Economic Moat | by Anna Baran Updated Jun 23, 2020
As an emerging biotechnology company with no commercialized medicines, BioNTech does not possess an economic moat, in our opinion. We think it has a strong but unproven portfolio of intangible assets in its pipeline, which is in early stages of development, and thus approval is highly uncertain. We like BioNTech's focus on moatworthy indications and drug classes, but we'd have to see regulatory approval before considering a moat.
BioNTech has a very full but early pipeline, with over 22 known drug candidates and several more not yet disclosed. About half of these have entered the clinical stage, mostly phase 1. Personalized and off-the-shelf cancer vaccines are the company's key focus, but the pipeline also has other cancer therapies and infectious disease vaccines. BioNTech's technology platforms have won votes of confidence from several large biopharma companies, resulting in partnerships with Roche, Bayer, Eli Lilly, Pfizer, Sanofi, and Genmab.
BioNTech isn't overly reliant on any one product at this point. We see several mRNA candidates forming the core of the company's portfolio, including off-the-shelf products BNT111 (advanced melanoma), BNT112 (prostate cancer), BNT113 (HPV-positive head and neck cancers), BNT114 (triple-negative breast cancer), and BNT115 (ovarian cancer). Of these, BNT111 and BNT113 lead the way, with phase 2 studies starting this year after promising early results. These mRNA-based therapies were produced with BioNTech's FixVac technology, which produces off-the-shelf mRNA therapies based on shared antigens, in contrast to the iNeST platform, which produces personalized therapies based on a patient's individual neoantigens. The company's lead iNeST candidate is RO7198457 (or BNT122), which is partnered with Roche and entering phase 2 in front-line melanoma this year. Roche and BioNTech plan to test BNT122 in combination with Roche's Tecentriq in adjuvant non-small-cell lung cancer. If successful, a combination with a checkpoint inhibitor in lung cancer could present a blockbuster opportunity.
While the field is in the very early stages, we believe the development of individualized cancer immunotherapies is a moatworthy business, if successful in the clinic. The personalized nature of the medicine should result in unmatched efficacy and command strong pricing power in the market. Despite higher costs to manufacture personalized medicine, we expect personalized cancer vaccines to be high-margin products as the business scales.
Further, we expect this business will be difficult for competitors to replicate. The process leans heavily on bioinformatics, as researchers use proprietary programs to analyze a patient's DNA, identify the patient's unique mutations caused by the cancer, and determine which genetic instructions would produce an immune response sufficient to effectively attack the cancer cells. Then, researchers can engineer mRNA that encodes those unique mutations, producing that patient's personalized cancer vaccine. BioNTech's turnaround from start to delivery is roughly six weeks, and the company has a goal of reaching less than four weeks. BioNTech's competitor Moderna is also developing personalized mRNA cancer vaccines and has similar production goals. Both BioNTech and Moderna have spent roughly a decade honing their understanding of mRNA therapies, with drug candidates just now reaching registrational trials.
Most of the company's assets are internally developed, but BioNTech has also added to its portfolio with a couple of opportunistic acquisitions from struggling biotechs. BioNTech acquired MabVax's assets and labs in May 2019, adding BNT321, a targeted antibody for pancreatic cancer, which is extremely aggressive and deadly, with just a 7% five-year survival rate. In addition to establishing a U.S. research hub, this deal also brought in an antibody discovery platform, supplementing the company's already-established RNA platforms. Then, BioNTech's early 2020 acquisition of struggling biotech Neon Therapeutics for $67 million brought in two early CAR-T therapies. The expansion into drug classes outside of mRNA is interesting: While BioNTech is venturing outside its established area of expertise, it's also gaining talent in new areas and possibly boosting its long-term growth potential. We like the long-term potential for innovation and combinations between drug classes, such as using mRNA to combat cytokine storms, a common side effect of cell therapy.
BioNTech's expert knowledge of mRNA easily lends itself to the development of vaccines for viral infections, including COVID-19. The company's COVID-19 program is built on an existing partnership with Pfizer, which paid BioNTech $120 million up front in 2018 to develop a flu vaccine (BNT161) that would be more reliable and quicker to manufacture than most current vaccines. Most current influenza vaccines are produced in chicken eggs or cell cultures, which takes about six months and requires that the World Health Organization select inactivated flu strains for the vaccine far in advance of flu season. BioNTech's methods would allow production in roughly three months, which could increase the reliability of flu strain selection and allow for adjustments as the season progresses, and the mRNA-based process would limit mutations. The company expects BNT161 to enter clinical testing in the first half of 2021.
The BNT162b2 coronavirus vaccine entered late-stage clinical trials in late July, with potential regulatory approval by the end of 2020. This aggressive timeline was propelled by Pfizer's interest in the asset, which resulted in an expanded collaboration agreement of $185 million up front in addition to equity investments and potential milestones. The company has also partnered with Fosun Pharma for rights in China, adding an up-front payment of $135 million plus milestones to the collaboration. The vaccine, if successful, would use a rapid manufacturing process that would bring a treatment to patients faster than traditional methods. Several competitors, such as Moderna and CureVac, are developing their own mRNA vaccines for the coronavirus.
The rest of BioNTech's infectious disease candidates are in the preclinical stage. BioNTech has received funding from the Bill & Melinda Gates Foundation for the development of mRNA vaccines for HIV, tuberculosis, and three additional infectious diseases; these remain in the preclinical stage. The company is also partnered with the University of Pennsylvania school of medicine for mRNA candidates in up to 10 infectious diseases (preclinical).
Lastly, the company is developing a handful of mRNA-based therapies for undisclosed rare diseases in partnership with Genevant. The protein-replacing therapies are in the preclinical stage and do not yet contribute to a moat. There are often few treatment options for rare diseases, and the high unmet need and small patient populations result in strong pricing power of effective therapies. An approval in rare disease could be a strong contributor to a moat, but the field is extremely competitive.
Overall, we think the company has several promising candidates that could one day support a moat, but they are too early in the development process to warrant a narrow moat. We currently give the company's clinical drug candidates probabilities of approval between 20% and 50%, with these therapies not obtaining approval until 2023.