Pfizer: Upside From COVID-19 Vaccine Could Dissipate (NYSE:PFE)


Source: Barron Source: Barron’s

The global economy has been upended by the knock-on effects of the coronavirus. Shelter-in-place policies have been employed to combat the pandemic. Nothing short of an effective vaccine would save the global economy. In a shot heard around the world, Pfizer (PFE) announced earlier this month that its vaccine was highly effective at treating COVID-19. Global markets shot up. The latest clinical trial suggested the vaccine, developed with BioNTech (BNTX), is 95% effective:

“The COVID-19 vaccine in development by Pfizer and BioNTech is 95% effective, according to the final clinical trial data. And application for emergency authorization with be submitted “within days”. In the trial with 44K participants, the vaccine protected patients and showed no significant safety problems. It was 94% effective in those over 65 years old.”

The news sent stocks of certain retailers and vaccine-levered stocks like General Electric (GE) much higher. The sooner the economy reopens, the sooner businesses can reopen, economic activity can return to normal and millions of Americans can return to work. Certain retailers have had to raise debt to fund cash burn while stores have been closed or operating at less than capacity. Earnings of companies related to travel, transportation and leisure have been decimated. A lot is riding on an effective vaccine from Pfizer, Moderna (MRNA) or others.

Potential Impact On Pfizer

The question remains, “What does a vaccine mean for Pfizer and its outlook?” SVB Leerink analyst Geoffrey Porges estimates the vaccine could generate $4.6 billion in 2021, declining to $2.8 billion by 2023:

“Pfizer’s early COVID-19 vaccine data have spurred intense hope about quashing the pandemic and lifted expectations for other vaccine programs in the works. And for the drug giant specifically, some analysts are predicting billions in sales for the shot for years to come.

In a note to clients Tuesday, SVB Leerink analyst Geoffrey Porges said the results should “boost confidence of the general public in COVID vaccines, which should drive up the early adoption rate.” The analysts see Pfizer’s vaccine snagging all of the early share of the market and generating $258 million in the fourth quarter of 2020.

Next year, though, the analysts see the rollout really taking off. They’re projecting the shot will reel in $4.6 billion in 2021. Though expectations decline to $2.8 billion by 2023, Porges figures the vaccine will still be pulling in $1.2 billion to $1.6 billion in annual sales from 2026 through 2029.”

Pfizer is a rather large biopharmaceutical company, so revenue from a vaccine may not have a sizeable impact over the long term. In Q3, Pfizer generated $12.1 billion in revenue, down 4% Y/Y. Of that, Upjohn was $1.9 billion, down 19% Y/Y. Pfizer recently spun off Upjohn into a merger with Mylan to form Viatris (VTRS); Pfizer will own 43% of Viatris post-deal.

Ex-Upjohn, Pfizer’s Q3 revenue would have been $10.2 billion, up 3% Y/Y. Assuming the COVID-19 vaccine generated $4.6 billion this year (nearly $1.2 billion quarterly), it would represent about 10% of Pfizer’s proforma revenue of $11.4 billion.

Pfizer Q3 2020 proforma revenue. Source: Shock Exchange Source: Shock Exchange

The $4.6 billion annual revenue run-rate for the vaccine would be a best case scenario, given that it could fall to $2.8 billion by 2023. Including Moderna, other competitors will likely emerge for a COVID-19 vaccine. If their efficacy does not match Pfizer’s, then they may have to offer their product at discount prices. Pfizer will have a first mover advantage, yet prices would likely decline as more entrants move into the space.

Pfizer ex-Upjohn. Source: Shock Exchange

In Q3, Pfizer’s actual revenue ex-Upjohn was up 3% Y/Y. Oncology was the largest segment and its second-best performer with revenue up 17%. The Rare Disease segment grew revenue 25%. Within Rare Disease, Vyndaqel/Vyndamax generated revenue of $351 million, up 125%. Revenue from biosimilars rose 80% on the strength of oncology biosimilar launches of Ruxience (Non-Hodgkin’s Lymphoma), Zirabev (Metastatic Colorectal Cancer) and Trazimera (Adjuvant Breast Cancer).

Pfizer reported EBITDA of around 24% in Q3. Its revenue growth and margins could improve after hiving off Upjohn, which would represent over half of Viatris’s revenue. Pfizer would own 43% of a much larger entity, so it would potentially benefit from the scale Mylan brought to the table. Pfizer could also potentially reduce certain corporate overhead costs from no longer having to manage Upjohn.

PFE trades at around 25x earnings and has likely benefited from the melt-up in broader markets as well. The company paid $6.3 billion in dividends through the first nine months of the year and has a dividend yield of just under 4%. The company could benefit from efficiency gains pursuant to its stake in Viatris. At this point, the stock appears to be more a dividend yield play than a growth story. Pfizer should get an initial bump in revenue from the COVID-19 vaccine, but those revenues are expected to decline over time.

Conclusion

Upside from Pfizer’s COVID-19 vaccine is likely priced in. PFE is flat Y/Y. I rate the stock a hold.

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Disclosure: I am/we are long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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