Chronicle Journal: Finance

Which Vaccine Stock is a Smarter Investment: Pfizer or Moderna?

Pfizer (PFE) and Moderna (MRNA) are currently competing for the limelight with their new COVID-19 vaccines. The vaccines have similar efficacy levels. So, an important and interesting question for observers and investors, as commercial deployment of the vaccines begins worldwide, is will MRNA be able to compete with industry leader PFE? Read more to find out.

The race for a coronavirus vaccine is ending. After months of intense clinical trials, Pfizer, Inc. (PFE) and Moderna, Inc. (MRNA) have emerged as two of the leading vaccine developers,  with vaccines that have efficacy rates in excess of 90%.

PFE is a well-known biotech company with multiple drugs in the market. It teamed with German biopharma company BioNTech S.E. (BNTX) in April to jointly develop a COVID-19 vaccine. Announced on November 9, PFE’s vaccine candidate is the first one to be commercially deployed in multiple countries, with the U.K. as the first country to begin a vaccination drive.

A relatively newer company, MRNA, is currently developing its vaccine around mRNA-based drugs, with mRNA – 1273 being the primary vaccine. The company has managed to grow significantly within a short time frame, allowing it to compete with industry giants such as PFE.

MRNA has gained 741.5% over the past year, while PFE returned 7.6% over this period. In terms of past six-month performance, MRNA is the clear winner with 160.7% gains versus PFE’s 23.5% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

PFE was the first company to commercially roll out a COVID-19 vaccine this month after receiving approval from multiple regulatory approval bodies. With a 95% efficacy, PFE and BNTX’s jointly developed BNT162b2 vaccine received emergency use authorization from the United States Food and Drug Administration (FDA) agency on December 11. This came a couple of weeks after the United Kingdom became the first country to approve the vaccine. Canada and Mexico also approved the PFE and BNTX vaccine earlier this week.

Along with the COVID vaccine, PFE has is developing multiple other drugs catering to various ailments, particularly for cancer treatment.

MRNA’s vaccine was found to be 94.1% effective against COVID-19. MRNA received European Commission’s approval to sign an advance purchase agreement for 80 million mRNA vaccine doses, with a provision to double the purchase order to 160 million doses. The company has filed for emergency approval in the United States and the European Medicines Agency (EMA).

MRNA currently has supply agreements with multiple countries for more than 390 million doses. The United States exercised its option for additional 100 million mRNA vaccine doses (along with a previously approved 200 million doses), while Switzerland exercised its agreement for additional 7.50 million doses. The U.K. and Canada also increased their purchase orders by two million and 40 million, respectively. It is currently developing its manufacturing capacity to produce 500 million – one billion doses from 2021. It partnered with Lonza of Switzerland and ROVI of Spain to meet its production target.

Recent Financial Results

MRNA’s revenue has increased 828.8% year-over-year to $157.90 million in the third quarter ended September 30, 2020. Cash from operating activities increased substantially from negative a year-ago to $762.70 million for the nine months ended September 30, 2020. This can be attributed to significant cash inflows from the supply agreements signed with multiple governments.

PFE’s Revenue from the Biopharma segment increased 3% year-over-year to $10.22 million in the third quarter ended September 30, 2020. As most of the company’s resources were redirected to development of an effective COVID-19 vaccine, its earnings declined compared to year-ago values. However, PFE managed to generate profits this quarter. The company reported net income of $2.19 million and EPS of $0.39.

Expected Financial Performance

Analysts expect PFE’s EPS and revenue to rise 5.6% and 7.2%, respectively, next year.

MRNA’s EPS is expected to rise 565.7% in the next quarter (ending March 31, 2021), 533.9% next year, and at a rate of 16.8% per annum over the next five years. Analysts expect the company’s revenue to rise 13,065.3% in the next quarter, and 1,596.6% next year.

Profitability

PFE’s trailing 12-month revenue is 197.20 times MRNA’s. PFE is also more profitable, with a gross margin of 80.1% compared to MRNA’s negative values.

Moreover, PFE’s ROE and ROA of 13.3% and 5.1%, respectively, compare favorably with MRNA’s negative values.

Thus, PFE is the more profitable stock here.

Valuation

In terms of forward P/E, MRNA is currently trading at 51.55x, 293.2% more expensive than PFE, which is currently trading at 13.11x. MRNA is also more expensive in terms of trailing 12-month Price/Sales (232.65x versus 4.69x) and trailing 12-month Price/Cash flow (93.57x versus 18.22x).

Though MRNA is more expensive compared to PFE, it may be worth paying this premium valuation considering its relatively higher growth potential.

POWR Ratings

Both PFE and MRNA are rated “Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for both these stocks:

PFE has an “A” for Trade Grade, Peer Grade, and Industry Rank, and “B” for Buy & Hold Grade. It is currently ranked #19 of 240 stocks in the Medical – Pharmaceuticals industry.

MRNA, in contrast, has an “A” for Trade Grade, “B” for Buy & Hold Grade and Peer Grade, and “D” for Industry Rank. It is currently ranked #46 of 392 stocks in the Biotech industry.

The Winner

PFE enjoys first mover advantage as the first company to receive emergency use authorization across the United States and U.K. However, PFE has rigid temperature requirements. PFE’s vaccine needs to be stored at -70 degree Celsius, compared to MRNA’s -20 degrees Celsius requirement. At the time of commercial deployment, PFE’s vaccine can be kept at standard refrigerator temperatures of two to eight degrees Celsius for only 10 days, while MRNA vaccine can be stored in identical temperature for about 30 days. Thus, MRNA vaccine is a relatively better, more easily managed, choice for vaccinating large populations at a time.

Also, PFE’s vaccine has been developed in partnership with BNTX, making the latter entitled to a share of the profits. As per the terms of the agreement, PFE bore an expense of $185 million under this joint venture, with further milestone payments to be made in the range of $563 - 748 million. The companies split the vaccine’s developmental costs. MRNA, on the other hand, as the sole developer of its vaccine, is expected to report higher earnings over the next couple of years. As a relatively smaller and newer company, MRNA has higher growth potential compared to PFE, making it, we believe, the better pick here.

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PFE shares rose $0.04 (+0.10%) in after-hours trading Tuesday. Year-to-date, PFE has gained 8.56%, versus a 16.48% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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