Hartaj Singh, managing director of Oppenheimer, a senior biotechnology analyst, joins Yahoo Finance Live to discuss the future of biotechnology and what a COVID-19 vaccine means – and does not mean – for these companies.
Video transcription
– 2020, certainly a year of great success in the medical community, specifically in the pharmaceutical community, the development of a vaccine COVID-19, the fastest ever recorded. And now we are seeing distribution start here in the United States. Joining us now to talk about the future of biotechnology in the background of this news is Hartaj Singh, a managing director and senior biotechnology analyst at Oppenheimer. And Hartaj, let’s start at a high level, what a COVID vaccine means to these companies, which it doesn’t mean to them. I think sometimes there has been some confusion about how much money some of these companies are going to make from this vaccine. And how are you seeing this and explaining some of these dynamics to your customers?
HARTAJ SINGH: So, Miles, thanks again for receiving me in the first place and Happy New Year, beginning this year to everyone. I think you know that the real question, honestly, among many investors, Miles, is kind of analyzing the difference between what is called recurring revenue and revenue that will be unique. I think that as this pandemic is having a great impact on economies around the world, governments will choose to spend a lot of money on vaccines, whether Modern, Pfizer-BioNTech and others that are approved.
So, even at $ 3 or $ 15 or $ 25 each, these companies have significant revenue this year and maybe even the next, if the pandemic leaks out next year. As soon as we enter what is called an endemic stage, think of it as a flu every year, where it occurs only during a certain season each year, then we will see what the recurring revenues of these companies will look like and it is still type of TBD, to be determined . I think this is what many institutional investors are trying to analyze, what will be the revenue pie that has just come from the pandemic compared to the recurring revenues that will be there for these companies in 2022 and onwards.
– And it looks like, Hartaj, and thanks again for joining us, that when you look at these companies, the impact will naturally be greater for Moderna or BioNTech because they are smaller companies with less products than for a Pfizer that is so vast . And also that this is kind of, especially for a Modern one of which I know that you are a fan of an analytical perspective, that this is kind of the first use case, the first proof if you want your platform to work and it may perhaps be applied to other vaccines and other drugs as well.
HARTAJ SINGH: Yes, you are absolutely right. I think, you know, Modernas and even Pfizer-BioNTech, I mean, we didn’t cover Pfizer-BioNTech, so I can’t comment on them specifically. But I think if you look at the price action, after the vaccines got emergency use authorization, after that there was some profit realization, I think some downgrades from analysts. I think that on the institutional side too, people are trying to understand, as we talk about recurring revenues.
But there is also a little fear that these mRNA vaccines, this is the first time that mRNA has been approved as a modality for any type of disease, and that, as it is administered by tens of thousands to millions of people, some strange side effects appear? I think it’s still something we need to see. So, there will be a little bit of concern about that going forward, for your second question.
And as for the first question, look, we like all these companies, especially Moderna. And I think that with this pandemic spreading, you know, your revenues are going to perform well. It is just now that stocks are weak because, again, people are trying to figure out what the recurring earnings will be. I also think that if you look at how these vaccines are distributed, how much of that will be the cost of the products sold? How many sales and marketing?
They don’t need any now, right? But how much will future R&D be? So, what will the margins look like? These are things that investors, institutional investors and I think only normal investors are trying to digest, which is why these stocks are a little weak as they should be.
– Hartaj, out of the COVID-19 parts, you cover 17 companies. You have 13 purchases and four market performances. What’s going on in biotechnology? What makes you so optimistic about space more broadly? And what are some of your choices for this year and what are they working on?
HARTAJ SINGH: Yes, great question. I mean, you know it’s always a little embarrassing when you have a lot of purchases, as many as our team has. But here’s the thing. Biotechnology at the moment, large-cap biotechnology is being negotiated at all times, in terms of the sector’s growth profile. If you look at big cap biotechnology companies, they are trading with PE for a year at roughly the same levels as they were trading in 2008, 2009. In fact, a year or two ago, they were trading even below that.
Therefore, we can afford to buy many companies that we think are historically cheap. And among these companies, there are others that we like more than others, historically cheap. I still don’t think you can buy the entire sector. I think you need to be very oriented towards stock selection. And in this regard, we look at companies, for example, that have non-COVID-19 type of exposure, companies like Vertex Pharmaceuticals that are the most capitalized companies that have little exposure to COVID-19, but are performing very well good and getting the therapy for their patients and other smaller companies, medium-sized companies like United Therapeutics, UTHR, which are actually similar to Vertex in the sense that they are doing a great job of bringing their therapies to patients, but not really have any exposure to COVID-19 therapy.
I think that later this year, if the pandemic continues to grow, I think that some of the COVID-19 names will return to the game, as a Regeneron, as a Gilead, and even more as a Moderna. But now. I think it’s a little bit more to hold on and see the approach there because of the belief that the economy is going to open up and things are going to go back to normal.
– All right. Hartaj Singh, managing director, senior analyst at Oppenheimer. Hartaj, great to hear your opinion this morning. Thank you so much for joining the show. Come back and I hope we can talk soon.
HARTAJ SINGH: Thank you, Miles, thank you all. Me too. Stay safe.