BioNTech: New Initiation
BioNTech SE (BioNTech, an acronym for Biopharmaceutical New Technologies) has become, in many respects, a German biotech success. The management took advantage of the momentum triggered by the Covid-19 pandemic to transition the company from its status as a clinical-stage start-up to a billion-euro-revenue big biotech able to look established pharma and biotech companies in the eye in certain areas. This unprecedented development did not happen accidentally as the company had laid the foundations in the preceding years. In short, a seed grows into a big tree.
BioNTech’s core is its science-based belief that the immune system is the fundamental driver in the treatment of cancer and infectious diseases. As an immunotherapy company multiple technology platforms are used to tackle the targets.
With Lightspeed to Bonanza
Operation Lightspeed was to change the paradigm. Kicked off in early January 2020, the company sprinted from an idea to an approved Covid-19 vaccine within the space of just one year. This success was built on a series of factors including a strong scientific foundation, well-filled pockets, a favorable (political and financial) environment and strong (development) partnerships. Fun fact: the address of the company’s headquarters (An der Goldgrube) was a harbinger of the coming bonanza.
The management could thus press the button to start the operation with a real chance of being able to compete with US biotech Moderna and the other pharma big wigs. To start with, the biotech won the race: BioNTech (No. 1 in partnership with US giant Pfizer) and Moderna (No. 2 just after BioNTech).
The biotech formulated the objective to have an approved Covid-19 vaccine within one year. This must have made numerous people shake their heads (also within the company) in disbelief developing a vaccine and obtaining its approval usually takes 5-10 years. An emergency authorization is an option, but nobody was sure whether mRNA would be safe and effective in generating a (powerful) immune response against SARS-CoV-2. To reach this goal, a great many things had to work well. The company initiated the first clinical trial just a few weeks after the research launch and the clinical development was done in parallel without waiting for the full read out of the trial (the more typical procedure) as the approval authorities were quite flexible and supportive against a backdrop of the urgent need for a COVID-19 vaccine and the economic implications. This was an expensive endeavor stemming from the high degree of parallelism. In our view, the close partnership with US giant Pfizer was extremely helpful as the big pharma knows how to get a drug/vaccine approved and run production capabilities. Additionally, the US partner has deep pockets and R&D power. Overall, it was a smart move by the BioNTech management to approach Pfizer and suggest a partnership. We believe this was a kind of afterburner (accelerator for fighter jets) for Lightspeed. Without forgetting the fact that governments were throwing buckets of money at companies developing COVID-19 vaccines.
Having had a particularly good starting point, and helped by a degree of luck, BioNTech ended up crossing the finishing line first with its partner Pfizer. Biotech’s good fortune was that Novartis had sold it the old Marburg vaccine site (~120km from Mainz; ~1h drive) for c.€50m. In our view this was a huge advantage as the site had already obtained all the necessary approvals for vaccine production and the staff was well trained. Additionally, BioNTech asked experienced personnel, who had been pushed to retire, to return to work and be part of the story. Everything went well, and the company was able to live up to its headquarters address.
A real venture capital success story
Having been venture capital-funded by Prof Türeci, Prof Sahin and Prof Huber in 2008, BioNTech, headquartered at the Western corner of the Rhine-Main metropolitan area (Mainz, Germany), was to benefit from its academic environment and well-chosen anchor investors. The management raised USD1.4bn in seed and venture funding rounds, of which one was among the largest European VC rounds (USD325m at a USD1.4bn valuation) in 2019. The company went public valued at USD3.4bn on Nasdaq, raising an additional USD150m that same year. Additional placements during the pandemic added another USD500m to the company’s pocket, supported by a strong record of accomplishment. As the company never had to progress through venture financing’s valley of death (temporary small pockets to meet urgent financing needs, which is more typical for European biotech start-ups), the management was able to position the company for robust growth. Having started with c.350 FTEs (2015), the headcount more than quadrupled from 1,130 (2019) to > 4,500 employees by the year-end 2022.
