Fair Value Increases for Pfizer, BioNTech, and Moderna

Pfizer PFE After a deep dive on several of Pfizer's pipeline drugs combined with continued strong data for COVID-19 treatment Paxlovid, we have increased our projections for several key drugs leading to a fair value estimate increase to $48 from $45.50. The strong pipeline increasingly supports our wide moat rating for the firm. However, we believe the uncertainty around the duration of sales from Pfizer's COVID-19 vaccine Comirnaty and COVID-19 treatment Paxlovid is increasing. We still believe the majority of these product sales will occur in the near term, followed by a sharp decline by 2024. However, we recognize the growing uncertainty around how long the COVID-19 pandemic will last, especially with the continual rise of variants. As a result, we are increasing Pfizer's uncertainty rating to medium from low. We believe a medium uncertainty better reflects the potential outcomes surrounding the massive cash flows Pfizer is generating with COVID-19 products. While we believe the market is likely factoring in too long of a tail for sales from COVID-19 products, we believe there is a 25% chance of a bull case that these products will be in demand for a longer duration that we assume in our base case. BioNTech BNTX We're raising our BioNTech fair value estimate to $200 from $177 per share after incorporating Europe's recent COVID-19 vaccine option exercise for 2022, Pfizer's latest update on contracted COVID-19 vaccine sales for 2023, and a small placeholder for potential profit share on an mRNA-based shingles vaccine. Despite BioNTech's massive success with its mRNA-based COVID-19 vaccine, we think the changing competitive landscape, uncertain virus evolution, and many unknowns for safety and efficacy of this technology beyond COVID-19 all create too many questions to grant BioNTech an economic moat. That said, with a recent shareprice pullback, we now see shares as relatively fairly valued. We now assume that BioNTech will book COVID-19 vaccine revenue from its Pfizer gross profit share of EUR 17.3 billion in 2021 and EUR 19.1 billion in 2022, followed by a step down in sales in 2023 and EUR 1 billion annually beginning in 2024, to account for continued COVID-19 vaccinations in vulnerable (mostly elderly) populations. We assume Glaxo's Shingrix is capable of generating $5 billion in annual sales by 2025, creating a large potential market for Pfizer/BioNTech if their mRNA-based vaccine is able to differentiate. While it could be a tall order to surpass Shingrix on efficacy (97% efficacy after two doses), mRNA-based vaccines could avoid manufacturing delays that limited Glaxo's Shingrix sales ramp. Moderna MRNA We're raising our Moderna fair value estimate to $182 from $159 after adding a cardiology-focused mRNA treatment candidate and an Epstein-Barr prophylactic vaccine to our forecast, as well as incorporating recent COVID-19 vaccine contracts, including the recent U.K., Covax, and South Korea contracts. Overall, we still model $17.2 billion in COVID-19 vaccine sales in 2021 but have raised our forecast for 2022 to $19.7 billion (from $17.2 billion), incorporating recent contracts. These assumptions still fit with Moderna's updated guidance as of November 2021 of $15 billion-$18 billion in 2021 and $17 billion-$22 billion in 2022. In our model, we assume a significant drop in COVID-19 vaccine sales to $5 billion in 2023 as additional broad booster programs could be winding down, and $2 billion annually beginning in 2024 as the postpandemic focus could narrow to vulnerable populations (largely the elderly). In addition, we now include a 30% probability of approval and potential $2 billion in peak sales for AZN-8601, a VEGF-A therapy partnered with AstraZeneca that had positive phase 2 data in a handful of coronary artery bypass patients in November. We also include a 30% probability of approval for Moderna's Epstein-Barr vaccine, which has now entered phase 1 clinical trials. Despite Moderna's massive success with its COVID-19 vaccine, we think the changing competitive landscape, uncertain virus evolution, and many unknowns for safety and efficacy of its technology beyond COVID-19 all create too many questions to grant the firm an economic moat. Despite the recent pullback in share prices, we continue to see Moderna shares as slightly overvalued.

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