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BioNTech (NASDAQ: NASDAQ:BNTX) is a high risk, high reward speculative investment, The stock is a bet on the idea that BioNTech can become a drug development platform in which it can develop multiple new solutions to attack infectious diseases, cancer, and other significant medical conditions. In many ways, BioNTech is traveling a similar path as Moderna (NASDAQ: MRNA), in that both companies intend to use mRNA technology to address numerous health concerns. Moderna uses an analogy of a mRNA technology platform being considered the equivalent of an OS on a computer, in which different mRNA drugs act like "programs" or "applications". Platforms that are based upon mRNA can have tremendous optionality, meaning that the platform can be used to design solutions for not only infectious diseases and cancers but also hereditary diseases like Cystic Fibrosis and more. There are probably some uses for mRNA that have not even been imagined yet. Therefore, over the long-term, BioNTech has the potential to "surprise" analysts and investors with future revenue streams from drugs that can't even be imagined or factored into the stock price yet because they don't currently exist but might exist in 5 or 10 years. Therefore, I view BioNTech as a long-term speculative investment, rather than a short-term speculative trade on COVID-19 news.
There is a Difference Between BioNTech and Moderna
The biggest difference between BioNTech and Moderna is that Moderna, at this stage, appears to only want to become a mRNA drug development platform, while BioNTech appears to want to develop several different drug platforms based on different technologies, of which mRNA technology is only just one of those platforms that the company wants to build upon. The stock of BioNTech will trade more on the successes or lack thereof produced by each of the different platforms the company is developing and less on speculation about COVID-19, within the next several years.
What are Investors Speculating On?
Long-term investors that choose to invest in BioNTech should understand that they are speculating more on the company's drug development platforms building a drug pipeline that can eventually receive approvals from regulators in multiple countries for solutions other than the COVID-19 vaccine. While COVID-19 has elevated previously unknown, small research firms like Moderna and BioNTech into prominent, profitable drug companies, the likelihood that COVID-19 will continue being a major health threat a year or two from now is quite low. Once the health threat lessens, demand for the COVID-19 vaccine Comirnaty could possibly drop off a cliff. Any major revenues that the company receives from the COVID-19 vaccine Comirnaty after 2022, should only be viewed as icing on the cake. BioNTech has a very rich, promising pipeline and unlike Moderna, BioNTech has a diversified its pipeline across at least 4 different major drug platforms or technologies and is not solely relying on mRNA technology, which is why I think BioNTech is a slightly safer investment than Moderna.
What Makes mRNA Technology Special?
While BioNTech is not exclusively a mRNA platform company, it currently has one of the biggest mRNA platforms in the world. Among the reasons why BioNTech developed an mRNA platform is because of the potential the platform has for a fast, efficient, and cost-effective responses to outbreaks of infectious diseases. Most vaccine technology relies on a complex and time-consuming fermentation processes to produce a vaccine solution, while mRNA platforms instead work by turning the patients' own cells into a drug manufacturing factory.
There are many different vaccine technologies that include inactivated vaccines, live-attenuated vaccines, subunit, recombinant, polysaccharide, and conjugate vaccines, toxoid vaccines and viral vector vaccines. All of the above vaccines have proven to not provide a very fast, efficient, and cost-effective response to diseases like malaria, tuberculosis, AIDS, flu, SARS, Ebola and lately the COVID-19 pandemic. It is believed that mRNA technology has the potential to respond more effectively to infectious disease outbreaks. The reasons why the stocks of BioNTech and Moderna exploded higher during 2021 was not solely on the revenue growth and positive cash flow produced by the COVID-19 vaccine but also because the COVID-19 mRNA vaccine was a proof of concept of the ability to respond swiftly to a pandemic-level disease outbreak. In fact, mRNA platforms responded so quickly and effectively that the approval process was a large part of the slowing down of the distribution of the vaccine. I can imagine a day in the future where a flu outbreak or a SARS outbreak or a COVID-19 variant outbreak will occur regionally and instead of turning into a worldwide pandemic, the infectious disease will be quickly sequenced and a mRNA vaccine will be swiftly approved with the vaccine going into arms within the affected area within a matter of weeks, not months or years. It is the potential for developing an effective vaccine in a matter of weeks, instead of a year or multiple years that makes mRNA potentially very special.
