All Eyes on BioNTech's COVID-19 Vaccine

BioNTech BNTX, founded in Germany in 2008, has become a key player in the development of personalized mRNA cancer treatments. We think the market has assigned a premium to the shares because of the potential upside of the company’s COVID-19 vaccine program, so the valuation does not look compelling at this point. However, this is a company worth watching, with a promising pipeline built on exciting technology.

The emerging biotechnology company does not have any commercialized medicines yet, but its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships. Additionally, the company’s expertise with mRNA has readily lent itself to the development of vaccine candidates for COVID-19, garnering investor enthusiasm as the world awaits a viable vaccine.

BioNTech’s internal discovery platform is focused on mRNA, including off-the-shelf and personalized mRNA drugs, but opportunistic acquisitions have brought in targeted antibodies and cell therapies as well. As such, BioNTech is not overly reliant on any one key drug candidate or drug class at this point, and it is poised to tackle cancer via many different mechanisms.

Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and its current COVID-19 program in partnership with Pfizer and Fosun Pharma is built off an existing partnership with Pfizer for an influenza vaccine. The COVID-19 vaccine is quickly progressing through human trials, but its timeline and profits remain uncertain as the company tests different candidates and doses and as several competitors move through development as well.

Regulatory Approval Needed for Moat As an emerging biotech with no commercialized medicines, BioNTech has no economic moat, in our opinion. We think it has a strong but unproven portfolio of intangible assets in its pipeline, which is in the early stages of development with approval thus 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. Instead, 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 them, 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. 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 BioNTech’s assets are internally developed, but the company has also added to its portfolio with a couple of opportunistic acquisitions from struggling biotechs. It 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 brought in an antibody discovery platform, supplementing the company’s already-established RNA platforms. The 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 out of 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.

BNT162, the title for the company’s four candidates targeting SARS-CoV-2, entered the clinic in April. This aggressive timeline was propelled by Pfizer’s interest in the asset, which resulted in an expanded collaboration agreement of $185 million up front and a $113 million equity investment in addition to 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. While the success of BioNTech’s coronavirus vaccine has substantial implications for the world, it doesn’t play into our moat thesis yet because of its very early stage. Further, there’s wide uncertainty around the level of profits associated with the vaccine if the program is successful, depending on a number of factors, such as timeline, pricing, manufacturing capacity, and number of competitors.

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 as many as 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 do believe BioNTech has a positive moat trend due to strengthening intangible assets in its pipeline. Over the next five years, we expect several data readouts, assets progressing through trials, and even the company’s first potential approval. Further, testing new combinations of treatments, which tends to improve efficacy in cancer treatment, will also strengthen the competitive position of BioNTech’s platforms.

R&D Platform Unproven So Far We give BioNTech a very high fair value uncertainty rating because of the range of outcomes it faces related to the development of its early-stage pipeline, where we see very high uncertainty related to the commercial success of its medicines. While we think BioNTech's therapies have strong potential, the company's research and development platform remains unproven, with no regulatory approvals. We currently give these candidates probabilities of success between 20% and 50% and potential approval in a few years.

The company also faces uncertainty related to the development of the vaccine for COVID-19, although we do not yet model any contribution from the vaccine. The company’s partnerships with Pfizer and Fosun Pharma help relieve the financial burden of clinical development, and there could be substantial upside depending on the number of successful candidates, pricing, and timeline of approval.

Like most of its emerging biotech peers, BioNTech continues to burn through cash to fund research and development of its pipeline. The company has minimal debt on its balance sheet, as it has funded discovery and development with equity issues and collaboration payments from partnerships with large pharmaceutical companies. We expect the company to continue to rely on these two avenues for cash for the next several years. Outside of BioNTech’s COVID-19 vaccine candidates, we think the earliest approval could arrive in 2023, which would put the company on a path toward steady profitability. Management has taken advantage of a couple of opportunities to acquire early-stage assets and expand its geographic footprint to establish a U.S. research hub at low prices. We expect the near-term focus for capital allocation to remain on the company’s pipeline of vaccines and other therapies.