You don’t have to be an infectious disease expert to know that Moderna (NASDAQ: MRNA) is one of the leading companies in the development of a novel coronavirus vaccine. Moderna’s mRNA-1273 vaccine was shortlisted for the COVID-19 vaccine candidates that were to receive federal funding as part of Operation Warp Speed. The chief scientist of the World Health Organization, Soumya Swaminathan, believes that Moderna is close behind AstraZeneca in the race to develop a COVID-19 vaccine.
But while a lot of people have heard of Moderna, there is a lesser known company that is also intensely fighting COVID-1
“Picks and Shovels” for sale
It is sometimes said that the best way to get rich again in the days of the gold rush was to sell picks and shovels. Supporting gold miners was more lucrative than mining. You can think of Catalent as selling “Picks and Shovels” to the biopharmaceutical industry.
Catalent focuses on providing delivery technologies and development solutions for a wide range of pharmaceuticals, vaccines and consumer health products. The company helps pharmaceutical companies speed up the development process to get their products to market faster. And it’s involved in several stages of development, from preclinical testing to manufacturing.
How successful was Catalent’s business model? The numbers speak for themselves. The company has been involved in almost half of the FDA-approved new drugs in the past 10 years. Almost 73 billion cans are produced annually for almost 7,000 products. Catalent’s customers last year included 83 of the 100 largest branded medicines and 21 of the 25 largest generics manufacturers.
In fiscal 2019, Catalent had sales of over $ 2.5 billion with a profit of $ 137 million. The share price has more than doubled in the past three years.
Not surprisingly, Catalent has played a key role in the development of COVID-19 therapies and vaccines by drug manufacturers.
In late April, Johnson & Johnson tapped Catalent to manufacture its leading COVID-19 vaccine candidate. J&J plans to release its vaccine for clinical trials later this month. Just a few days later, Catalent announced a deal with Arcturus Therapeutics to make his COVID-19 vaccine candidate.
Small drug maker Spicona partnered with Catalent in June to develop a COVID-19 vaccine based on virus-like protein (VLP). Catalent uses its cell line development technology to produce the recombinant VLP for Spicona.
The two market leaders in the coronavirus vaccine race have also teamed up with Catalent. In June, Catalent inked signed contracts with AstraZeneca and Moderna to manufacture their respective COVID-19 vaccine candidates.
However, Catalent has not only attracted vaccine manufacturers. The company worked with Humanigen to support the late review of lenzilumab in the treatment of COVID-19 patients with pneumonia. In collaboration with Ennaid Therapeutics, a powder-in-capsule formulation of Ennaid’s antiviral drug ENU200 is being developed. Catalent also helps Biosig Technologies Subsidiary ViralClear develops oral dosage forms of the antiviral drug Merimepodib from ViralClear.
Better than moderna?
This flood of corona virus-related activities has helped Catalent’s shares to grow nearly 30% in 2020. However, this is much less impressive than Moderna’s nearly 200% growth. But could Catalent be the better stock in the long run?
The analogy to the Gold Rush Days is well worth considering. Picks-and-Shovels sellers made money regardless of whether gold was found or not. They came out better than the many gold miners who never discovered a significant amount of gold. But the miners who found an important source of gold became much richer than the sellers of picks and shovels.
If Moderna’s COVID-19 vaccine fails, the biotech stock will almost certainly underperform Catalent in the next year or two. Catalent will make money making Moderna’s COVID-19 vaccine, even if Moderna doesn’t make any money. And if Moderna’s other pipeline candidates are unsuccessful, you can be sure that Catalent will generate higher returns in the long run.
But it is quite possible that Moderna figuratively strikes gold. In this scenario, Catalent’s stock performance is nowhere near that of Moderna.
There are still many hurdles for Moderna’s COVID-19 vaccine. However, my guess is that biotechnology will succeed. While Catalent is definitely the less risky choice, I think Moderna will be the bigger winner in the next few years.