Hartaj Singh, senior analyst at Oppenheimer, who deals with biotechnology, 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, definitely an instant year in the medical community, specifically the pharmaceutical community, the development of a COVID-19 vaccine, the fastest on record. And now we see the spread starting here in the US. Hartaj Singh, a managing director and senior analyst discussing biotechnology at Oppenheimer, is now joining us to talk about the future of biotechnology. And Hartaj, let’s start at a high level, which means a COVID vaccine for these companies, which does not mean for them. I think there was sometimes confusion about how much money some of these businesses are going to make with this vaccine. And how do you see that and explain some of these dynamics to your customers?
HARTAJ SINGH: So, Miles, thank you again for having my first and happy new year, start this year for everyone. I think you actually know the real question, honestly, among many investors, Miles, to judge the difference between what is called recurring income and income that will be one-time. I think because this pandemic has such a huge impact on economies around the world, governments will choose to spend a lot of money on vaccines, whether it is Modern, or the Pfizer-BioNTech and others approved.
So, even at $ 3 per shot or $ 15 per shot or $ 25 per shot, these companies will make significant revenue this year and maybe even next year if the pandemic leaks next year. Once we are called an endemic stage, think of it every year as flu, where it only occurs each year during a certain season, then we will see what the recurring income of these companies will be and what is still kind of TBD, which must be determined. I think this is what many institutional investors are trying to work out on what is the big revenue that is just coming out of the pandemic, as opposed to the recurring revenue that will be there for these companies in 2022 and beyond.
– And it seems like Hartaj, and thank you again for joining us, that if you look at these businesses, the impact will obviously be greater for a Moderna or a BioNTech, because these are smaller businesses with fewer products than a Pfizer which is so big. And also that it’s kind of, especially for a Modern that I know you’re a fan of from an analytical perspective, that it’s kind of the first use case, the first proof if you want the platform to work and be applied. on other vaccines and other drugs as well.
HARTAJ SINGH: Yes, you are absolutely right. I think, you know, the Modernas and even Pfizer-BioNTech, I mean, we do not cover Pfizer-BioNTech, so I can not really comment specifically on that. But I think overall if you look at the price action, after the vaccines got the emergency clearance, there was some profit taking, I think some analysts downgrade. I also think from an institutional point of view, people are trying to understand a little bit, like we talked about recurring income.
But there is also some fear that these mRNA vaccines, this is the first time that mRNA has been approved as a modality of any kind of disease, and that it can be strange if given from tens of thousands to millions of people. side effects appear? I think it’s still something we need to see. So there will be some concern around your second question.
And on the first question, look, we like all these companies, especially Moderna. And I think with this raging pandemic, you know, their income is going to fare well. It’s just that the shares are weak, because again people are trying to figure out what the recurring income is going to be. I also think that, if you look at the distribution of these vaccines, how much of it is the cost of selling? How much sales and marketing?
They need nothing at the moment, right? But how much will future R&D be? What will the margins look like then? These are all things that investors, institutional investors, and I think just ordinary investors are trying to digest, and therefore these stocks are a bit weak as they should be.
– Hartaj, outside of the COVID-19 plays, covers you 17 companies. You have 13 purchases and four market achievements. What’s going on in biotechnology? What makes you so spacious in space? And what are your choices for this year and what are they working on?
HARTAJ SINGH: Yes, good question. I mean, you know it’s always a little embarrassing when you buy as much, as much as our team does. But here’s the thing. At present Biotech trades biotechnology with large capital at all times lows in terms of the growth profile of the sector. If you look at biotech companies with large capital, they trade future PE in one year at about the same levels as they traded in 2008, 2009. In fact, they traded even lower for a year or two.
We can therefore afford to buy many businesses that we think are historically cheap. And among these companies, there are others we like more than others, a historically cheap kind of sector. I still do not think you can buy the whole sector. I think you have to be very stock oriented. And with regard to these aspects, we look, for example, at companies that do not have exposure to COVID-19, companies like Vertex Pharmaceuticals, the companies with larger capital that have little exposure to COVID-19, but that perform very well and the therapy for their patients, and other smaller businesses, middle capital companies like United Therapeutics, UTHR, which are actually similar to Vertex in the sense that they do a very good job of getting their therapies patient, but really not any exposure to COVID -19 means.
I think later this year, if the pandemic continues to rage, I think some of the COVID-19 names will come into play again, like a Regeneron, like a Gilead, and even more so a Modern. But at the moment. I think it’s a bit more of a keep-and-see approach there because of the belief that the economy is going to open up and things are going to get back to normal.
– Good. Hartaj Singh, managing director, senior analyst at Oppenheimer. Hartaj, great to get your mind off 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, everyone. Me too. Stay safe.