If you're considering an investment in the newly famous coronavirus vaccine developer BioNTech, (NASDAQ:BNTX) you're right to wonder if the window of opportunity is still open. Based on the expected level of demand in 2022, jab sales may peak before the end of this year, and a widening field of competitors could soon start to contest the company's market share.
On the other hand, BioNTech's decline is far from guaranteed, and it's being supported by a handful of different trends, not to mention probable future developments. Let's analyze some of the arguments in favor of and against it being too late to invest in the stock in September to get a clearer view.
Is vaccine revenue fully priced in?
The biggest reason why it might be too late to buy BioNTech stock is that the market may have already fully and accurately accounted for its expected vaccine income over the next few years in its stock price.
Thanks to advance purchase agreements and supply contracts, the company aims to deliver 2.2 billion doses of its vaccine before the end of the year, and it's unlikely that it can take on many additional orders beyond that.
That could mean future earnings reports will fail to boost the stock, even if income is robust. After all, if the market is valuing the stock perfectly, simply delivering on the expected earnings results by selling the contracted number of doses doesn't introduce any new information that would change that valuation.
In my view, this hypothetical scenario is highly improbable. Given the rise of dangerous coronavirus variants, there is a large need for new and more capable iterations of BioNTech's vaccine. So, any reports of progress in developing these new candidates could positively affect the market's expectations for making future revenue. If the newer versions sell at a different price point than the original product, it'll also buck some of the prior value assumptions.
The other argument against buying this stock is that its present valuation may be overestimating the company's future earnings. If this argument is true, people who buy the stock today will be at risk of taking a haircut if future earnings reports indicate that jab revenue isn't all that it was cracked up to be.
But there is some evidence which suggests that this risk is not very high at the moment. Right now, the biotech industry's trailing price-to-earnings (P/E) ratio is 22, whereas BioNTech's is 17. It's a bit hard to believe that its valuation is bloated when the market is paying less than the industry's average for its shares relative to its earnings.
It's probably worth the risk
Valuation aside, there are projects in BioNTech's pipeline that could drive fresh shareholder returns through the tail end of the decade. Its candidate for metastatic melanoma is currently in phase 2 of clinical trials, and it also has a smattering of programs in phase 1 trials and preclinical testing. Now that the company is known to be a good collaborator with the likes of Pfizer (NYSE:PFE), it won't be lacking potential partners willing to chip in on drug development projects.
More importantly, the pandemic isn't over, and unfortunately, talk of its official end has been exaggerated.
As the virus evolves, so will our understanding of vaccine performance and the durability of the immunity that the jabs provide. Assuming that the coronavirus remains as infectious and dangerous as it has been, there will be a continuous need for vaccination with effective candidates. While income from sales of doses might eventually stop growing as rapidly as it did this year, it is unlikely that BioNTech's candidate provides life-long immunity.
To address this issue, some countries are getting on board with administering booster shots for some segments of the population using the originally approved formulation of the jab. Needing additional doses to cover booster shots will increase revenue growth beyond what investors may have predicted earlier in the year. The biggest remaining wildcard is how many people will ultimately need the additional jabs. There's no telling exactly how many of BioNTech's major customers will want to put in new orders for more, which leaves plenty of room for more upside to the stock.
The other consequence of widespread demand for booster doses is that a large portion of the company's newfound income would become recurring. If management can count on significant revenue from vaccine sales more or less indefinitely, it can go full throttle on everything from research and development (R&D) to initiating share buybacks or a regular dividend payment.
While we'll need to wait on evidence from the clinic regarding the duration of immunity and the usefulness of additional jabs, at the moment things look favorable for BioNTech investors. And until that evidence exists and has been priced into the stock, in my opinion it's nowhere near being too late to invest.