BofA Global Research: COVID vaccine IP is not the gating factor to ending the pandemic
Waiving COVID-19 vaccine IP is not an existential threat
Vaccine makers PFE, MRNA, and CVAC were hit near the end of the trading day yesterday on news that the US plans to support waiving IP rights for C-19 vaccines. The headline seems particularly onerous to the Biopharma industry as government intervention into therapeutics IP is a slippery slope. That said, we view this development as a relatively modest threat given: (1) high barriers to vaccine development including sourcing raw materials, developing manufacturing and technical know-how, proving suitability of the end product and organizing distribution, and (2) a short window for competitors to contribute to supply given that Pfizer/BioNTech and Moderna expect to cumulatively produce >9B doses by YE22. Hence, while we understand the acute C-19 situation in India, we don't think that generic conversion of vaccines is the answer, nor would it materially accelerate the pace of vaccine supply today. We note that US "support" is not the same as approval where WTO decisions require consensus, and other members such as the EU, UK, Japan, and Switzerland currently oppose waiving IP. Overall, we'd argue that if new C-19 variants justify annual boosting (a view which we do not share), then generic vaccines pose a bigger threat in 2023 and beyond. This adds uncertainty to OUS sales where populations are meaningfully larger, but again it doesn't help accelerate vaccination rates at present.
Implications for Pfizer, Moderna, and CureVac
When reached for comment, Pfizer indicated that it was too early to tell what the WTO would do and its potential consequences on the business, but they would be closely watching the negotiations which will now begin. Pfizer also pointed out that they have been involved in gathering support from manufacturers since the beginning of their development, and there may not be much “idle capacity” in the market.
We see a risk to Moderna if ex-US sales were to drop significantly, given 1) this is likely to be the primary source of post-2021 revenues outside of boosters and 2) robust consensus sales expectations (>$5B out to 2030) likely assume sustained pricing power longer-term. As a reminder, Moderna has said that they will not enforce their IP estate while COVID-19 remains a pandemic, but would in the case that the virus goes endemic, citing broad patent protection for not only mRNA-1273 itself, but also variant-specific boosters and the broader mRNA vaccine platform. Moderna is set to report 1Q earnings today, where we expect additional commentary on their IP positioning.
CureVac could remain relatively insulated given 1) OUS IP protection and 2) less COVID- 19 valuation priced into the stock. Indeed, CureVac has intellectual property protecting CVnCoV from other major geographies (Europe, China, India, Japan, Korea, Singapore, etc). We admit we could see pricing come down in OUS geographies if governing bodies adopt policies similar to Biden’s proposal. Nonetheless, we see less downside to CVAC than the comp in MRNA, given relatively more conservative CVnCoV estimates priced in (consensus peak of $3B). We look forward to phase 2b/3 data in the coming weeks for more detail on CVnCoV.
Price objective basis & risk
CureVac (CVAC; C-1-9; $101.2)
Our $110/share PO is based on a probability-adjusted NPV of CureVac's pipeline, including its COVID-19 vaccine ($37/sh), its oncology program ($22/sh), its other prophylactic vaccines ($36/sh), and its earlier stage pipeline ($6/sh). We apply a 9-10% WACC and a terminal value ranging from -50% to 0% depending on the program (we project revenues out through 2035), in-line with other biotech companies of similar size and stage of clinical development. We also include approximately $9/share from CureVac's current cash position.
Downside risks are 1) clinical risk to early stage programs, 2) regulatory risk from newer mechanisms, 3) competition to key assets such as in COVID-19.
Moderna (MRNA; C-3-9; $162.84)
Our PO of $100 is based on a probability-adjusted NPV of six different parts including prophylactic vaccines ($68/share), systemic secreted cell surface therapeutics ($12/share), cancer vaccines ($3/share), intratumoral immune-oncology ($3/share), cardiovascular diseases ($-1/share) and systemic intracellular therapeutics ($1/share), and net cash ($13/share). We estimate sales of 24 pipeline programs that are slated to move forward with probability of success ranging from 6% to 37%. We use a WACC of 10% (core programs) to 12% (exploratory programs) and terminal growth rate of -7% to 1%.
Risks to our PO are: 1) faster than expected pipeline development, 2) cleaner than expected safety findings, 3) accelerated product approvals, 4) stronger than expected launches, 5) lower competition, 6) moderating cash burn, and 7) potential upside from coronavirus vaccine program.
Pfizer (PFE; A-2-7; $39.97)
Our $40/sh for Pfizer is based on a 50/50 blended average of our DCF analysis and P/E multiple based on the large cap global therapeutics group. For our DCF, we use a WACC of 6% and 1% terminal value for an intrinsic value of $43/sh. Our P/E analysis assumes a 10x multiple of our 2021 EPS estimate given the transient boost in earnings due to vaccine sales, which yields a $36 intrinsic value (supportive of our $40 PO).
Downside risks: 1) sales downside, 2) inability for pipeline to overcome patent LOEs after 2025, 3) M&A transactions that are perceived to be value destructive.
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