For vaccine maker shares, smaller is proving to be better

[DUBLIN] Investors who bet on success in the race to develop coronavirus vaccines are finding that smaller is better.

Shares of BioNTech, the German startup that's working with US drug giant Pfizer to develop an innoculation, have almost tripled this year while its partner has slipped about 1 per cent. And Moderna, which went public less than two years ago, is up fivefold. AstraZeneca, meanwhile, has gained 5.2 per cent.

While all of those companies reported success this month in developing shots against the coronavirus, headline-grabbing news on a highly anticipated product just isn't enough to boost shares of businesses as large as Pfizer and AstraZeneca - even when they're working on one of the most important vaccines ever.

"The smaller biotechs and their valuations absolutely need success on their vaccines, whereas for Astra and Pfizer it's less relevant," said Sam Fazeli, senior pharmaceutical analyst at Bloomberg Intelligence.

The huge impact on the smaller companies' valuations is in part due to their relative starting points and their drug pipelines. Even after this year's boost, BioNTech's market value of about US$24 billion is dwarfed by the US$204 billion value of its partner.

A year ago, analysts predicted that both BioNTech and Moderna, neither of which has any drugs on the market, would be unprofitable in 2021. Now both companies are forecast to earn money next year.

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Pfizer and AstraZeneca, meanwhile, already were profitable. They reported revenues of US$51.8 billion and US$24.4 billion, respectively, in 2019 and sell dozens of high-profile treatments, so it's harder for one new product to move the needle.

That's especially true when the potential profit is relatively small or non-existent. Some companies pursuing vaccines - including AstraZeneca and Johnson & Johnson - have made a "no-profit" pledge for the shots. Pfizer initially said it wasn't focused on the return on investment from the vaccine during the pandemic.

AstraZeneca "has been quite vocal (along with Johnson & Johnson) about providing doses on a cost basis for at least as long as the pandemic lasts", Dani Saurymper, a fund manager at AXA Investment Managers UK, said before the most recent data. "It should therefore make little difference to AstraZeneca's valuation although it may impact from a sentiment standpoint."

Many analysts aren't including the vaccine in their forecasts for AstraZeneca, while any impact for Pfizer has been modest. Analysts have cut their estimate for the UK company's 2021 earnings per share by 5.4 per cent, on average, in the past year, while for Pfizer they've raised it by the same amount, according to data compiled by Bloomberg.

While the world's focus remains on the vaccine, analysts and investors may now look towards AstraZeneca's other pipeline events.

"We view this as a clearing event for the name in that it removes whatever downside may have come from a sentiment-driven selloff should the vaccine have not worked," Barclays analyst Emily Field said. "With the company reiterating its no-profit pledge on the vaccine this morning, we believe this will allow investor focus to return to Astra's innovative oncology (and other) programmes."

BLOOMBERG