Of Highest-Earning Pharmas, Moderna Shares Have Suffered the Most

It is generally accepted that health care stocks are a good defensive play in a declining market. It does not matter how many Teslas you have in the garage, they are not going to help if you become sick.

For the purpose of this discussion, let’s narrow the focus to members of Big Pharma that are trading below their 52-week highs to uncover what could be potential value opportunities. The measure should not be considered a be-all, end-all for evaluation purposes, but merely one of many factors. After all, the drop in share price for these companies could be due to a myriad of reasons, among them reduced sales and earnings expectations, competition and the failure of once-promising drugs in clinical testing.

For the sake of brevity, we will consider the top 10 earning pharma companies in 2021.

Number six on the list is Moderna Inc. (MRNA, Financial), the Boston-area biotech that has become a household name for developing the Covid vaccine Spikevax. The company’s transformation has been monumental, going from a money-losing entity in 2020 to racking up earnings of $12.2 billion last year and recording the highest profit margin (66%) of any of the top 10.

Unfortunately for investors, the good times have come to a screeching halt. Moderna's stock has dropped precipitously in the past year, all the way from a high of near $498 to just over $127, giving the company the dubious honor of today selling at the lowest percentage of its 52-week high at 25%.

The primary reason for the sell-off is a projected steep decline in sales of the company’s Covid shot now that the percentage of people already vaccinated continues to climb. Revenue this year still looks good according to management, who have projected sales of $21 billion, but analysts think the number’s going to be half that, reported The Globe and Mail.

The success of Moderna in applying its mRNA technology to the vaccine gave the company a good boost, but investors are wondering what is next. While the company has some interesting products in the pipeline, none are expected to hit the market soon and when they do are not likely to be blockbusters. Moderna has a forward price-earnings ratio of a relatively low 5.43.

Not surprisingly, another Covid shot maker, BioNTech SE (BNTX, Financial), is trading at a huge markdown from its one-year high, 29.4%. The German biotech emerged from the shadows last year thanks to the jab it partnered on with Pfizer Inc. (PFE), recording net income of more than $12 billion, good for seventh place on the list.

Like Modena, BioNTech is pretty much a one-trick pony, as evidenced by the fact that nearly all its first-quarter 2022 revenue was generated by the company’s Covid vaccine. Perhaps indicative of the lack of confidence investors have in the company’s prospects is its forward price-earnings ratio of only 3.41.

At the other end of the spectrum are Johnson & Johnson (JNJ, Financial) and Merck & Co. Inc. (MRK, Financial), both trading at about 90% of their 52-week highs. Johnson & Johnson was the fourth-most profitable drug company in 2022 with a net income of nearly $21 billion, a jump of about 42% from the prior year. The world’s biggest health care conglomerate gets most of its sales (about 35%) from pharmaceuticals. Johnson & Johnson also has a Covid vaccine, but it never caught on and the company decided to exclude the product in revenue projections. The company has a forward price-earnings ratio of 16.66.

Merck’s net income of $12.35 billion was good for fifth on the list, but more than $700 million of that belonged to Organon, which officially spun out in June 2021 with Merck’s women’s health, biosimilars and established medicines businesses. Most of the company’s growth in revenue came from its cancer treatment Keytruda, which has overtaken Humira as the best-selling drug in the world, scoring sales of more than $17 billion last year.

As reported earlier this week, Merck said it could receive 80 approvals for its cancer drugs in the next six years. That comes on top of the 46 approved indications, most of which are for Keytruda. Merck’s dividend yields more than 3.25% and the company has a forward price-earnings ratio of 12.58.

Following is a list of the top-earning pharma companies in 2021 and what their shares are selling at relative to their 52-week high.