Nucleic acid vaccines, which are either DNA- or RNA-based, hold significant promise in the fight against COVID-19. Pharma giant Pfizer (NYSE:PFE) and clinical-stage Moderna (NASDAQ:MRNA) are the most prominent names involved in the development of messenger RNA (mRNA) coronavirus vaccine candidates.
Timeline-wise, these two companies' products will probably enter the market close on each other's heels, meaning they will likely be battling for first-mover advantage and wrestling over market share. However, this is not a fight among equals -- Pfizer already enjoys an upper hand thanks to its solid clinical and commercial execution capabilities. This could be an important competitive advantage, considering that the vaccine candidates will secure emergency use authorizations (EUAs) from the U.S. Food and Drug Administration (FDA) based on limited data.
A promising coronavirus vaccine candidate
Pfizer has partnered with Germany-based BioNTech (NASDAQ:BNTX) to develop an mRNA vaccine candidate called BNT162b2. The companies have reported encouraging safety and immunogenicity data from the ongoing phase 1 trial, with the results suggesting that a two-dose BNT162b2 regimen has an excellent safety and tolerability profile. Data from the phase 1 trial has also shown that BNT162b2 administration brings an increase in the types of T-cells that help produce antibodies and fight viral infections.
Increased T-cell activity is a big deal, as these cells are a part of the body's adaptive immune system -- a system that remembers, learns, and is involved in eliciting long-term, specific immune responses against foreign bodies.
To date, BNT162b2 is the only coronavirus vaccine candidate that has managed to elicit a confirmed and strong T-cell response in human trials. Further, this investigational vaccine has also been associated with an increased number of a particular type of T-cells that appear to provide higher protection against germs. Multiple research reports have shown a connection between T-cell immune response and long-term protection from COVID-19.
Pfizer and BioNTech have completed enrollment of approximately 11,000 out of the 30,000 participants needed for the pivotal phase 2/3 trial. Enrollment may be complete by the end of September, with early data ready by mid-September and full data available by mid-October. The FDA vaccine advisory committee is set to meet Oct. 22, and Pfizer's timeline makes it well-positioned for a potential EUA.
Pfizer has already landed some big supply deals
Pfizer is one of eight companies engaged in the development of potential COVID-19 vaccines to benefit from Operation Warp Speed funding from the U.S. government. In July 2020, Pfizer and BioNtech entered into an agreement with the U.S. Department of Health and Human Services (HHS) and the Department of Defense (DoD) to supply the first 100 million doses of a COVID-19 vaccine for $1.95 billion. The U.S. government also has the option to acquire an additional 500 million doses. The deal is subject to Pfizer and BioNTech securing full approval, or at least an EUA, from the FDA and being able to manufacture the required number of doses.
In July 2020, Pfizer and BioNTech also forged agreements with the U.K. and with Japan's Ministry of Health, Labour, and Welfare (MHLW) to supply 30 million doses and 120 million doses, respectively, of the COVID-19 vaccine (subject to clinical and regulatory success). The companies have also expressed interest in supplying vaccines to the Covax facility, which is a sort of insurance policy for global vaccine distribution coordinated by vaccine alliance Gavi, the World Health Organization (WHO), and others.
Pfizer and BioNTech are preparing to manufacture up to 100 million doses by the end of 2020 and 1.3 billion doses by end of 2021. Pfizer has identified three of its U.S. sites and one site in Belgium for manufacturing the vaccine. BioNTech is also working to increase vaccine manufacturing capacity at two of its production sites. Since BNT162b2 will be manufactured mostly in-house, we can expect fewer supply disruptions and better quality control.
More than $2 billion in revenue is possible in 2021
If it is authorized by the FDA, sales of BNT162b2 will peak during the pandemic, which may well last throughout 2021 and even into the early months of 2022. After that, Pfizer expects the vaccine to earn a regular stream of revenue thanks to repeat vaccinations over multiple years.
I estimate that BNT162b2's peak sales could reach $2 billion by 2021. I've taken a conservative stance to account for the high level of uncertainty in the COVID-19 vaccine development space.
|Area||Total population||Addressable population||Price per patient||Market share||Total sales|
|Developed Markets||1.3 billion||50%||$39||6%||$1.52 billion|
|Developing Markets||6.3 billion||20%||$20||2%||$0.50 billion|
Recent polls suggest that only half of the population in developed markets such as the U.S. and the U.K. plan to get vaccinated when a coronavirus vaccine becomes available. Using the price of $19.50 per dose as a benchmark for developed markets, we come at total spending per patient of $39 for this two-dose regimen.
Pfizer currently accounts for a 13% share of the global vaccine market, and I think the company can leverage this infrastructure to capture at least 6% of the coronavirus vaccine market in the developed world. This gives us a conservative sales estimate of about $1.52 billion.
Developing markets have a much lower per capita income than developed countries, so my sales estimate for BNT162b2 in those markets is only $500 million, despite the much higher total population. These markets also have a lower addressable population, and they pose several challenges related to pricing, logistics, and access. mRNA vaccines have to be stored at ultra-cold temperatures, and the infrastructure required during distribution and administration will be a major constraint for the wide-scale adoption of mRNA vaccines in developing countries.
In the long run, the COVID-19 vaccine market will have room for many players. Superior efficacy and safety profiles will determine which vaccines stay in the market. For now, we may not see much difference in vaccine data sets, considering the ultra-tight timelines, which is why Pfizer's commercialization capabilities will be of extreme importance in the short run.
There are glitches in Pfizer's coronavirus game plan
All that said, there's no guarantee of success. BNT162b2, although promising, is based on a commercially unproven technology platform. Pfizer is also planning to use shipping containers containing dry ice to transport the vaccine. However, Moderna is going one step further, trying to demonstrate the stability of its mRNA vaccine candidate, mRNA-1273, in normal refrigeration temperatures. If Moderna is successful, it could prove disastrous for Pfizer's ambitions.
Investors need more than just a coronavirus vaccine program
Thanks to its broad diversification, there is much more to Pfizer beyond the potential coronavirus vaccine. As the largest pharma company in the world, its product portfolio targets multiple therapeutic areas, and it has a broad presence across geographies. Ibrance (for breast cancer), Xeljanz (for arthritis), Eliquis (which treats blood clots and stroke), and Prevnar 13 (which vaccinates against pneumococcal pneumonia) are its major blockbuster assets.
The spinoff of Pfizer's Upjohn generics business to Mylan (NASDAQ:MYL) is scheduled to close by the end of 2020. Although it may be a drag on cash flows in the short run, the deal will help Pfizer to jettison its lower-margin products and position itself as a high-growth biopharmaceutical company. Pfizer also pays a healthy dividend yield of 4%, well above the S&P 500's average of about 2%.
Investing in coronavirus vaccine plays has become increasingly speculative. Pfizer, however, offers a favorable risk-reward proposition, and for healthcare investors keen to participate in this vaccine game, it would be a smart buy today.