Merck (MRK 2.93%) and partner Ridgeback Biotherapeutics soon may bring a game-changing product to market. The companies last week announced positive results from a clinical trial testing their investigational pill to treat coronavirus. If authorized, it would be the first oral treatment for the illness.
This is great news for the companies and for the general public. But shares of vaccine makers like Moderna (MRNA -2.45%), BioNTech (BNTX -1.57%), and Novavax (NVAX -4.82%) tumbled on the news. Investors are worried that an efficacious treatment may mean less need for coronavirus vaccines. But is this true? Could Merck's win equal a revenue loss for the vaccine makers?
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Reducing the risk of death
First, let's take a look at Merck's news. In a phase 3 trial, the company's molnupiravir reduced the risk of hospitalization or death by 50%. Of patients who received molnupiravir, 7.3% were hospitalized through day 29 post-treatment. Of patients who didn't receive the investigational antiviral, 14.1% were either hospitalized or died. The study included non-hospitalized, at-risk patients with mild-to-moderate COVID-19. Merck plans on applying for emergency authorization in the U.S. and other countries as soon as possible.
Now, let's have a look at the concerns that sent Moderna, BioNTech, and Novavax shares down more than 15%, 8%, and 14%, respectively, in two trading sessions.
Investors worry that if a pill can easily treat COVID-19, people won't be so quick to go out and get an annual vaccine. Biotech stocks suffered in particular because these companies depend on vaccine revenue. A diversified big pharma company like Pfizer doesn't.
I think the concerns are overdone for a couple of reasons. Merck's investigational pill produced solid results. If authorized, it's sure to be a key element in fighting the coronavirus. But it doesn't replace prevention. Risk of falling seriously ill still remains. It's just as important to get a vaccine today as it was six months ago.
And that leads me to my next point. I'm not expecting governments and health authorities to change their vaccine policies anytime soon. Considering the length and depth of the pandemic, it's likely governments will continue to recommend annual coronavirus vaccination, like the flu shot. In the U.S., about 55% of people got their annual flu shot last season -- and the flu is not a pandemic situation.
55% of Americans are vaccinated
Today, about 55% of Americans are fully vaccinated against the coronavirus. This level of vaccination may continue if people think COVID-19 represents at least the same danger as the flu. As long as about half of the U.S. population seeks vaccines, orders will generate billions for vaccine makers.
For instance, more than 68 million Americans have received two doses of the Moderna vaccine. The vaccine ranges in price from $15 through $37 per dose in most cases. Even at the lowest price, doses to cover that many people equal more than $2 billion in sales. And this doesn't include revenue generated outside of the U.S. So, if COVID-19 is treated like the flu, the coronavirus vaccine may make billions in the future.
Also, it's important to keep in mind companies have secured advance purchase agreements with countries well beyond this year. For example, the Pfizer and BioNTech team agreed to delivery 1.8 billion doses to the European Union through 2023. As a result, vaccine sales aren't likely to immediately drop.
An impact on sales?
So, does all of this mean Merck's potential pill won't have any impact on vaccine sales? No. The availability of new treatments probably will make it even more difficult to convince those who are hesitant about vaccines to get the jab. And if countries see a certain percentage of the population refuses to opt for a vaccine, they'll take that into consideration when making future vaccine orders. At the same time, vaccine makers may gain sales in new areas, such as COVID-19 vaccines for kids or combined flu/coronavirus shots. Moderna and Novavax are both working on combined vaccine candidates right now.
And as I always say, you shouldn't invest in a company just because of one product. If you buy shares of Moderna, for example, it's best to do so with a belief in the coronavirus vaccine program and confidence in the company's pipeline of potential products.
All of this means we should monitor future orders and use of coronavirus vaccines. But we shouldn't fear possible sales declines. Experts say the coronavirus will remain around for a while. If it takes the same route as the flu, vaccine companies may have plenty of billion-dollar years ahead. And if we believe in the rest of a company's pipeline and invest for the long term, other revenue drivers might be ahead as well.
