Moderna And Novavax: Competing For Global Domination In The Vaccines Market
Jul. 19, 2021 2:26 AM ETModerna, Inc. (MRNA), NVAXAZN, AZNCF, BNTX...9 Comments3 Likes
- Moderna and Novavax are leading Biotech companies who are expected to be major competitors in the COVID-19 vaccine market moving forward.
- While Moderna has a strong head start in the market in 2021, Novavax's impending entry is likely to offer stiff competition.
- Both companies also need to quickly diversify their reliance on COVID-19 vaccines, and reduce their concentration risk.
- We also discuss how China's ambition as a leading global vaccines player is an important area for investors to keenly monitor.
- We provide our opinion on the current valuations for both companies and help investors to think about the risk/reward profiles in adding exposure.
Luis Alvarez/DigitalVision via Getty Images
Moderna (MRNA) is just one of two leading Biotech companies armed with the highly efficacious mRNA COVID-19 vaccines. In fact, Moderna’s pipeline of 24 development programs are all mRNA medicines, lined across 6 different modules that include Prophylactic vaccines (RSV vaccine, Zika vaccine, CMV vaccine, COVID-19 vaccine, etc.), Cancer vaccines and Intratumoral Immuno-Oncology, among others.
Novavax (NVAX) is one of the most exciting Biotech companies right now that uses its “recombinant nanoparticle vaccine technology” that is designed to “provide robust and functional immunity, which may be more efficacious than naturally occurring immunity or traditional vaccines.” The company’s “two-dose protein subunit-based candidate NVX-CoV2373, containing a proprietary Matrix-M adjuvant”, is the company’s answer to the COVID-19 pandemic. The company also has development programs in 4 therapeutic areas: Coronavirus, seasonal influenza, combination vaccines and RSV.
In this article, we will discuss the current global vaccination progress, as well as what are the expectations for both companies’ COVID-19 vaccine programs moving forward. We will also share our thesis on both companies, and which of them is our preferred company in leveraging on the world's COVID-19 vaccination drive from here, including in a post-COVID world when COVID-19 is expected to be endemic. In addition, we would also share where we think are the biggest risk factors to both companies from a geopolitical perspective, and what investors need to watch out for carefully moving forward, to keep those developments in mind.
COVID-19 Vaccination Progress
Share of population fully vaccinated against COVID-19 (selected countries set A). Source: OWID
Share of the population fully vaccinated against COVID-19 (Selected countries set B). Source: OWID
Investors should be able to observe that the developed western countries presented in Set A are clearly leading the global full vaccination drive, although they are behind the global leader; Israel (60.36%), but well ahead of the world’s average of 12.81%. In set B, we could clearly glean the inadequacy faced by the developing countries such as Indonesia (5.89%) and India (5.87%), and observe that Asia’s average of 9.49% unequivocally lagged behind the world’s average, and paled in comparison against what has been achieved in the developed west.
We highlighted in our Carnival Corporation (CCL) article recently, that while there is no authoritative source to rely on, for the determination of the minimum vaccination rates to achieve herd immunity, some studies have shown that a range of between 75% to 85% would be acceptable.
Therefore, it should be unambivalent that the world remains a long way away from reaching herd immunity against COVID-19, and we think this certainly presents a huge opportunity for vaccine makers such as MRNA who already has a strong head start to continue building on their lead, while at the same time also allowing for emerging participants like NVAX to tap into the huge global untapped market, where we have not even considered the opportunities from future potential booster shots.
COVID-19 sequences by Variant. Source: OWID, GISAID, CoVariants.org
While the Delta variant may have been running rampant in countries like the US, UK, India and Indonesia in this sample set, in countries like Italy, Germany and France, the authorities have seen mixed results from different variants. We think this points clearly to the critical importance of having robust vaccines that are able to sustain their protection levels against newer and different variants at the same time. Moreover, this may also point to the need for the administration of booster shots to strengthen the existing doses in order to cope with unexpected new variants, that may be highly virulent, and which may significantly reduce the efficacy of the existing doses, and lead to highly undesirable infection outcomes in the future.
