41.7 million euros in revenue and a net loss of 88.3 million in Q2 2020. But do not be swayed so easily by its sales success.
So what's the issue?
There are two big problems with BioNTech. First is its relatively small reinvestment into research and development. Its R&D margin stands at just 3.8% compared with roughly 41% for the biotech sector. The reason for this is because BioNTech was essentially a nobody before the pandemic started. It still needs time to screen new therapeutic candidates and find new drug targets before it can invest its soaring profits into its pipeline. Even though it has 15 oncology programs in 18 clinical trials (including experimental mRNA cancer vaccines), the vast majority of them are only in phase 1 or the preclinical case.
So it's unlikely that the company could use its pipeline to offset the looming decline in vaccine sales that's around the corner. Things are very different from last December, when its vaccine became the second in the world to enter commercialization after Russia's Sputnik V. There are now 20 coronavirus vaccines that have received regulatory clearance. I'd only expect BioNTech's vaccine pricing and supply agreements to decline in the long term, even as the need for booster shots becomes more critical. What's more, Russia and China are rapidly picking up the pace in exporting their domestically made vaccines. Russia has sent over 500 million doses of Sputnik V abroad, while China aims to export 2 billion doses from Sinopharm and Sinovac this year.
Overall, I'm not convinced that BioNTech can continue its growth streak from now onwards. Investors should look past its historical financials and see that the coronavirus vaccine market has become saturated. Now seems like a pretty good time to take profits on the high-soaring biotech.
