EU Intention to Purchase ONLY Messenger RNA Vaccines in New Round of Tenders Represents a Changing of the Guard in the Vaccine World.

A recent round of talks by the EU with the messenger RNA Covid-19 vaccine producers and developers (Pfizer-BioNTech, Moderna and Curevac), coupled with news that Curevac might see accelerated approval for their product, which is still in phase 3 trials; when appraised against the meaningful delays by several non mRNA based vaccine developers in obtaining regulatory approval, provides a window into the future of the Covid-19 vaccine sector within the biotech industry.

There are several clear inferences that I draw from the intention to ONLY acquire mRNA vaccines by Europe.

1. The current and soon-to-be-approved producers should have an ability to maintain a degree of pricing stability sufficient to provide monopolistic or oligopolistic profits. A dramatic fall-off in mRNA vaccine pricing, which was assumed by many to commence as early as 2022, might be premature.

2. The runway for monopoly type profits may be longer than previously assumed by the street, based upon an entrenchment of bureaucratic purchase decisions in favor of mRNA and against other vaccine technologies.

3. Other national government purchase agencies, ex Europe, may also feel public pressure to follow suit with a similar purchase decision for their 2022 vaccine requirements and boosters. Anecdotal reports suggest that there appears to be great national pushback, specifically in first world nations, from the public, who favor an mRNA vaccine vs the present crop of more conventional formulations produced by Astra-Zeneca, Johnson & Johnson, etc.

4. “Vaccine Nationalism” continues to be a problem in terms of supply allocation. My take on this trend is that jurisdictions such as Europe will favor domestic producers vs foreign producers and will reward national champions with contracts, even when bidding against foreign producers that seek to enter markets presently served by a national mRNA producer. Therefore, US based mRNA producers will have pricing power in their sphere of influence, European producers will have pricing power in their sphere, etc.

5. The physical plant expansions recently undertaken by Pfizer/BioNTech and Moderna may no longer represent a potential looming oversupply, but may instead be a sensible “up-sizing” of productive capacity. This could cement EBITDA margins at both producers, even should moderate price reductions in 2022 and beyond be experienced.

6. The keen interest by Europe in obtaining contacts for 2022 delivery and beyond, clearly suggests that pan-national bureaucracies are willing to place a premium on certainty of supply as compared to competing on price.

Even the government of China, in a rare admission of failure, has suggested that their non mRNA vaccines have largely been a bust on an efficacy report and are seeking to reorient to messenger RNA formulations.

The model portfolio had purchased shares of BioNTech some time ago, to complement the present ownership of Moderna, as a substitute investment when the share position of Novavax was closed out. The smallish loss on Novavax has been fully recaptured on the share price strength of BNTX. If my premise proves out, BioNtech is poised to become the de facto European champion. Pfizer will continue to supply the bulk of American needs.

The size of the potential EU vaccine purchase agreement, should it come to fruition, deserves to be placed into context. Simply stated, 900 million firm doses and an option for 900 million additional doses represents the SINGLE LARGEST VACCINE ORDER IN HISTORY.

Segmentation of the global market by region completely changes the landscape and has implications for both sales and profits. Moderna will represent a nimble swing producer with the capability of capturing a percentage of the available global market share for mRNA covid-19 vaccines. Curevac has potential to capture as much of the European market as production will allow.

Europe has decided that the trend in the Covid-19 vaccines is clearly mRNA based, above all else. As an investor who specializes in surfing on established trends, rather than attempting to predict possible future trends, that more often than not, are revealed to be nothing more than fads, the decision to own both BioNtech as well as Moderna seems appropriate, in light of the circumstances.

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