With this in mind, we think it may be useful for investors to consider how the major vaccines have managed to cope with the Delta variant so far, as an article from Healthline explains.
So far, it seems that while both the Pfizer-BioNTech (PFE) (BNTX) and Moderna vaccines have demonstrated strong efficacy against the said variant, a regular booster may also be “useful” to sustain the original efficacy rates. This lends credence to the thesis that, vaccine makers are likely to expect highly recurring revenues from future booster shots. However, the necessity has also been disputed somewhat in the scientific community as “while the vaccines may no longer be producing the robust levels of antibodies that shield people entirely from infection, the long-term memory response is still kicking in and preventing the infection from spreading.” In addition, the CDC and the FDA also has yet to support the need for a booster at this point in time, and recently jointly declared that "We are prepared for booster doses if and when the science demonstrates that they are needed."
Therefore, while we consider both the companies’ internal projections, and sell-side projections, it may be more prudent for investors to not consider numbers for boosters at this point in time, as the opportunity has not yet been clearly defined, and therefore would not be useful to derive meaningful estimates at the current juncture.
With that being said, we think the opportunity to provide the initial doses required to fulfill full vaccination is still large enough in the next few years, as we shall observe in the next few sections that we believe would clearly allow Moderna and Novavax to leverage on and build their respective market leadership.
COVID-19 Vaccine Supply Progress
Drug manufacturers with the highest number of ordered COVID-19 vaccine doses as of Mar 21 Data source: Bloomberg
Size of COVID-19 vaccine contracts between countries and manufacturers. Data source: Bloomberg
We could clearly see where the future opportunities lie, with regard to the vaccination progress in the charts above. The vaccine from AstraZeneca/Oxford’s (AZN) adenovirus vaccine was the obvious leader in this survey from Mar 21 due to its price and availability (see chart below), as it was priced at $7.2 for all its necessary prescribed doses as compared to PFE ($37.5) and MRNA ($36.5), and was quite close to the price of J&J’s adenovirus vaccine. However, AZN’s efficacy of 76% was rated much higher than JNJ’s 66%, while requiring similar storage temperatures, and thus made it an easy winner in terms of cost, and efficacy.
Prices and sales forecasts for major COVID-19 vaccines in commercial use. Data source: The Guardian, Barclays
Interestingly, besides AZN's vaccine, NVAX’s vaccine was the one that received the second-highest number of supply contracts, even though it has not been approved for worldwide distribution yet, while the result from its latest trial was an excellent 90.4% efficacy rate. While its result is less impressive than the mRNA vaccines of PFE (up to 97%), and MRNA (up to 94.1%), importantly, “the vaccine is also more stable and easily stored than mRNA vaccines, which will be helpful in broad distribution.” Moreover,
Novavax has also been especially willing to license its vaccine to manufacturers in other parts of the world, including South Korea's SK Biosciences Co., Japan’s Takeda Pharmaceutical Co. and the Serum Institute of India. Once those plants are up to speed, they should help more quickly vaccinate their home countries and further increase global availability.
We think global availability is a key factor here. For example, in India, who is home to the world’s largest vaccine producer: The Serum Institute of India, has licensed both AZN’s and NVAX’s vaccines to be produced locally, whose vaccines are known as Covishield and Covavax in India, respectively.
India also has an urgent need to boost its vaccination drive for its population of 1.37B (2019 data), where the full vaccination rate was just 5.87%. Importantly, India is looking at a Covavax launch sometime in Sep 21, where India may then become the first country in the world to use NVAX’s vaccines if the launch is successful, thus giving the company an important head start to reach out to the global population, starting with India.
