There are companies that will make billions of dollars selling coronavirus vaccines. One of them may be CureVac (NASDAQ:CVAC). But “may be” alone doesn’t make CVAC stock a buy.
After all, there’s no shortage of risks. CureVac’s success remains uncertain. Even if the company does develop a vaccine, it needs to do so quickly. Literally dozens of companies — including some of the world’s largest and most successful drug developers — are pushing forward their own vaccine candidates.
To be sure, there likely will be multiple winners. But it’s also likely that there will be a big difference between first place and, say, fourth place.
Obviously, given the impressive rally in CVAC stock since its initial public offering last month, many investors remain willing to take those risks. But the rally itself creates yet another issue.
With valuation so stretched, CureVac seemingly has little room for error. As a result, it seems like investors can at the least take their time when it comes to CureVac stock.
The Case for CVAC Stock
It’s worth emphasizing: there are reasons for optimism toward CureVac. The German biotech said in June that it had received the go-ahead for Phase 1 trials for its vaccine candidate. It expects to receive 252 million EUR (about $300 million) from Germany’s Federal Ministry of Research to help fund the development of that vaccine.
Importantly, CureVac isn’t a single-product company. Its pipeline also includes potential vaccines for rabies, yellow fever, and influenza. Two oncology products are in Phase 1 trials; one aims to treat melanoma and the other a form of lung cancer. Pre-clinical products could target ocular diseases, liver metabolic disorders, and other conditions.
All pre-approval biotechs have a good degree of risk. Indeed, most experienced investors in the sector usually buy a basket of such stocks, with the expectation that a few names in the portfolio will see their stock prices plunge after trial failures. The hope is that a few winners will skyrocket, providing enough gains to offset those losses and then some.
CVAC stock is not an exception. It’s a risky play. But by the standards of the space, it has a lot going for it. The large and diversified pipeline provides several paths to upside. Between government funding, private investments and the IPO (which raised more than $200 million), cash shouldn’t be an issue.
That cash allows CureVac to go full throttle on the coronavirus vaccine while still providing appropriate resources to the other products. It also means the company won’t have to excessively dilute existing shareholders while it works to bring products to market.
All told, there’s are a lot of things to like about CVAC stock.
The Value Problem
But the stock price isn’t one of them. CVAC priced its IPO at $16 just last month. The stock now sits above $63; it has nearly quadrupled.
Valuing biotechs is far more art than science. Reasonable investors can come up with significantly different estimates of fair value. But it’s certainly fair to ask why CureVac would accept $16 per share if it believed those shares were worth far more than $63.
Yes, the company needed to raise capital. But an IPO was not the only way. Private market options were available as well: indeed, the company raised $640 million in the private markets in July. Pricing then was even worse.
That $640 million includes 300 million EUR (roughly $350 million) from the German government for an equity stake. That deal gave the government 23% of CureVac — an implied valuation under $1.6 billion.
CureVac now has a market capitalization near $11 billion. That’s an enormous leap in literally a matter of weeks.
Don’t Ignore Competitors
If CureVac comes up with a vaccine, that $11 billion figure might seem cheap. Then again, it might not.
It bears repeating: there are dozens of companies racing to develop a vaccine. The sheer amount of resources, in terms of both cash and manpower, being exerted suggests it’s unlikely that only one company is successful.
And that in turn means that the winners aren’t necessarily going to garner windfall profits. Competition will have a say. Even that ignores the fact that political pressure likely requires pricing to be reasonable in developed countries, and minimal in the developing world.
Again, CureVac doesn’t necessarily have to garner $11 billion in profit (or more) from its coronavirus vaccine. Success with the candidate would suggest (though not prove) that the rest of its pipeline has real value as well.
But the massive pop since the IPO incorporates a good chunk of that value — and a high probability of vaccine success. The CVAC story is good. I’m not just not sure it’s quite this good.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
Matt McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