We believe that in 15 years, one-third of all newly approved drugs will be based on mRNA
Source: BioNTech founders Ugur Sahin and Ozlem Tureci - Economist
A Promising Biotech
BioNTech is a relatively young and promising European biotech. However, even with the tailwinds of the variant Omicron raising the demand for the company's COVID-19 vaccine Comirnaty, the stock has dropped 42% since the stock peaked in early August. There are a number of reasons for the stock dropping over the last half of 2021, that consists of everything from predictions that the pandemic could end within a year, to competition from new COVID-19 vaccine candidates poised to enter the market, to Pfizer's (NYSE: PFE) Covid antiviral pill Paxlovid being approved and last but not least, just simple end of the year profit taking. BioNTech had a spectacular rise in 2021 and even with the pullback, ended the year up around 200%.
Source: BioNTech Q3 2021 Earnings Presentation
With the exception of end of the year profit taking, most of the reasons for BioNTech's stock dropping is the perception that the days are numbered for Comirnaty bringing in multi-billion dollars in revenues and investors are now looking for the next act from the company. Well, BioNTech isn't just a one trick pony. The company has a goal of becoming one of the premier next-generation immunotherapy and infectious disease vaccine companies and in pursuit of that goal, BioNTech is building the infrastructure to develop, manufacture and distribute drugs to help prevent or treat some of the most intractable human diseases throughout the world.
It has only taken the company a very short period of time to transform from merely another unknown and unprofitable research drug outfit into a profitable, fully integrated, global immunotherapy powerhouse. The company's transformation is all due to the years of research and development since the company's founding in 2008 that it was able to be put to use in developing the world's first COVID-19 vaccine that made it to market in a western country. The vaccine, co-developed with Pfizer, is now a multibillion-dollar blockbuster franchise that is funding the rapid development of BioNTech's infrastructure, as well as the development of other vaccines and treatments in the company's pipeline.
We are expanding our capabilities and geographic presence. We are increasing our investment in automation, digitalization and AI technologies. Our vision is to build a high technology company of the coming age. We are developing and exploiting innovations at the intersection of immunology and synthetic biology.
Source: BioNTech CEO Ugur Sahin - BioNTech Q3 2021 Earnings Call
Analysts expect that when BioNTech's Q4 2021 revenues get reported, that it will show the company bringing in an additional $4.65 billion in sales (almost all of it from Comirnaty sales) and some of those revenues will join the $2.78 billion in cash and short-term investments currently on the balance sheet, while some of those revenues will be reinvested back into the build out of a global manufacturing and distribution network. Currently, BioNTech's infrastructure has the capacity to provide millions of doses of COVID-19 vaccine supply for the world. That infrastructure is not just for COVID-19, however. One significant feature of mRNA platform technology is that mRNA manufacturing facilities have the ability to be relatively rapidly shifted to producing vaccines that target other diseases. What that means is that when BioNTech develops vaccines that target infectious diseases such as influenza, HIV, tuberculosis, and malaria, the company can use the same infrastructure that is currently being used for Comirnaty to manufacture and distribute other vaccines in the BioNTech pipeline. Eventually, the hope is that not only can BioNTech develop a vaccine specific to a certain disease but one day become proficient enough to quickly develop and manufacture vaccines against specific strains and variants of diseases common to a specific region.
BioNTech's Drug Pipeline
BioNTech currently has plans to initiate multiple clinical product trials in the next 18 months. BioNTech is currently building out what they call "a toolbox of technologies" to address a range of drug classes. The company has 15 oncology product candidates in 19 ongoing clinical trials, including 4 active Phase 2 trials, as of the end of the third quarter.
Source: BioNTech Website
The other major area that BioNTech is currently developing solutions is in infectious diseases. Of course, everyone is aware of the COVID-19 solutions but other named infectious diseases that BioNTech is currently working on include seasonal influenza, HIV, malaria and tuberculosis. In addition, there are 5 other unnamed programs that the company is working on.
Source: BioNTech Website
The above chart, also highlights one of the main differences between Moderna and BioNTech. While Moderna's pipeline is exclusively mRNA-based, BioNTech has a multiple complementary antibody and antibody-mimetic protein technology platform that they a seem to be developing and is using that platform to build out another as another way to fight COVID-19. The four major overall platforms that BioNTech appears to be developing in addition to the antibody platform are the mRNA platform, a cell therapies platform and a Small Molecule Immunomodulators platform.
Source: BioNTech November 15, 2021 Corporate Presentation
One of the big differences between a company that has a mRNA-based platform and a competitor company like Novavax (NASDAQ: NVAX), which uses a vaccine approach called a subunit protein technology, is that Novavax's technology, while being a very well-known method for generating effective vaccines against infectious diseases like HPV and HepB, is not flexible enough to do things like fight cancer or fight hereditary diseases or fight autoimmune diseases, while mRNA can at least theoretically be used for all of those conditions and more. While BioNTech is focused on primarily finding solutions for various infectious diseases and cancer, if one reads the bottom line of the above graphic, BioNTech's medium- to long-term plans includes broadening its solutions to include autoimmune and inflammatory diseases, as well as regenerative medicine. The mRNA platform gives BioNTech more optionality and the ability to build a larger pipeline over other vaccine platforms that can only be used to fight infectious diseases.