Even though we think the for-profit NVAX’s vaccine should likely cost more than the AZN’s not-for-profit vaccine, India’s readiness to adopt a vaccine with a higher efficacy rate, at an acceptable price makes NVAX a highly attractive candidate for use in the rest of the world where its vaccines are likely to be less costly (said to cost about $16) than the mRNA ones. Importantly, NVAX also has large and highly experienced production partners in India, Japan and South Korea to rely on for large scale manufacturing, where NVAX estimated that it would be able to produce about 100M and 150M doses per month by the end of Q3’21 and Q4’21, respectively, with India’s Serum Institute to account for 1B annual doses.
Population of selected countries (2019 data). Source: OWID; Gapminder; HYDE & UN population division (2019)
While India is certainly welcoming the hopefully soon-to-be-launched NVAX vaccine in India, it should be noted that the mRNA vaccines producers: PFE and MRNA have yet to penetrate the huge market. In fact, while the Indian government has granted “permission to Mumbai-based pharmaceutical company Cipla to import Moderna’s Covid-19 vaccine for restricted emergency use in the country”, PFE “has not yet applied for an emergency approval in India yet.” The hold-up for PFE and MRNA, including the “3-4 million doses of Moderna and Pfizer from the United States” as part of US President Joe Biden’s sharing of 80M of its own domestic stockpile, apparently has to do with the legal indemnity requested by the vaccine manufacturers, which India has yet to grant as
Indemnifying vaccine makers from liability is an unusual move that has become pro forma during the pandemic. Such legal protection incentivizes manufacturers to get vaccines to market as fast as possible and lowers the price they charge for doses while shielding corporations from having to pay damages for vaccine complications unless they result from willful negligence. It’s what manufacturers have asked for, and the U.S., the U.K., and European Union—eager to get lifesaving jabs into arms—have all granted the demand.
As a result, this delay has bought NVAX sufficient time for its vaccine to be readied for production and launch in the huge Indian market, as the legal liability is undertaken by the local manufacturer: Serum Institute, even though the Indian government had also not granted indemnity yet to the manufacturer.
In our opinion, we think that it would be a mistake for any major vaccine manufacturer to miss out India from its global vaccination footprint, given the size of India’s massive 1.37B population, that is second only to China’s 1.43B. Therefore, we are pretty sure that it’s only a matter of time that PFE and MRNA would sort out those legal wordings with the Indian government and have their vaccines distributed within India, especially when only 5.87% of India’s population is vaccinated.
Taking a Look at The COVID-19 Vaccine Sales
With Moderna expected to boost its production to 3B doses in 2022, we think the company is surely capable of tapping the huge Indian market strongly and it should prove to be an interesting arena to watch moving forward, as the developed west starts reaching the end of their respective initial vaccination campaigns (assuming no booster campaigns yet).
Importantly, we would also like to highlight to investors what Moderna thought of its capacity ramp to 3B doses actually represent, before some investors may start to worry about where the company is going to find the demand for it, as Moderna clearly articulated:
We [are] adding a lot of sites for filling. Because as far as you think about the market next year, our current product form is 10 doses per vial. As you go more and more into an endemic market, you're going to want to move to [a] single dose per vial. Like the flu market, I think, is a good surrogate for what that market is going to evolve into. And so you're going to start to see less and less dose per vial, meaning for the same number of dose out the door, you need more and more filling capacity
Forecasted sales of selected COVID-19 vaccines worldwide in 2021 and 2022 in May 21. Data source: Evaluate Vantage
Street consensus revenue revision from May 21 to Jul 21. Data source: Seeking Alpha Premium
While these are overall estimates, we think at least for 2021 to 2022 the estimates from the Street would largely reflect COVID-19 vaccines sales for both companies, as MRNA (where COVID-19 sales are estimated to account for 95% of 2021 revenue) and NVAX do not have a commercially viable product yet aside from their respective COVID-19 vaccines. However, investors are encouraged to pay attention to MRNA’s CMV program which is expected to undergo Phase 3 trials and NVAX’s NanoFlu and ResVax programs which are undergoing Phase 3 trials.
