Despite what many people think, the pandemic isn't officially over yet. And while the world has made tremendous progress, the coronavirus continues to cause problems. COVID-19 cases and hospitalizations have been on the rise in the U.S., which once again highlights the importance of effective vaccines and medicines against the disease.
Among the companies that have developed vaccines for COVID-19 are the two biotechs Novavax (NVAX 3.54%) and BioNTech (BNTX 0.58%). Both have underperformed the broader market over the past year, but both are now surging as the COVID threat shows it's still alive and well.
But should you add shares of Novavax or BioNTech to your portfolio? Let's find out.
1. Novavax
Novavax hasn't been particularly successful in the coronavirus vaccine market as it launched its candidate in the U.S. pretty late. The company was also unable to convince enough mRNA skeptics with its protein-based vaccine. However, Novavax is looking to carve out a solid niche from here on out. The biotech recently announced that its updated vaccine was able to induce neutralizing responses to variants of the coronavirus that are currently spreading in the U.S.
If Novavax can earn approval for this updated version of its COVID vaccine from the U.S. Food and Drug Administration (FDA), could that be the turning point for the company? It seems doubtful.
First, it's difficult to predict how large the COVID-19 vaccine market will be once it fully transitions to the commercial stage. Perhaps the influenza market can provide us with some clues; last year, it was valued at $7.47 billion and, according to some estimates, will rise to $14.35 billion by 2030. Let's assume the commercial COVID market will be worth $20 billion annually starting in 2024. That's consistent with Novavax's predictions that this space will be valued at somewhere north of $15 billion.
Even with this somewhat optimistic assumption, Novavax will have to contend with much larger biotechs that have dominated this space for the past two-and-a-half years. Last year, Moderna alone generated $19.3 billion, and it had no other product on the market. Pfizer recorded sales of $37.8 billion from its vaccine, Comirnaty, developed in collaboration with BioNTech.
Novavax's total revenue in 2022 was just shy of $2 billion, so the biotech grabbed a tiny percentage of this market. In fairness, it's a bit of an apples-to-oranges comparison: Last year, Moderna, Pfizer, and BioNTech made money from their vaccines by selling millions of doses to governments. Now they mostly have to appeal to individual patients, so it's unclear whether Novavax will still lag significantly behind its peers. But there's little reason to believe it could earn even a 10% share of this $20 billion (estimated) market.
Here's where it gets worse for the biotech. None of its other products are close to approval. In the near to medium term, the company will have to rely on its uncertain prospects in the uncertain coronavirus-vaccine market. That's why this biotech stock isn't worth it for long-term investors, at least not until it can make solid pipeline progress elsewhere.
2. BioNTech
BioNTech has been one of the big winners in the coronavirus market. While its sales are dropping this year, its position in this space, financial situation, and pipeline look solid. BioNTech and Pfizer have already submitted regulatory applications for an updated COVID vaccine in the U.S. and Europe. Whatever the market ends up being worth, it's safe to say BioNTech, along with its partner Pfizer, should remain one of the leaders.
Elsewhere, BioNTech is working on other programs. The company's pipeline has 11 programs in phase 2 studies, and two in phase 3 studies (along with many more in earlier stages of development). One of its candidates undergoing a late-stage trial is called BNT161, a potential mRNA-based vaccine against influenza. BioNTech is developing this product in collaboration with Pfizer.
Current flu vaccines aren't very effective -- typically scoring an efficacy rate between 40% to 60%. One reason behind this relatively low efficacy rate is the way that a flu vaccine is produced. It starts with identifying the strains of influenza virus that are the most likely to be in circulation during an upcoming flu season. This must be done well in advance, so there's enough time to manufacture and launch the doses by the time flu season arrives.
But sometimes, the strains that researchers thought would be the most prevalent end up not being as widespread as initially thought, which makes the vaccines in circulation less effective against them. mRNA vaccines are faster to manufacture, so researchers could wait until flu season is closer to decide which strains to target with their vaccines. That's why BioNTech's influenza candidate could be promising. And if all goes well, it could earn approval within the next three years.
Meanwhile, the company ended the second quarter with 14.2 billion euros ($15.4 billion) in cash and cash equivalents, which gives it plenty of money to fund its pipeline programs even if it's no longer generating revenue from its COVID business.
But does that all make BioNTech's stock a buy? The answer would be a resounding yes if it were reasonably valued -- but the stock looks overpriced, with a market cap of almost $30 billion. If you're focused on the long game you might consider adding a small position in BioNTech, but be advised that the near term is likely to be highly volatile for the stock.
