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Hartaj Singh, Oppenheimer’s senior analyst general manager covering biotechnology, joins Yahoo Finance Live to discuss the future of biotechnology and what a COVID-19 vaccine means – and doesn’t mean – for these companies.
Video transcript
– 2020, certainly a year of success in the medical community, in particular the pharmaceutical community, the development of a COVID-19 vaccine, the fastest on record. And now we see the distribution start here in the United States. Hartaj Singh, managing director and senior analyst covering biotechnology at Oppenheimer, joins us now to talk about the future of biotechnology in the context of this news. And Hartaj, let’s just start with high level, what a COVID vaccine means for these companies, what it doesn’t mean for them. I think there has been some confusion at times as to how much some of these companies are going to get out of 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 welcoming me first and happy new year, start to the year everyone. I think you know the real question actually, honestly, among a lot of investors, Miles, it’s sort of analyzing the difference between what’s called recurring income and income that is going to be one-time. I think because this pandemic is having a major impact on economies around the world, governments will choose to spend a lot of money on vaccines, be it Moderna, Pfizer-BioNTech and others that are approved.
So even at $ 3 per hit or $ 15 per hit or $ 25 per hit, these companies are expected to make significant revenues this year and maybe even next year if the pandemic spreads next year. Once we get into what’s called an endemic phase, think of it like the flu every year, where it just happens during a certain season every year, so we’ll sort of see what the recurring income will be like. these companies and it’s still sort of TBD, TBD. I think that’s what a lot of institutional investors are trying to analyze, which is what will be the bolus of revenue that just comes from the pandemic versus the recurring revenue that will be there for these companies in 2022 and beyond.
– And it seems, Hartaj, and thanks again for joining us, that when you look at these companies, the impact will naturally be greater for a Moderna or a BioNTech because they are smaller companies with fewer products than for a Pfizer. which is so vast. And also that it’s sort of, especially for a Moderna that I know you’re a fan of analytically, that it’s sort of the first use case, the first proof if you will. that its platform works and can be applied to other vaccines and other drugs.
HARTAJ SINGH: Yeah, you’re absolutely right. I think, you know, the Modernas and even Pfizer-BioNTech, I mean, we don’t cover Pfizer-BioNTech so I can’t really comment on them specifically. But I think in general, if you look at the price development, after the vaccines got emergency use clearance, after that there was some profit taking, I think some analysts downgraded the ratings. I also think that on the institutional side, people are trying to understand, as we have talked about recurring income.
But there is also some concern that these mRNA vaccines are 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, could side effects appear? I think this is still something we have to see. So there will be a bit of concern about that in the future, to your second question.
And at the first question, look, we love all of these companies, Moderna in particular. And I think with this raging pandemic, you know, their income is going to be fine. It’s just right now that stocks are low because once again people are trying to figure out what the recurring income will be. I also think if you look at how these vaccines are distributed, what share will be the cost of the products sold? How much sales and marketing?
They don’t need it right now, right? But what will be the future R&D? So what will the margins look like? These are all things that investors, institutional investors and I think regular investors are trying to digest right now, which is why these stocks are a little weak as they should be.
– Hartaj, outside of COVID-19 games, you cover 17 companies. You have 13 buys and four market performances. What is happening in biotechnology? What makes you so optimistic about the space more broadly? And what are your picks for this year and what are they working on?
HARTAJ SINGH: Yeah, great question. I mean, you know it’s always a little awkward when you have a lot of shopping, as much as our team has. But here’s the trick. Biotech at the moment, large cap biotech is trading at all times at low levels in terms of the growth profile of the sector. If you look at large-cap biotech companies, they’re trading a one-year future PE at about the same level they were trading in 2008, 2009. In fact, a year or two ago, they even traded below.
So we can afford to buy a lot of companies that we think are historically cheap. And among these companies, there are others that we like more than others, kind of historically cheap sector. I still don’t think you can buy the whole industry. I think you must be very stock picking oriented. And in that regard, we look at companies, for example, that have some kind of non-COVID-19 exposure, companies like Vertex Pharmaceuticals which are the larger cap companies that have little exposure to COVID-19 but that are working really well and getting the therapy to their patients and other small companies, mid cap companies like United Therapeutics, UTHR, which are actually similar to Vertex in that they do a really good job of bringing their therapies to patients, but it really isn’t. have exposure to COVID-19 therapeutic agents.
I think later this year, if the pandemic continues to rage, I think some of the COVID-19 names will come back into play, like a Regeneron, like a Gilead, and even more a Moderna. But now. I think it’s a bit more of a “hold and see” approach, because we think the economy will open up and things will get back to normal.
– Okay. Hartaj Singh, Managing Director, Senior Analyst at Oppenheimer. Hartaj, nice to have your thoughts this morning. Thank you very much for joining the show. Come back and I hope we can talk soon.
HARTAJ SINGH: Thanks, Miles, thanks everyone. Me too. Stay safe.
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