The Street’s most recent consensus revenue estimate for MRNA in its 2021 forecast of $18.8B is largely in line with what MRNA has guided for 2021 ($19.2B), which have been upgraded by about 5.1% since May. However, the Street’s most recent consensus estimates for both companies in 2022 is largely different from the estimates we gleaned from Evaluate Vantage’s May forecasts of $12.1B, and $4.7B for MRNA and NVAX, respectively. A striking difference is seen in the Street’s most recent 2022 consensus of $15.8B for MRNA and $5.2B for NVAX, respectively.
Despite the discernible differences in their respective forecasts, both Evaluate Vantage and the Street are in agreement that NVAX would be a formidable player in 2022, and that it is expected to gain market share at the expense of MRNA.
While the Street has been revising the revenue forecasts for both MRNA and NVAX upwards, we highly encourage investors to keep their eye on the launch of NVAX, and monitor their progress against MRNA moving forward.
In addition, MRNA has indicated that they expect to produce up to 1B doses in 2021, while NVAX has already secured a supply contract worth 1.1B in doses committed to the Gavi / COVAX Facility, with another 200M doses with the "higher-income countries". We think Novavax’s astute partnership with India’s Serum Institute is highly instrumental to leverage on the latter’s massive production capacity in helping NVAX to build up its profile as an emerging global vaccines leader, by focusing on COVAX first as the company highlighted: “I believe that we have taken the lead to show the world the right way to get product distributed on an equitable basis globally. We expect that even with early products sold at low prices, we will be able to match that with revenue from higher income countries to be able to generate sufficient cash flow to expand our business rapidly.”
Not only does this allow NVAX to build tremendous goodwill with the developing world, where mRNA vaccines are extremely short in supply, NVAX is also confident that its tiered pricing model would still allow the company to leverage on its supply contracts with the “higher-income countries to generate sufficient cash flow to expand [their] business rapidly.” Importantly, it allows the company to use its vaccines to reach out to the “ex-U.S. market, [where] there continue to [have] variability with many countries continuing to have very low vaccination rates. Therefore, significant unmet demand remains globally that [Novavax] will be able to support [from] 2022 and beyond.”
While we think there are certainly supply bottlenecks this year that has hampered the supply adequacy of mRNA vaccines to the developing countries, as companies like Moderna has already committed their limited production capacity to the high and middle income countries which accounted for 6B out of the 8.6B of vaccines produced as of Mar 21, we are hopeful that Moderna would be able to address those shortfalls from 2022 and tap the largely unmet demands in the developing countries.
But if some investors were to think of Moderna as a company with just COVID-19 vaccines driving its future growth, they would have been truly mistaken about the wide-ranging applications of its mRNA technology.
While Moderna had no commercial applications before COVID-19 came along, and the market also had doubts about whether its technology would be able to compete against the established and proven technology in the market, the success of the mRNA vaccines in large scale commercialization of COVID-19 vaccines should put to bed any of those worries.
In fact, governments around the world have such high regard for mRNA technology now, that many of them are trying to establish their research around mRNA technology, in their fight against the lack of adequate access to mRNA vaccines. However, perhaps what these governments failed to realise, is that mastering the technology to develop highly effective mRNA vaccines take years of experience and deep expertise that only PFE/BNTX and MRNA have managed to successfully commercialize.
Importantly, with Moderna's dedicated focus on mRNA technology in its development programs, the success of its COVID-19 vaccine has certainly given the company a lot of confidence, experience as well as hugely useful real-world data that the company could use in its suite of development programs that the company has promised to be truly transformative in the way the world looks at vaccines development, as
it will lead to a giant new industry capable of treating [al]most everything from heart disease to cancer to rare genetic conditions. Moderna has drugs in trials for all three of these categories, and CEO Stéphane Bancel says his company can also become a dominant vaccine maker, developing shots for emerging viruses such as Nipah and Zika, as well as better-known, hard-to-target pathogens such as HIV.
While there is still uncertainty in the market with regard to mRNA’s successful application to other programs, one in which SVB Leerink clearly articulated: “it’s far from certain whether such vaccines will have clear efficacy advantages with other viral diseases. And how big a role the technology could play in treating noninfectious diseases such as cancer is unknown. So though public expectations are boundless, the revenue opportunity is not.”