BioNTech's Q3 2021 Quarterly Results
Source: BioNTech Q3 2021 Earnings Release
BioNTech's Q3 2021 total revenues were estimated to be approximately €6.1 billion for Q3 2021, compared to €67.5 million for the comparative period in 2020. The reason why the company reports estimated numbers is because it takes time for the profit share to be calculated based upon the preliminary data shared between Pfizer and BioNTech and the final number may be subject to adjustment pending final data on input parameters such as sales volume, as well as transfer pricing.
As can be seen from the following chart, the year-over-year metrics are positively explosive. That is what going from an unprofitable research outfit to selling a blockbuster multibillion-dollar drug tends to look like. Of course, the year-over-year numbers will start to decelerate as BioNTech laps last year's numbers in 2022 but growth should still be brisk because while competition is indeed entering the market, the need for multiple booster shots is actually creating a shortage of the vaccine worldwide.
BioNTech reports their numbers in Euros and the above numbers on the YCharts are the conversion to dollars at the forex rate on the date earnings were released. The following shows the breakdown of the total revenues:
Source: BioNTech November 15, 2021 Corporate Presentation
BioNTech’s Q3 2021 commercial COVID-19 revenues included an estimated amount of €4.34 billion gross profit share and €17.0 million worth of sales milestones (mainly JPT and IMFS business). Under the collaboration agreements, territories have been allocated between BioNTech, Pfizer and Fosun International (OTCPK:FOSUF) based on marketing and distribution rights. BioNTech’s share of the collaboration partners’ gross profit is based on COVID-19 vaccine sales in Pfizer’s and Fosun Pharma’s territories and represents a net figure. Total revenues also included €1,350.8 million in direct COVID-19 vaccine sales to customers in BioNTech’s territory, Germany and Turkey, and last but not least BioNTech also made €312.3 million in sales to BioNTech’s collaboration partners of products manufactured by BioNTech.
Cost of sales were estimated to be €1,211.4 million for the three months ended September 30, 2021, compared to €6.8 million for the three months ended September 30, 2020. During the three months ended September 30, 2021, estimated cost of sales of €1.19 billion were recognized with respect to BioNTech’s COVID-19 vaccine sales and include the share of gross profit that BioNTech owes its collaboration partner Pfizer based on its sales. The year-over-year increase was driven by cost of sales recognized with respect to BioNTech's own COVID-19 vaccine sales and included the share of gross profit that BioNTech owes Pfizer on all sales.
BioNTech gross margins in Q3 were approximately 80%.
Research and development expenses were €260.4 million for the three months ended September 30, 2021, compared to €227.7 million for the three months ended September 30, 2020. The COVID-19 vaccine development costs are shared equally between Pfizer and BioNTech. The company attributed the increase in R&D as mainly being due to an increase in expenses from the BNT162 program, which is the trial name for the COVID-19 vaccine that is now known as Comirnaty. The increase was further driven by an increase in wages, benefits and social security expenses following an increase in headcount, the recognition of inventor compensation expenses, as well as expenses incurred under share-based-payment arrangements.
General and administrative expenses were €68.2 million for the three months ended September 30, 2021, compared to €23.5 million for the three months ended September 30, 2020. The company attributed the increase as mainly being due to an increase in wages, benefits and social security expenses following an increase in headcount and expenses incurred under the share-based-payment arrangements, increased expenses for purchased management consulting and legal services as well as higher insurance premiums caused by the increased business volume.
In the following chart, it can be seen that not much was spent on S&M expenses. The reason why is likely because the COVID-19 vaccine, sort of sells itself.
Operating Income for Q3 2021 were €4.72 billion for the three months ended September 30, 2021, compared to €186.4 million operating loss for the three months ended September 30, 2020.
Net profit reached approximately €3.2 billion compared to a net loss of €210 million for the comparative prior-year period. Diluted EPS came in at €12.35 versus a net loss of €0.88 in the prior year's period. The net income number beat analyst consensus expectations
Source: Seeking Alpha
Guidance
BioNTech's projections for full year 2021 has been updated based on plant deliveries of up to 2.5 million doses in the calendar year 2021, which would provide estimated COVID-19 vaccine revenues of approximately €16 billion to €17 billion for the FY 2021.
