Month: March 2022

Reading the Pfizer annual reports and browsing their website triggered my curiosity about the links between Pfizer, BioNTech and the Bill & Melinda Gates Foundation (BMGF). Dr. Susan Desmond-Hellman, a Pfizer non-executive director, proved to be an important link between Pfizer and BMGF. She was president of Product Development at Genentech between 2005 and 2009. Genetech is a biotech company owned by Roche which seeks to discover and develop groundbreaking medicines for life threatening diseases. Dr. Desmond-Hellman subsequently became CEO of BMGF until 2020 when she stepped down to join the Pfizer board.

BioNTech is a German based biotechnology group which focuses on developing immunotherapies for cancer and other diseases. It was founded in 2008 by the husband and wife team of Professor Ugur Sahin and Dr. Ozlem Tureci and backed by the Strugmann brothers. The latter are serial entrepreneurs who have built and sold numerous pharmaceutical companies and made billions in the process.

BioNTech is Pfizer’s partner in developing the COVID-19 vaccines, each party receives 50% of this vaccine’s revenues. BioNTech had been working on various mRNA therapeutics for years and had a relationship with Pfizer since 2018, developing a flu vaccine for them. Pfizer and BioNTech started working on a COVID-19 vaccine in January 2020, way before us mere mortals knew about a once in a lifetime pandemic. By April 2020, Pfizer had agreed to fund 100% of the development costs of the BNT162 vaccine program to prevent COVID-19. Pfizer astonishingly committed up to US$748 million to this vaccine development whilst BioNTech had no liability to contribute or repay any of the funding in the event that the vaccine was unsuccessful. If the vaccine was successful, BioNTech agreed to repay 50% of the development costs out of its share of vaccine revenues. Pfizer initially paid US$185 million to BioNTech which included subscribing for BioNTech shares to the value of US$113 million. Those shares are currently worth US$326 million, not a bad return over two years.

BioNTech’s major shareholders are the Strugmann brothers through their investment vehicle AT Impf GmbH (47.3%) and Professor Ugur Sahin (17.3%). BioNTech shareholders have been very patient, watching the company clock up significant losses over the years but their patience has been rewarded with BioNTech’s current market capitalization of US$33 billion on Nasdaq.

Reviewing the above table, a couple of things may be evident:

• The majority of BioNTech’s revenue pre 2021 (December year-end) was derived from Pfizer and Genentech
• The German government advanced €239 million in 2020 and €89 million in 2021 to BioNTech to develop a COVID-19 vaccine
• BioNTech is due to release its audited results for FY2021 on 30 March 2022. Year-to-date operating profit for the 9 months ended 30 September 2021 was €10.6 billion, a massive turnaround from losses in prior years

The stock market is clearly skeptical about the sustainability of BioNTech’s profitability. A market capitalization of US$33 billion versus operating profit of US$11.6 billion? Seems a very low earnings multiple.

BMGF entered into an agreement with BioNTech in August 2019 for them to develop immunotherapies for the prevention and treatment of HIV, TB and infectious diseases. To seal their relationship, BMGF acquired ±3 million BioNTech shares for US$55 million. So the circle is complete, ex BMGF CEO (having previously worked with Genentech) joins Pfizer board in 2020, BioNTech collaborates with Pfizer to develop a COVID-19 vaccine in less than a year, BioNTech is in cahoots with BMGF and Genentech. Happenstance?

I suddenly remembered that BMGF was the second largest contributor to the WHO in 2020. How eerie is that?

I tend to avoid conspiracy theories, but I am left wondering about BMGF’s involvement with all these COVID-19 role players. Are you aware that the John Hopkins Center for Health Security, in partnership with the World Economic Forum and BMGF, hosted a high-level simulation exercise for pandemic preparedness and response in New York on 18 October 2019? Too many coincidences me thinks.

Stay safe and all the best from BeechieB.

