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Reader Mailbag: Playing the Covid-19 Vaccine

Reader Question: Do you think it is too late to invest in the players involved in developing vaccines for Covid-19? If not, is it better to go with the large companies or the smaller upstarts? I think there are two angles here. First, Covid itself. I doubt anyone really knows whether these vaccines will be effective enough to get rid of Covid (for the most part) within a year or two, or if we are dealing with a new virus that is constantly mutating and here to stay, in which case annual Covid shots are probably in our future. Since the experts would probably punt on this question, I will too. It sure seems too early to rule out annual shots that would likely be solid moneymakers for the companies involved, but I am not sold on the idea that we should place an investment bet on one of those trajectories, as there is still plenty we don’t know. The more interesting topic in my eyes is the notion that this pandemic has accelerated the development of mRNA therapeutics, we have evidence that the mechanism works (at least in the short term, longer term data is not available yet), and thus it is fair to ask whether this has been a proof of concept phase that will also accelerate the development of similar compounds for indications other than Covid. In my view, this seems very plausible, and maybe even extremely likely. If this is not just a one-time boon for companies like Pfizer, Johnson and Johnson, Moderna, and BioNTech, then it is probably not too late to invest based on that particular thesis. So in that case, do you go with the big players or the smaller ones? I think the smaller firms have a leg up from a long term investment standpoint. The industry giants like Pfizer and J&J are so big that the impact of new technologies has a limit in terms of how much they can swing the earnings of these conglomerates. Add in the fact that they have existing products on a rolling schedule of patent expirations, and there are more offsets to the growing parts of their business. The same thing simply isn’t true for the likes of Moderna and BioNTech, and it is also entirely possible the former group eventually offers big money to acquire the latter group. Taking this thought experiment one step further, I think it is interesting to compare Moderna and BioNTech since they are both publicly traded and have Covid vaccines on the market. While Moderna’s equity market value is currently 2.5 times larger than BioNTech, the latter company has more employees and is expected to generate roughly 75% as much revenue ($7.84 billion) in 2021 (according to the current consensus forecasts on Wall Street) as Moderna ($10.5 billion). Now, these revenue forecasts are probably only guesses at this point, and having more people doesn’t mean you will have more success in the lab, but given the valuation gap, it seems like there might be more investment value on a relative risk/reward basis with BioNTech. I have been thinking about that comparison for a while, although I have not yet invested in any of these companies. However, it remains top of mind, especially as the market’s strength affords us fewer and fewer bargains by the day. Full Disclosure: No positions in the companies mentioned at the time of writing, but that may change at any time
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