In addition, Moderna is also expected to face significant competition from many companies working on mRNA technology such as PFE/BNTX, and also China-based Walvax Biotechnology. Moderna believes that its adaptability allows the company many possibilities and that “within a few years, Moderna could have 60 drugs and vaccines either in human trials or nearing them. [Moderna] can scale the number of products [the company] has in development at a pace that has never been done before.”
While we are clearly excited with Moderna's developments, what also kept us keen on Novavax, is that the company’s recombinant vaccine technology also seems to have huge potential applications across many different therapeutic areas, and most importantly the company already has the NanoFlu and ResVax in phase 3 trials.
Importantly, the company’s approach to combination vaccines has certainly created huge opportunities for it to leverage on a “single vaccination using the same platform,” therefore helping to potentially grow a market with combo vaccines across different therapeutic areas. This is also an area that Moderna is actively working on, to develop combo vaccines for respiratory viruses, in which the company thinks its mRNA technology is very well-equipped to handle as: “the advantages of mRNA vaccines include the ability to combine different antigens to protect against multiple viruses and the ability to rapidly respond to the evolution of respiratory viruses, such as influenza, SARS-CoV-2 and RSV.”
Therefore, we think the jury is certainly still out on which company’s technology offers the best approach in leading the market for vaccine development, even though the mRNA technology has definitely proven itself in real world settings for COVID-19, while its applications elsewhere still remain unknown.
Novavax’s ability to develop its own high potential breakthrough proprietary technology, based on a well established technological framework may prove to be a good hedge against Moderna's advances, especially if its technology fails to develop applications beyond its COVID-19 vaccines. Therefore, we think investors may carefully consider hedging their bets by taking a position in both companies, who certainly own two of the most exciting pieces of breakthrough vaccines technology right now.
Revenue distribution between Moderna’s peers. Source: Bloomberg
One key aspect that investors in both Novavax and Moderna would need to consider carefully is their huge dependence on COVID-19 vaccines in driving their revenue, as Moderna’s COVID-19 vaccine is expected to account for 95% of its 2021 revenue, while for Novavax, we would also expect it to be a highly significant driver, since its COVID-19 vaccine is the only one with an impending commercial launch.
Therefore, both of these companies come with significant concentration risk as compared to the other well established Pharma/Biotech companies with a much more diversified revenue base. Investors in Moderna and Novavax need to have high level of conviction in their abilities to deliver on their vaccines development successfully, and we also would encourage investors not to over-allocate their exposure into either of these two companies.
Don't Underestimate China's Global Vaccines Ambition
One key area that we think may possibly throw a spanner in the works of both companies’ global ambitions, would be China’s own ambition to be a leading global vaccines player, as the country aims to use the opportunity fully to help the developing countries, by providing them with large amount of vaccine doses, as these countries have simply been struggling with their vaccination programs in the wake of a lack of access to adequate supplies of the vaccines developed by the developed West.
China’s production capacity is so massive that the country’s annual production capacity has already reached 5B doses, and it has already administered 1.4B doses to its population (covering 50% of its population), as well as having provided 570M doses overseas.
The country expects to complete its vaccination program to vaccinate at least 70% of its massive population by early 2022, which is testament to the country’s incredible efficiency in its production and vaccination program.
Daily COVID-19 vaccine doses administered per 100 people (7-day average). Source: OWID
China's production capacity has reached such massive proportions that it has allowed the country to administer 100M doses per week since May, and the country also currently leads the daily vaccination charts, registering more doses per 100 people among the countries presented above.
This has therefore allowed China to build its ‘health silk road,’ in parallel to the Belt and Road Initiative’s infrastructure projects, and is prioritising vaccine supply among participating countries. In doing so China continues to seek to improve its influence and its soft power in areas which could be allies – or at least not competitors and opponents – on the world stage.