I am a numbers man. I love scrolling through annual reports and analyzing the financial performance of companies, from Apple Inc. to my clients. USA annual reports are so much easier to analyze since they don’t follow all these incredibly complicated international financial reporting standards (IFRS). Those rules are going to be the death of the chartered accounting and auditing professions! Apple Inc. has a September year-end and in 2021 it managed to release its audited results by 28 October 2021. Can you South African accountants and auditors imagine that? Anyway, I have been waiting for Pfizer’s 2021 annual report (December year-end) to jump into their numbers. Most of you would have heard of Pfizer. They are those guys who have been manufacturing and selling a whole bunch of drugs since 1849 and famously little gems like Viagra. They also produced and sold 2.2 billion COVID-19 vaccines in 2021.

I downloaded their annual and financial reports for the financial years (FY) ended 31 December 2016 through FY2021. What a treasure trove of information these contained. Pfizer’s total revenue had been stagnating until FY2021. These pharmaceutical giants like doing deals, buying and selling companies and acting as if their main business is mergers & acquisitions. Perhaps Pfizer had been selling more than buying recently? And then came the COVID bonanza.

Pfizer, in collaboration with BioNTech, started jointly developing a vaccine to save us from COVID-19 in January 2020. They obviously knew something the rest of us didn’t since the WHO only declared a global pandemic on 12 March 2020. Pfizer worked at lightening speed and managed to get the Food and Drug Administration’s (FDA’s) approval for the emergency use of their Comirnaty vaccine in December 2020. What a boon that proved to be as their COVID-19 vaccine sales of USD36.8 billion represented 45% of their total revenue in FY2021.

The above chart depicts Pfizer’s stagnating revenue until FY2021. Revenue in FY2020 was USD41.9 billion, in 2021 it increased by 94%. Not too shabby at all. And there is more good news to come since management are forecasting to produce 4 billion COVID-19 vaccines in 2022. They also have a new oral COVID medication called Paxlovid coming onto the market, having received FDA emergency use approval in December 2021. December seems to be a very good month for them. Management are optimistic that Paxlovid will deliver USD22 billion of revenue for the group in FY2022.

I have analyzed Pfizer’s financial performance in some detail – here is the link to my Excel spreadsheet Pfizer analysis (Feb 2022). For those of you who have never inspected these pharmaceutical companies’ financial results, their margins are staggering. Pfizer’s average gross profit margin for the 5 years prior to FY2021 was 78.8%. In layman’s terms that means manufacturing a drug for USD21.2 and then selling it for USD100. These groups claim that they incur significant research & development expenditure to develop, patent and then get products to market and hence, the need for high margins. Um well, they still consistently make enormous profits. Refer below for Pfizer’s earnings before interest, taxation, depreciation and amortization (EBITDA) for the past 6 years.

Eish, that’s an average EBITDA/revenue margin of 41.6% over the past 6 years. Sounds like a good business to be in.

Pfizer has some concentration risks – two of its vaccines (Comirnaty and Prevnar) represented 52% of total revenue in FY2021 and its top 10 products made up a staggering 76% of sales. At any good business school, they would teach you that over-reliance on too few products or customers may be a very bad thing. Apple Inc. has ignored that advice for years as its iPhone sales have consistently represented more that 50% of total revenue.

The stock market’s rating of Pfizer has been interesting. Its share price was USD36.81 at 31 December 2020 and increased to USD59.05 a year later. That’s a tidy 60% return. It has since retreated to USD48.65 as of 4 March 2021.

There is all sorts of speculation about the efficacy and side effects of the Pfizer vaccine, so expect share price volatility for a while. But with significant growth in revenue and profits expected in FY2022, it should be smelling like all roses?

As an aside, Dr. Susan Desmond-Hellman, is a non-executive director of Pfizer. She was the Chief Executive Officer of the Bill & Melinda Gates Foundation from 2014 to 2020, and remains a senior advisor and board member of the Foundation. She joined the Pfizer board in 2020, so coincidental. She has also been a non-executive director of Facebook (2013 to 2019) and Proctor & Gamble (2010 to 2017). So, Dr Desmond-Hellman has experienced some interesting times in corporate America.

A follow up blog post will be out later next week. Be safe and take care. We live in interesting times. All the best from BeechieB.