In the pharmaceutical industry, Pfizer and Moderna are two prominent players that have been in the spotlight, especially during the COVID-19 pandemic. However, Pfizer’s stock price has been relatively lower compared to Moderna‘s, which has intrigued investors and market analysts alike. This article will explore the various factors contributing to this phenomenon.
The Impact of COVID-19 Vaccine Business
Revenue Concentration and Expectations: Pfizer’s revenue has been more diversified compared to Moderna. While Pfizer’s COVID-19 vaccine Comirnaty has been a significant contributor, it represents a smaller portion of its overall revenue compared to Moderna, where the COVID-19 vaccine Spikevax has been a dominant source of income. In 2021, for example, Comirnaty accounted for about 41% of Pfizer’s Q2 revenue, while Moderna’s revenue grew substantially due to Spikevax, with revenue reaching $4.35 billion in the latest quarter compared to a meager $66.35 million the year before.
Market Perception of Growth: The market often values growth highly, and Moderna’s rapid revenue growth from its COVID-19 vaccine led investors to perceive it as having more growth potential. In contrast, Pfizer’s other product lines, which have relatively stable but less explosive growth, may have weighed down the overall perception of its growth prospects, despite the company’s diverse portfolio and pipeline of 100 potential drugs pending regulatory approvals and/or in late-stage trials.
Patent Infringement Lawsuit
Uncertainty and Investor Sentiment: Moderna sued Pfizer and its partner BioNTech for allegedly infringing its patents related to mRNA technology used in COVID-19 vaccines. This lawsuit has created significant uncertainty for Pfizer. If the lawsuit is resolved unfavorably for Pfizer, it could face substantial financial damages and potential restrictions on its COVID-19 vaccine business. Such uncertainties have likely dampened investor enthusiasm for Pfizer stock and contributed to its relatively lower price compared to Moderna.
Impact on Future Earnings: The outcome of the patent lawsuit poses a risk to Pfizer’s future earnings from its COVID-19 vaccine. Even if Pfizer continues to generate revenue from the vaccine in the meantime, the cloud of potential litigation losses looms large, making investors more cautious and potentially reducing the stock’s valuation.
Profitability and Margins
EBIT Margins: Pfizer has maintained relatively stable EBIT margins around the 30% region. In contrast, Moderna achieved a highly remarkable EBIT margin of 70% in Q2 ’21, thanks to the success of Spikevax. This significant difference in profitability ratios has attracted investors to Moderna, as higher margins suggest greater efficiency and potential for higher returns, thereby driving up its stock price relative to Pfizer.
Cost Structure and Scalability: Moderna’s ability to achieve such high margins may indicate a more favorable cost structure and better scalability in its vaccine production. This could imply that Moderna has a competitive advantage in terms of cost management and operational efficiency, which investors view positively and are willing to pay a premium for in the form of a higher stock price.
Balance Sheet Health
Debt Levels: Pfizer carries a relatively high debt load, although its interest coverage ratio and total debt/EBITDA ratio are at safe levels. However, compared to Moderna, which has a lower debt burden, Pfizer’s balance sheet may appear less healthy to some investors. A higher debt level can increase financial risk and potentially limit the company’s flexibility in making strategic decisions or weathering economic downturns, which could be a factor contributing to the lower valuation of Pfizer stock.
Cash Position: While Pfizer has a significant cash balance, which it has used to pare down its financial risk, investors may still view Moderna’s stronger balance sheet, with lower debt and potentially more financial flexibility, as an advantage. This could lead to a higher valuation for Moderna stock compared to Pfizer.
Product Pipeline and Future Prospects
Diversification vs. Focus: Pfizer has a broad product pipeline covering various therapeutic areas such as oncology, rare diseases, and immunology, in addition to its vaccines. However, the market may view Moderna’s more focused approach on mRNA technology and its potential for future vaccine and therapeutic applications in this area as having higher upside potential. Investors may be more willing to bet on Moderna’s future growth based on its specialization and potential to disrupt the healthcare industry with mRNA-based products.
Clinical Trial Progress and Expectations: The progress of Pfizer’s and Moderna’s respective drug development pipelines can also impact their stock prices. If Moderna is perceived to have more promising drugs in its pipeline with faster progress in clinical trials or higher potential for regulatory approvals, investors may assign a higher value to its stock. Conversely, any delays or setbacks in Pfizer’s pipeline could contribute to its relatively lower stock price.
Macroeconomic Factors
Interest Rates and Inflation: Rising interest rates and inflation can have a negative impact on the stock market in general, and pharmaceutical stocks are no exception. Higher interest rates increase the cost of capital for companies, which can reduce their profitability and growth prospects. Additionally, inflation can erode the purchasing power of consumers, potentially leading to lower demand for pharmaceutical products. Pfizer, being a large, established company, may be more sensitive to these macroeconomic factors due to its size and the scale of its operations, which could further suppress its stock price compared to Moderna.
Currency Fluctuations: Pfizer operates globally and is exposed to currency exchange rate risks. Fluctuations in exchange rates can impact its revenues and earnings when translated back into US dollars. If the US dollar strengthens, Pfizer’s international sales may be worth less in dollar terms, negatively affecting its financial results and potentially its stock price. Moderna, depending on its international exposure, may be less affected by currency fluctuations or may have better hedging strategies in place, giving it a relative advantage in the eyes of investors.
Market Sentiment and Investor Perception
Growth vs. Value Investing: The market has generally favored growth stocks over value stocks in recent years. Moderna, with its rapid revenue growth and high-profit margins, is often categorized as a growth stock, attracting investors who are seeking high returns and are willing to pay a premium for future earnings potential. Pfizer, on the other hand, is seen as more of a value stock, with its stable but less spectacular growth. This difference in market perception and investor preference for growth stocks has contributed to the divergence in stock prices between the two companies.
Analyst Recommendations and Sentiment: Analyst ratings and recommendations can also influence investor sentiment and stock prices. If analysts are more bullish on Moderna and issue more positive ratings and price targets, it can attract more investors to the stock, driving up its price. Conversely, if Pfizer receives more neutral or negative analyst sentiment, it can lead to lower demand for its stock and a relatively lower price.
Conclusion
In conclusion, the relatively lower stock price of Pfizer compared to Moderna can be attributed to a combination of factors. The differences in their COVID-19 vaccine business models, the patent infringement lawsuit, profitability margins, balance sheet health, product pipelines, macroeconomic factors, and market sentiment all play a role in shaping investors’ perceptions and valuation of the two companies. While Pfizer has its own strengths, such as a diversified product portfolio and a strong dividend yield, these factors have not been sufficient to offset the negative impacts on its stock price in comparison to Moderna. However, it is important to note that stock prices are subject to change based on future developments, and both companies will continue to face challenges and opportunities in the highly competitive and dynamic pharmaceutical industry. Investors should carefully consider these factors and conduct in-depth research before making investment decisions in either Pfizer or Moderna stocks.
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