Coronavirus is a global pandemic. With nearly 220,000 patients infected with COVID-19 at last report (according to Johns Hopkins University data), the populations of 158 countries affected, and casualties exceeding 8,800 souls, this is a problem for all the world — and it’s pulling in companies from all around the world to try to solve it.
Case in point: One of the companies leading the effort to rapidly develop a vaccine against the novel coronavirus is Germany’s BioNTech SE (BNTX).
Two days ago, BioNTech announced that it will partner with American pharmaceuticals giant Pfizer to develop the German company’s mRNA-based vaccine candidate BNT162 to prevent COVID-19 infection.
“Leveraging expertise and resources of both companies” said BioNTech and Pfizer in a statement, the “collaboration aims to accelerate global development of BNT162,” with cooperation beginning immediately, and clinical testing to begin in late April 2020. From start of testing to eventual approval (one hopes), could take perhaps 12 to 18 months.
News of the partnership helped lift Pfizer stock 7% over the past two days, and had a much more dramatic effect on the stock price at BioNTech, shares of which are up 130% over the last two days.
Unfortunately, no good deed goes unpunished.
In a note out Wednesday, JP Morgan analyst Cory Kasimov commended BioNTech for its work to date and commented that the investment bankers “certainly hope they’re successful!” That being said, Kasimov worries that investors’ “recent focus around a COVID-19 vaccine” has resulted in “substantial share upside” for the German stock — so much upside, in fact, that now JP feels compelled “to downgrade to Neutral on valuation.”
Currently, BioNTech stock fetches a market capitalization in excess of $20.8 billion — up from just $8.4 billion 10 days ago. The more than $12 billion increase in the company’s market cap, therefore, already captures both “any future ability” the company might have “to monetize a COVID-19 therapy,” and also all the “potential goodwill” the company might reap from investors wanting to become part of this story.
We cannot disagree.
When you consider that BioNTech is still a company with barely $156 million in revenues, and a $20.8 billion market cap, the stock’s valuation of 133 times sales is quite simply overblown. When you consider further that the company is currently profitless … and that it has never earned any profit at all … and that even if it does turn out to earn some profits from its COVID-19 vaccine, it would have to split those with its new partner Pfizer, then the valuation becomes even harder to justify.
Hence Kasimov’s conclusion: “It is difficult to continue recommending adding to positions in BNTX shares at these levels.”
So what price “levels” does Kasimov believe would be appropriate? You’d better sit down for this part.
According to the analyst, monetizing a COVID-19 vaccine would only be “a secondary consideration” for BioNTech, with quickly solving the coronavirus crisis taking precedence. Long term, Kasimov thinks the company’s valuation should be based more on its oncology products — which as already mentioned, have yet to turn a profit.
This being the case, Kasimov’s target price on this $92 stock is … $33 a share.