Even though China’s vaccine has a lower efficacy rate as compared to the vaccines of Novavax and Moderna, many developing countries are depending on China to help them to build their vaccination programmes, due to the unequal distribution of vaccines being observed between the developed countries and the developing ones, as “there is a strong imbalance between wealthy and poorer countries and developing nations will continue to look to China for assistance, especially in areas like Southeast Asia.”
Vaccine orders in Southeast Asia by type. Source: Nikkei Asia, Duke Global Health Innovation Center
The Indonesia Health Ministry has also clearly corroborated the support of China in helping the country to commence its vaccination program in January this year as the Sinovac and Sinopharm vaccines accounted for more than “90% of the 104 million doses the archipelago nation had received as of late June,” as the Indonesia Health Ministry clearly emphasized:
Indonesia is dependent on vaccines from China...because only China can meet the number of vaccines needed for Indonesia, and the [Indonesia] government estimates the country will need 426.8 million doses, taking wastage into account to fully vaccinate 70% of its population.
In addition, China is also rapidly ramping up its vaccines development, and has highlighted that it has 71 vaccines currently under development, of which, 9 have been administered, with 2 granted for emergency use by the WHO.
The China Vaccine Industry Association highlighted that:
Having 71 vaccines in the process of research and development makes China the country with the largest number of vaccines in development across the globe. These vaccines, if approved, will meet domestic and foreign demand. This large research pipeline provides a chance for China to study mature vaccine technologies, including mRNA technology and recombinant vaccine technology, and apply this knowledge to possible future infectious disease more severe than COVID-19. Those new technologies could also be used to optimize current vaccines against AIDs and the flu.
As a result, we think China’s ambition to develop itself as a major vaccines player beyond the scope of COVID-19 would certainly be one of the key risk areas that Moderna and Novavax investors need to be take into account, and monitor the developments closely, as we think China definitely has the financial resources, the willpower, the technological expertise, as well as the production capacity necessary to become a major vaccines player at the global stage.
Biotech comp set. Source: TIKR
Projected revenue mean consensus. Data source: S&P Capital IQ
EV / Fwd revenue trend. Data source: S&P Capital IQ
This is where we think it gets interesting. While Moderna’s current valuation (EV / Fwd Rev of 5.5x) does not look out of line when we compared it to the Biotech comp set mean and median, but because of the lower revenue projections from the Street moving forward, this would thus result in a much higher multiple when we move our projections forward into the next few years.
On the other hand, NVAX’s valuation looks much more attractive, even when we move our projections forward to take into account the Street’s expectations of a decline in revenue. From this perspective, it seems that NVAX looks to be much more attractively valued. For investors to value MRNA at 22x based on FY24’s revenue projection, would thus put the stock’s valuation well above the biotech comp set mean and median of 12.9x and 8.63x, respectively, which we think is really quite a stretch.
Therefore, we think for investors who are optimistic and highly convinced of the company’s future expectations in outperforming the Street’s estimates significantly, could certainly carry on to retain their exposure in Moderna. Conversely, for investors who do not have high conviction of Moderna’s business model moving forward, we think it may be an appropriate time to lock in their profits now, or at least take some profits off the table and rotate into NVAX if they prefer, which is something we are likely to do.
Price Action and Trend Analysis
NVAX price action. Source: TradingView
MRNA price action. Source: TradingView
Based on the price action analysis of both stocks, we could observe that NVAX has a support level at around the $150 price level, that attracted strong buying interest previously, while we also expect the stock to consolidate somewhere between $160 to $170 in the near term. Therefore, investors could consider an entry point at those levels.
MRNA on the other hand looks well extended from its moving averages, and we couldn’t quite find an optimal entry point at this level. While MRNA has a clear long term uptrend since last Apr, based on our view on MRNA’s current valuation and price action, we are convinced that MRNA is unlikely to offer investors good entry points that provide a strong risk/reward profile right now, and encourage investors to avoid adding new exposure to MRNA.
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Disclosure: I/we have a beneficial long position in the shares of MRNA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may be rotating a portion of my exposure in MRNA to NVAX in the next 72 hours.