The business
Based on its basic research, BioNTech generates proprietary knowledge, obtains patents and develops candidates in selected medical fields/indications. The main challenge of a biopharmaceutical company is to bring a development candidate successfully through the three stages of the clinical development regime and, finally, obtain marketing approval. Once this has been obtained, a company can sell the new drug/vaccine in the market.
As mentioned earlier, the pandemic was the turbo for the development of BioNTech ending up with sky-high, but rapidly declining, vaccine sales. The management’s real acid test is currently ahead as its deep pockets allow for the realization of many R&D ‘wishes’ at a time when the R&D pipeline, aside from infectious diseases, is still in the initial stages. In other words, the mode of action has not yet been proven, especially in oncology. The idea is to vaccinate (mRNA) people against a certain cancer type or to provide other classes of medication to provide individualized immunotherapy. This is something of Holy Grail for cancer treatment.
Q1 figures impacted by the abating pandemic
The Q1 23 sales were one fifth (€1,277m after €6,375m) of the previous year’s quarter. Due to lower vaccine sales and destocking, the gross profit margin was up by 12.8pp to 92.5%. Nevertheless, the EBITDA margin dropped from 75.0% to 53.7% owing to higher R&D costs (+16.9% to €-334m) and higher net other expenses (€-61m after €63m).
We do not see this development as a crucial part of the equity story. What does worry us however is what happens to the €5bn of combined vaccine-related sales in 2023 following the World Health Organization decision to no longer recommend annual COVID-19 boosters for healthy people younger than 60 years. This adds uncertainty to the market landscape. We had already adopted a more cautious stance (sales expectation) for 2023 and had plugged in a further deterioration in the years thereafter. As we expect R&D spending to remain at a high level, we forecast a deep dive into the red for profitability until the next vaccine or drug is approved. But the money must be wisely spent focused.
Recommendation
We initiate coverage of the name with a Buy recommendation based on our DCF and SOTP valuations reflecting a mix of declining COVID-19 vaccine sales but an improving R&D pipeline. Due to a comfortable cash pile, BioNTech should be able to fund the next growth story arising from its candidate-rich pipeline.
BioNTech’s core is its science-based belief that the immune system is the fundamental driver in the treatment of cancer and infectious diseases. As an immunotherapy company multiple technology platforms are used to tackle the targets.
With Lightspeed to Bonanza
Operation Lightspeed was to change the paradigm. Kicked off in early January 2020, the company sprinted from an idea to an approved Covid-19 vaccine within the space of just one year. This success was built on a series of factors including a strong scientific foundation, well-filled pockets, a favorable (political and financial) environment and strong (development) partnerships. Fun fact: the address of the company’s headquarters (An der Goldgrube) was a harbinger of the coming bonanza.
The management could thus press the button to start the operation with a real chance of being able to compete with US biotech Moderna and the other pharma big wigs. To start with, the biotech won the race: BioNTech (No. 1 in partnership with US giant Pfizer) and Moderna (No. 2 just after BioNTech).
The biotech formulated the objective to have an approved Covid-19 vaccine within one year. This must have made numerous people shake their heads (also within the company) in disbelief developing a vaccine and obtaining its approval usually takes 5-10 years. An emergency authorization is an option, but nobody was sure whether mRNA would be safe and effective in generating a (powerful) immune response against SARS-CoV-2. To reach this goal, a great many things had to work well. The company initiated the first clinical trial just a few weeks after the research launch and the clinical development was done in parallel without waiting for the full read out of the trial (the more typical procedure) as the approval authorities were quite flexible and supportive against a backdrop of the urgent need for a COVID-19 vaccine and the economic implications. This was an expensive endeavor stemming from the high degree of parallelism. In our view, the close partnership with US giant Pfizer was extremely helpful as the big pharma knows how to get a drug/vaccine approved and run production capabilities. Additionally, the US partner has deep pockets and R&D power. Overall, it was a smart move by the BioNTech management to approach Pfizer and suggest a partnership. We believe this was a kind of afterburner (accelerator for fighter jets) for Lightspeed. Without forgetting the fact that governments were throwing buckets of money at companies developing COVID-19 vaccines.
