The coronavirus pandemic is incessantly testing the strength of the global healthcare industry. Since its emergence in China’s Wuhan district in December last year, the biopharmaceutical industry has been under immense pressure to develop an effective vaccine. With millions of casualties and an economic standstill, the costs of the pandemic are rising each passing day. The race for an effective vaccine also has political repercussions, as the first country to globally supply the vaccine stands to establish itself as a leader in the scientific and medical community. Not to mention, the millions in profits as other countries turn to the primary developer for bulk vaccine orders.
A second wave ravages through most European and Asian countries, and is soon expected to enter the United States as the temperature drops. Under these circumstances, the need for an effective vaccine is higher than ever before, as the United States is expected to take precautions to curb the spread without calling for a nationwide lockdown to preserve the recovery made over the past couple of months.
Pfizer Inc. (PFE) and Moderna, Inc. (MRNA) are leading the race to develop an effective vaccine globally. Their impressive results obtained from phase two clinical trials have attracted the attention of major countries all across the world, who have signed agreements to buy bulk quantities of the vaccine, once commercially launched. PFE and MRNA are two of the 11 vaccines currently under phase three trials, according to WHO/BBC Research.
While mRNA gained 315.5% over the past year, PFE declined slightly. However, in terms of past month performance, PFE has the upper hand with 2.6% returns versus MRNA’s 1.5% gains.
But which stock is a better buy now? Let’s find out.
While PFE mainly operates in developing internal medicine for immunotherapy and therapeutic diseases, with its most famous brand Lipitor treating cholesterol, the company has become a forerunner in the race for coronavirus vaccination. It partnered with BioNTech and Gilead Sciences earlier this year regarding vaccine development.
PFE entered into a strategic partnership with BioNTech to jointly develop an mRNA based COVID vaccine. With significant breakthroughs in the development of the vaccine and positive results from the clinical trials, PFE and BioNTech are gearing up to supply their vaccine globally next year. To this end, the companies jointly signed supply agreements with Canada, Japan, and the United Kingdom.
PFE’s partnership with Gilead Sciences, on the other hand, is regarding the supply volume. Under the multi-year agreement clause, Gilead’s investigational antiviral drug Remdesivir has to be manufactured and supplied by PFE. This collaboration is expected to scale up the production of Remdesivir, the first FDA approved coronavirus drug in the United States, to be supplied globally.
MRNA is not far behind the race for the coronavirus vaccine. The company’s mRNA-based COVID vaccine is currently undergoing phase three clinical trials, and is expected to launch by 2021. Based on the drug’s efficacy demonstrated in phase two trials, it has standing supply agreements with Japan, Canada and United Kingdom, Qatar and the European Commission along with the United States.
Recent Financial Results
PFE’s biopharma revenue increased 4% year-over-year to $10.20 billion in the third quarter ended in September 2020. However, overall revenue declined due to lower demand for pipeline drugs internationally amid the pandemic outbreak.
MRNA’s revenues increased 826.5% year-over-year to $157.91 million in the third quarter ended September 2020. However, the company’s EPS declined as a result of higher research and development expenses for manufacturing and testing the COVID-19 vaccine.
Expected Financial Performance
PFE’s EPS is expected to grow 10% next year, and at a rate of 3.7% per annum over the next five years. Consensus revenue estimates indicate 1.8% rise in the current quarter, 9.2% rise in the next quarter, and 7% growth next year.
Analysts estimate MRNA’s EPS to rise 214% next year, and at a rate of 16.8% per annum over the next five years. The company’s revenue is expected to grow 961.5% in the current quarter, 2,299% in the next quarter, and 1,125.3% next year.
Thus, MRNA has an edge over PFE here.
PFE’s trailing 12-month revenue is 197.2 times what MRNA generates. PFE is also more profitable with a gross margin of 80.1% compared to MRNA’s negative values.
Furthermore, PFE’s ROE and EBITDA margin of 22.8% and 39.7%, respectively, compare favorably with MRNA’s negative values.
Thus, PFE is in an advantageous position here.
In terms of trailing 12- month price/ sales, MRNA is currently trading at 103.49x, 2,329.3% more expensive than PFE, which is currently trading at 4.26x. MRNA is also more expensive in terms of EV/ Sales (99.55x versus 5.34x) and price/ cash flow (41.62x versus 13.86x).
Thus, PFE is a more affordable stock here.
While PFE is rated “Buy” in our proprietary POWR Ratings system, MRNA is rated “Neutral”. Here’s how the four components of overall POWR Rating are graded for both these stocks:
PFE has an “A” for Trade Grade and Peer Grade, and “B” for Buy & Hold Grade and Industry Rank. It is also ranked #7 out of 240 stocks in the Medical – Pharmaceuticals industry.
MRNA has a “B” for Peer Grade, “C” for Buy & Hold Grade and Industry Rank, and “D” for Trade Grade. It is ranked #54 out of 384 stocks in the Biotech group.
Though MRNA seems like a better investment option here, it is important to note that PFE is one of the largest biopharmaceutical companies operating in the United States and the world. Its drug pipeline is widely accepted and has been commercially successful. Also, the company’s standing partnerships with two of the leading biotech companies give it an edge over MRNA. PFE’s mRNA based COVID drug is expected to generate results from its trial before MRNA, as stated by Barrons writer Bill Alpert.
Given the orders PFE is expected to receive upon commercially launching its drug, as well as revenues from supplying it to the countries as per the standing agreements, it is expected to generate robust profits in the upcoming months, making it a better buy here.
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PFE shares were trading at $36.64 per share on Thursday afternoon, down $0.69 (-1.85%). Year-to-date, PFE has declined -3.65%, versus a 10.62% 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. More…
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