BioNTech is maintaining the previous cost guidance for the FY2021 and expects to incur R&D expenses in a range of €950 million to €1.1 billion, reflecting a further ramp up of R&D investments in the fourth quarter of 2021. BioNTech has plans to expand and accelerate investment in pipeline development. SG&A expenses are estimated to be in a range of 250 million to 300 million. Capital expenditures for the year 2021 is projected to be in the range of €175 million to €225 million.
Balance Sheet
As of September 30, 2021, cash and cash equivalents totaled €2.4 billion. One thing to be aware of, however, is that there is a time lag between the recognition of revenues and the payment receipt from Pfizer. Trade receivables which were outstanding as of September 30, 2021, were received as payments only in October 2021, thereby improving the company's cash position further relative to the reported amount at September 30, 2021.
BioNTech ended Q2 2021 with $371.06 million in payables and accrued expenses. Long-Term Debt was $332.5 million.
BioNTech is, obviously, in excellent shape to support all of its growth initiatives.
By the end of Q3 2021, both cash flow from operation and free cash flow took a large jump into positive territory, recovering from being negative in the June quarter. The cycling of cash from operations and free cash flow from negative to positive occurred mostly as a result of a change in working capital due to the increases in receivables from collaboration partners at the end of the quarter in June that was eventually mostly paid out and received sometime in July. This payout has resulted in a large increase in cash flows recorded in Q3.
Some COVID-19 News
Up until the end of Q3, the COVID-19 order book was very strong with several new orders from the U.S., Japan, and other regions. Worries over Omicron only increased those orders in Q4, as areas of the world like the EU exercised an option to buy more than 180 million doses of a version of the COVID-19 vaccine adapted for the Omicron variant. I expect a solid year for BioNTech in 2022 going into 2023 because even with impending COVID-19 vaccine competition, the continuing need for people that have already received the vaccine to get boosters has created worldwide shortages for low- to moderate-income countries. As of Nov. 2, BioNTech and Pfizer delivered +2B COVID doses. The collaboration partners believe that they can deliver up to 4B doses in 2022, which means this year should be another banner year for BioNTech. However, after 2023, everything becomes very uncertain as the speed at which the pandemic winds down, as well as how fast competition arises, will determine how the COVID-19 franchise does after 2022 is over.
Source: BioNTech November 15, 2021 Corporate Presentation
Pfizer and BioNTech is also expanding global manufacturing capabilities with regional solutions in Africa and Latin America. This includes a letter of intent signed with EuroPharma laboratories in Brazil to manufacture Comirnaty. Per the agreement, EuroPharma will obtain drug product from facilities in the United States and manufacturing of finished doses are expected to commence in 2022. At full operational capacity, the annual production is expected to exceed 100 million finished doses annually.
Additionally, BioNTech recently signed a memorandum of understanding with the Rwandan government and Institute Pasteur de Dakar and announced plans to start the construction in mid-2022 of the first stage of a mRNA manufacturing site for the African Union
Risks
In addition to the risks that I outlined in my last article on BioNTech, there are two more risks for investors to consider that I outlined here:
Make no mistake, like all biotech companies, BioNTech is very speculative because the company's success or lack thereof relies on successful drug trials, which are often a crapshoot and even after a successful drug trial, the company relies on governmental agencies going through an approval process to authorize the drug. The company's stock price drivers will likely soon shift over within the next year or two from news about COVID-19 towards speculation about what BioNTech's pipeline can do, so monitoring the progress of BioNTech's pipeline ex-Comirnaty is crucial for investors.
Another major risk is the development of mRNA technology is very murky with a tangled web of many different companies having developed patents on various aspects of mRNA technology. With the success of the mRNA COVID-19 vaccine, patent disputes have gone through the roof and while Moderna has been the primary target of different lawsuits concerning mRNA technology, BioNTech has not been immune from lawsuits either.
Analyst Price Targets
Source: Yahoo Finance
The above is based on 16 Wall Street analysts offering 12-month price targets for BioNTech in the last 3 months. The average price target is $318.45 with a high forecast of $449.80 and a low forecast of $179.92. The average price target represents a 23.5% increase from the last price of $257.80.
Conclusion
BioNTech is a stock for long-term investors that are looking for very high upside. Like virtually all new biotech companies, BioNTech is a high-risk, high-reward company. BioNTech's large balance sheet goes a long way from insulating investors from many of the underlying risks, however. BioNTech is a buy but only for very aggressive investors that are willing to speculate on the company's emerging vaccine and therapy pipeline.
