The COVID-19 vaccine has proven to be big business for biotechnology companies Moderna and Pfizer (PFE -0.33%), which have administered the majority of doses in the U.S. with their mRNA vaccines. But while Moderna gets a ton of hype, Pfizer may be the better-positioned company moving forward. Here are four reasons why Pfizer could be the best vaccine stock to own.
1. Pfizer is the vaccine leader
In 2020, when drug companies were racing to develop a vaccine for COVID-19, certain companies like Johnson & Johnson used traditional vaccine techniques, where a piece of the virus is introduced into the body to stimulate the production of antibodies that fight the virus if the real one arrives.
Pfizer and Moderna used new mRNA technology for their COVID-19 vaccine, which delivers a piece of "code" to the body's cells, instructing the body to build the "spike" proteins that the virus has. These are only part of the virus, so they are not harmful to the body, and our immune system responds to this protein by building antibodies against it so when the real virus shows up, our bodies are ready for it. The mRNA technology is easier and faster to produce because it uses the RNA code for the spike proteins of the virus; traditional vaccines are made by essentially raising large amounts of the whole virus, then weakening it to be used in the vaccine.
Moderna and Pfizer's mRNA vaccines have made up more than 90% of doses administered in the United States. Pfizer also recently became the first company to receive full FDA approval for its COVID-19 vaccine.
The vaccine is becoming big business for Pfizer, which is now guiding for vaccine revenue in 2021 to be $33.5 billion. This is nearly 80% of the $41.9 billion in revenue Pfizer generated in total in 2020.
2. There is more to the company than its COVID-19 vaccine
However, unlike Moderna -- a young company that currently relies solely on COVID-19 vaccines for revenue -- Pfizer was already a titan of the industry before the pandemic. If we completely ignored Pfizer's COVID vaccine revenue, the rest of the company is still expected to generate 2021 revenue of $46.5 billion, an 11% increase from 2020, indicating that Pfizer's whole business is growing, and not simply riding the coattails of the COVID vaccine.
A number of Pfizer's existing products grew sales in the second quarter, including:
- Eliquis at $1.48 billion (up 13% year over year).
- Prevnar at $1.24 billion (up 9%).
- Vyndamax at $501 million (up 77%).
- Inlyta at $257 million (up 29%).
- Biosimilars at $559 million (up 88%).
Additionally, Pfizer now has a successful product using mRNA technology, which it can implement in future products across other diseases. It's currently researching additional uses for mRNA, including developing a new flu vaccine, and plans to research and eventually develop treatments in larger areas of medicine including immunology and internal medicine.
3. Flush with cash, Pfizer is making moves
While the COVID-19 vaccine could be seen as a necessity for society, that doesn't mean that Pfizer is delivering vaccines for free. Management hasn't disclosed the exact profit margin on the vaccine itself but has stated that its overall net profit margin (before taxes) is in the high 20% range.
Pfizer's cash position has grown considerably, to $21 billion in cash and short-term investments from roughly $12 billion at the end of 2020. Management is putting the cash from COVID-19 vaccine sales to use, recently announcing an agreement to acquire Trillium Therapeutics for $2.26 billion in cash. Trillium is developing immunology-based drugs for blood cancers, and the acquisition brings the long-term upside of these potential products to Pfizer. Management anticipates Trillium's pipeline could help the company starting in 2026 and beyond.
When drug companies get to be a certain size, it becomes easier to use their cash flow to acquire small, innovating companies rather than rely solely on their in-house development to bring products to market. Pfizer is at this point, and the influx of cash from the COVID-19 vaccine is helping to set up the company's long-term growth opportunities.
4. The stock is on sale
Pfizer's management is guiding for earnings per share of $4 for full-year 2021, which values its stock at a forward price-to-earnings ratio of 11.6. This P/E ratio is well below the forward-looking 22 that the S&P 500 currently commands.
Pfizer's leading position regarding the COVID-19 vaccine (with booster shots imminent), its existing pipeline, and future potential uses of its large balance sheet all combine to make this company seem like a solid bet to more than justify its current valuation over the years to come.
Here's the bottom line
Moderna gets most of the hype for its COVID-19 vaccine, but investors may do better holding Pfizer, a battle-tested industry veteran with new legs thanks to its own vaccine product. The company's balance sheet is now loaded with money, and it can invest in developing a long future of growth prospects. At the stock's current valuation, there is a lot to like here.