vervolg:
Financial overview and outlook
If Pfizer's payment this year to BioNTech amounts to 32% of its $26 billion of revenue, that would be $8.3 billion. BioNTech has an additional agreement with Fosun Pharma, but the contribution is expected to be small.
BioNTech's own production pace is behind Pfizer's and it expects to sell 250 million doses in the first half of 2021. Assuming 500 million doses at $14 each for the year, this would amount to $7 billion of direct revenue.
The consensus analyst estimate for $15 billion in revenue this year therefore seems reasonable. Assuming the direct revenue of $7 billion would have an associated 60% margin, gross profit would amount to $4.2 billion plus the Pfizer payment of $8.3 billion or $12.5 billion in all. The company has guided to $800 million of R&D expenses and $200 million of SG&A, which would leave $11.5 billion of operating profit.
Knock off 30% to the German government and shareholders will be left with $8 billion. That is more than $30 for each of the 257 million diluted shares. You can also imagine that the $3.5 billion going to the German Treasury provides them a powerful incentive to oppose concepts like patent busting. In any case, it will be difficult for another firm to manufacture a specialized product like this even if the company's patents are waived.
The company expects total manufacturing capacity to reach 3 billion doses by the end of this year and more than that for 2022. By then, practically the entire world population of more than 7 billion should be eligible to receive the vaccine as approvals gradually reach younger ages. Assuming one dose per person and a 30% market share, that is 2 billion doses in later years. This number is understated because due to deaths/births, some people will receive two doses per year.
There will definitely be some price compression down to perhaps the $10/dose level. Even if profits fall by half from this year's figure, that is a solid $4 billion per year for a company with a current $52 billion market cap. And don't forget that the cash generated from the excess profits in the next few years will be available to be distributed to shareholders.
Valuation: Fair value of $270 for the stock
I will assume that in a steady state, the company can generate $15 in annual profits per share. A 16x multiple will get you to $240 per share. To this I will add the $30 in cash from the profits this year for a target price of $270. This offers more than 30% upside from the current price of $204.
In a bull case, the company's per share earnings will plateau at the $20 level at a steady state. Using the same 16x multiple and adding back the cash at the end of the year would result in a target price of $350 or more than 70% upside from the current price.
In a bear case, the company's profits will decline more than expected to $10 per share. Disappointed investors will assign a 14x multiple for a $170 share price with the year-end cash included. That would be close to 20% downside from the current price.
I'm not going to consider the nuclear option of the company's patents being waived, and others managing to manufacture the company's vaccines and selling them at cost. I believe the chances of this happening are remote, but as an equity investor it is best to be cognizant of what chatter is possible. I am also ignoring other products that the company has in development, although it is fair to say that some of the profits will be diverted towards getting these to commercialization.
Given the reasonable upside in the stock, I would recommend investors buy the stock at the current price and hold it if you already own it.
Risks are moderate
The biggest risk here is that the company's vaccine will fall out of favor due to adverse events in people who have used it. Given that it has been administered to hundreds of millions of people at this point, I believe the chances are not high, but there is always a possibility that undiscovered reactions exist or that due to the law of large numbers some connection is made.
The company's earnings may come in lower than expected due to competitive or execution factors. The company's product requires sub-freezing temperatures to handle, so an easier to use product could gain market share.
An alternate product that is more efficacious could be developed by a competitor. I would regard this as a long shot as the company's product is 95% effective. But new variants that may arise could give an opening to another product.
Shareholders depend on a company's management being good stewards of their capital. There is a risk that the company will make an overpriced acquisition that is material or otherwise not be good agents of the owners.
BioNTech And Pfizer To Begin Clinical Trial For Covid-19 Vaccine
Thomas Lohnes/Getty Images News
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