Having had a particularly good starting point, and helped by a degree of luck, BioNTech ended up crossing the finishing line first with its partner Pfizer. Biotech’s good fortune was that Novartis had sold it the old Marburg vaccine site (~120km from Mainz; ~1h drive) for c.€50m. In our view this was a huge advantage as the site had already obtained all the necessary approvals for vaccine production and the staff was well trained. Additionally, BioNTech asked experienced personnel, who had been pushed to retire, to return to work and be part of the story. Everything went well, and the company was able to live up to its headquarters address.
A real venture capital success story
Having been venture capital-funded by Prof Türeci, Prof Sahin and Prof Huber in 2008, BioNTech, headquartered at the Western corner of the Rhine-Main metropolitan area (Mainz, Germany), was to benefit from its academic environment and well-chosen anchor investors. The management raised USD1.4bn in seed and venture funding rounds, of which one was among the largest European VC rounds (USD325m at a USD1.4bn valuation) in 2019. The company went public valued at USD3.4bn on Nasdaq, raising an additional USD150m that same year. Additional placements during the pandemic added another USD500m to the company’s pocket, supported by a strong record of accomplishment. As the company never had to progress through venture financing’s valley of death (temporary small pockets to meet urgent financing needs, which is more typical for European biotech start-ups), the management was able to position the company for robust growth. Having started with c.350 FTEs (2015), the headcount more than quadrupled from 1,130 (2019) to > 4,500 employees by the year-end 2022.
The business
Based on its basic research, BioNTech generates proprietary knowledge, obtains patents and develops candidates in selected medical fields/indications. The main challenge of a biopharmaceutical company is to bring a development candidate successfully through the three stages of the clinical development regime and, finally, obtain marketing approval. Once this has been obtained, a company can sell the new drug/vaccine in the market.
As mentioned earlier, the pandemic was the turbo for the development of BioNTech ending up with sky-high, but rapidly declining, vaccine sales. The management’s real acid test is currently ahead as its deep pockets allow for the realization of many R&D ‘wishes’ at a time when the R&D pipeline, aside from infectious diseases, is still in the initial stages. In other words, the mode of action has not yet been proven, especially in oncology. The idea is to vaccinate (mRNA) people against a certain cancer type or to provide other classes of medication to provide individualized immunotherapy. This is something of Holy Grail for cancer treatment.
Q1 figures impacted by the abating pandemic
The Q1 23 sales were one fifth (€1,277m after €6,375m) of the previous year’s quarter. Due to lower vaccine sales and destocking, the gross profit margin was up by 12.8pp to 92.5%. Nevertheless, the EBITDA margin dropped from 75.0% to 53.7% owing to higher R&D costs (+16.9% to €-334m) and higher net other expenses (€-61m after €63m).
We do not see this development as a crucial part of the equity story. What does worry us however is what happens to the €5bn of combined vaccine-related sales in 2023 following the World Health Organization decision to no longer recommend annual COVID-19 boosters for healthy people younger than 60 years. This adds uncertainty to the market landscape. We had already adopted a more cautious stance (sales expectation) for 2023 and had plugged in a further deterioration in the years thereafter. As we expect R&D spending to remain at a high level, we forecast a deep dive into the red for profitability until the next vaccine or drug is approved. But the money must be wisely spent focused.
Recommendation
We initiate coverage of the name with a Buy recommendation based on our DCF and SOTP valuations reflecting a mix of declining COVID-19 vaccine sales but an improving R&D pipeline. Due to a comfortable cash pile, BioNTech should be able to fund the next growth story arising from its candidate-rich pipeline.
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