COVID-19 pills are going to be a big deal. Even though healthcare professionals aren't quite sure how these medications will be used yet, Wall Street already expects Merck's (MRK 0.44%) and Ridgeback Biotherapeutics' oral antiviral drug molnupiravir, which produced stellar late-stage results last week, to generate sales in excess of $5 billion. That revenue forecast, however, may be drastically too low. There are scores of individuals in the U.S. who would likely prefer an oral medication compared to a vaccine, and pills can be manufactured and subsequently shipped globally far more easily than most vaccines.
Which other companies are developing an oral COVID-19 antiviral pill? Atea Pharmaceuticals (AVIR 0.54%) is working with Roche on a pill that would treat people with active COVID-19 infections, as well as serve as a preventative measure for people exposed to the virus. This drug, known as AT-527, is slated to produce top-line data within the next few months.
Pfizer (PFE 2.40%), on the other hand, is developing both an intravenously infused antiviral medication and an orally administered pill. Pfizer currently has three phase 2/3 trials underway to evaluate the orally administered antiviral candidate called PF-07321332.
Which of these COVID-19 pill makers should investors consider buying? Let's break down the pros and cons of owning each of these pharma stocks.
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Merck: Growth, income, and value
Merck has tacked on over $20 billion in market capitalization since reporting molnupiravir's top-line data less than five days ago. Even so, the big pharma's stock may still be undervalued. Thanks to its top-selling cancer drug Keytruda and now this major foray into COVID-19 with molnupiravir, Merck's shares might be trading at less than 3.5 times 2022 sales. That's not an outrageously low valuation, but it also isn't a valuation that screams "overvalued." There are a surfeit of dividend-paying healthcare stocks, after all, that sport forward-looking price-to-sales ratios of well over five.
In addition, Merck offers investors a top-notch shareholder rewards program. At present, the healthcare giant yields an annualized dividend of 3.2%, which is about average within its big pharma peer group. Last May, the company also restarted its share repurchase program, which was previously suspended due to COVID-19. During its last quarterly report, Merck noted that it had approximately $5.6 billion remaining under its repurchase authorization program.
What's the downside? While this blue chip pharma stock will still probably perform well in 2022 and beyond, the bad news is that its shares have already jumped quite a bit on the molnupiravir catalyst. The drug isn't even approved yet, and the market has already richly rewarded Merck for this encouraging result. In other words, this top pharma stock doesn't come across as the best pure-play COVID-19 pill stock -- at least not anymore.
Pfizer: Making up for lost ground
Pfizer and partner BioNTech will likely sell close to $33 billion in COVID-19 vaccines this year. While that's an awe-inspiring number, it does pose a significant threat to Pfizer's near-term outlook. Pfizer, in effect, is almost certainly going to see a large chunk of those vaccine sales evaporate over the next 24 months. Moreover, the drugmaker doesn't have anything else in its pipeline -- perhaps outside of these antiviral COVID-19 meds -- that can truly offset potentially tens of billions in lost revenue.
What does Pfizer offer to investors besides the monstrous prospects of PF-07321332? Like Merck, Pfizer is prized for its outstanding shareholder rewards. The company pays an annualized dividend of 3.68%, which is slightly above average for a large-cap pharma stock. What's more, the drugmaker expects to spend over $5 billion in share repurchases under its current program.
Is Pfizer the right stock for this pill-centric investing theme? Pfizer has a knack for developing important new drugs in record time. That fact bodes well for the company's oral COVID-19 pill pipeline. Unfortunately, it's not altogether clear how much longer Pfizer has before it will have to contend with the vaccine sales cliff. So, even with a blockbuster COVID-19 pill on the market, the drugmaker may still see its top line move in the wrong direction in 2022 and beyond. Therefore, Pfizer's stock is unlikely to get much of a boost from positive trial results in the oral COVID-19 space.
Atea: Risky, but a potential hidden gem
Atea and Roche are racing to get their oral COVID-19 pill, AT-527, to market as soon as possible. As things stand now, Atea and Roche's AT-527 stands to be either the second or perhaps third oral medication on the market.
The main selling point for investors is that this drug ought to easily generate hundreds of millions in sales (if not billions), even as a third option in key markets like the United States. Atea's stock, in turn, would likely skyrocket on a positive late-stage trial result for AT-527. Underscoring this point, the company's market cap is presently under $4 billion. Several hundred million in annual sales would be a game changer for this biotech.
What's the potential risk? Atea is a clinical-stage biotech with zero revenue-generating products. What's more, AT-527 is not guaranteed a positive result in any of its ongoing trials. What this all means is that Atea's shares would likely crumble on negative trial data for AT-527 -- or if the data do not appear to compare well to those from Merck's rival medication.
So, if you're looking for the vehicle with the highest upside potential from a COVID-19 oral medication, Atea's stock is probably your best bet. That said, this small-cap biotech is also far riskier than well-established pharmas like Merck and Pfizer -- both of which offer sizable share repurchase programs, regular dividend payments, and entire pipelines of approved products to their shareholders.
