COVID-19 Windfall Will Help Pfizer Remain Top Drug Company
Pfizer splits earnings on the vaccine evenly with BioNTech
Executive Summary
Pfizer said it expects its COVID-19 vaccine to generate $15bn in 2021, but the forecast appears to be an underestimation as it includes only contracted doses.
Pfizer Inc. said it expects its COVID-19 vaccine to generate $15bn in 2021, but the forecast appears to be an underestimation as it includes only contracted doses.
Pfizer released its first financial forecast for its COVID-19 vaccine during its fourth quarter and full year 2020 earnings report, and at $15bn for 2021, it is a striking revenue prediction for a product that didn't even exist a year ago.
Pfizer shares profits for the mRNA vaccine evenly with its partner BioNTech SE, which will halve the amount it earns, but the forecast appears to be a significant underestimation as it accounts only for the doses that have already been contracted with governments and not the full two billion doses Pfizer believes it can produce this year. Pfizer did not disclose the number of doses the forecast is based on but said it would update investors in future earnings updates as more doses are contracted.
Investors have expected the vaccine to be a multi-billion business opportunity, but it has been difficult to account for because of the uncertainly of the long-term trajectory of vaccines and the pandemic.
"We try not to give a low expectation. We try to give a responsible expectation," CEO Albert Bourla said of the vaccine forecast during the company's fourth quarter sales and earnings call on 2 February. "We have a formula that we've tried to implement in a responsible way that takes into consideration the contracts that we have, the potential for future contracts." But the forecast also tries to account for the dynamic situation, he said, including potential political pressure and competition from other vaccine manufactures.
Bernstein analyst Ronny Gal, in contrast, models 2021 revenues of BNT162b2 at $21bn and called his estimate "reasonably conservative."
As of 31 January, Pfizer has supplied 65 million doses globally, 29 million of which have been supplied to the US government. The company said it will be able to deliver 200 million doses to the US by the end of May, earlier than expected.
Pfizer broke the vaccines reporting out from the base business for clarity. Adjusted income before tax margin for BNT162b2 is expected to be in the high 20s as a percentage of revenues.
Pfizer also laid out full company guidance for the year reflecting revenues of $59.4bn-$61.4bn, which at the midpoint represents 44% growth over 2020 revenues of $41.91bn. Excluding the COVID-19 vaccine, the midpoint of the revenue guidance would show 6% operational growth compared to 2020.
This is also the first year Pfizer will operate as a smaller biopharma, after spinning out its Upjohn established products business into Viatris Inc. with Mylan late last year. (Also see "Viatris Plots ‘Significant’ Restructuring As Mylan-Upjohn Merger Completes" - Generics Bulletin, 16 Nov, 2020.) Powered by the financial strength of its COVID-19 vaccine, Pfizer is now solidly poised to hold onto its ranking as the world's largest pharmaceutical company based on pharma revenues in 2021, despite the spinout, which would have resulted in a much slimmer company that would have likely ranked behind rivals like Novartis AG or Roche Holding AG.
Uncertainty Lingers
Despite the fact that Pfizer, with BioNTech, was the first to get a COVID-19 vaccine authorized for emergency use by the US Food and Drug Administration in December and has been able to commit to producing two billion doses this year, the company's efforts haven't yielded the recognition it would like to see on Wall Street. The company's stock opened at $35.76 on 2 February, about exactly where it was trading one year ago.
"I don't think we are receiving a lot of credit, not for the vaccine right now," Bourla said, responding to an analyst question about the company's valuation. Even excluding the impact of the COVID vaccine, he said the base business deserves a higher valuation than it has gotten. Investors, however, have had a lackluster view of Pfizer's near-term growth prospects in the current portfolio and pipeline.
They are unsure how to factor in what could be a one-time commercial opportunity in a widespread global vaccination strategy against COVID-19. There are no comparisons. The most similar launch trajectory for a drug with an enormous bolus of patients awaiting treatment could be Gilead Sciences, Inc.'s Sovaldi (sofosbuvir) and Harvoni (ledipasvir/sofosbuvir) for hepatitis C. Sovaldi generated $10.28bn in its first full year in 2014 and Sovaldi and Harvoni together generated $19.14bn in 2015, before sales of the franchise began a continuing decline in 2016 as the market matured – leaving Gilead scrambling to fill that void.
Among the many questions around the long-term trajectory for COVID-19 vaccines is how the SARS-Cov-2 virus might mutate to escape immunity and whether or not regular booster shots or changes to the vaccine will be required. Another uncertainty is the number of competitors that will ultimately reach the market. Pfizer/BioNTech and Moderna, Inc. were the first to reach the market, both with mRNA-based vaccines, but new vaccines from AstraZeneca PLC/Oxford University, Johnson & Johnson and Novavax, Inc. are expected to become more widely available in 2021. (Also see "Coronavirus Update: Novavax Vaccine Shows High Effectiveness Against Variants" - Scrip, 29 Jan, 2021.) and (Also see "J&J’s One-Shot Vaccine Shows 66% Efficacy, But Company Says There’s More To It" - Scrip, 29 Jan, 2021.)
Pfizer believes the business will remain durable for some time, especially as the company looks to leverage its learnings in mRNA with the COVID-19 experience to other flu vaccines and applications. Bourla said Pfizer is accelerating the development of mRNA-based flu vaccines and other programs.
"I believe that our business excluding COVID is very robust with a robust pipeline, but I think COVID has a very good chance that could completely transform the revenue and earnings trajectory of this business starting from now," Bourla said.
A Booster For Variants
Pfizer, like Moderna, has said it believes its vaccine can effectively neutralize two variants of SARS-Cov-2 that have emerged recently, B.1.17 from the UK and B.1.531 from South Africa. In vitro data from Moderna, however, showed a six-fold reduction in neutralizing antibody titers against the B.1.531 variant compared to the original strain. (Also see "Moderna Takes The Lead With Plan To Tackle New COVID-19 Variants" - Scrip, 26 Jan, 2021.) Moderna also announced a two-pronged approach to addressing the challenge posed by variants: begin testing a third booster dose of its COVID-19 vaccine and a tweaked version of the vaccine to specifically address the B.1.531 variant.
Pfizer president-worldwide R&D Mikael Dolsten said the company is also starting a trial to test a booster dose of its existing vaccine after six months, noting that it may very well be possible that a booster will be sufficient to keep antibody levels high enough to protect against existing variants.
Some investors have wondered if Pfizer, having now experienced success with BioNTech's mRNA platform, might try to buy out its partner.
Bourla said the company's plans for using its cash remain unchanged, despite the windfall from COVID-19. "While the COVID-19 vaccine has created a new cash flow stream, there is no change in our capital allocation priorities," he said. "We remain focused on growth initiatives and the growing dividend."
Bourla has previously reaffirmed the company's interest in buying mid-stage assets that are Phase II or Phase III ready, and in the company's current therapeutic areas of focus.
The vaccine did not contribute meaningfully to Pfizer's fourth quarter or full year 2020 revenues, having contributed only $154m in sales in the fourth quarter. Pfizer reported 2020 revenues of $41.91bn, reflecting 2% growth, excluding Upjohn. Net income was $9.62bn, a decline of 41%.