Last week, mega-cap Merck (MRK -0.11%) and privately-held partner Ridgeback Biotherapeutics gave the world a sigh of relief. In a press release about molnupiravir, the first-ever potential oral treatment for COVID-19, the $206 billion pharmaceutical company claimed the drug reduced harm caused by mild to moderate COVID-19 infections by nearly half.
In the four weeks after the initiation of treatment, death and hospitalization decreased from 14.1% to 7.3% in those who took the experimental drug. With no deaths reported in the molnupiravir arm versus eight in the placebo arm, investors had plenty to cheer about, adding roughly $16 billion to Merck's market cap, sending the share price up over 8%. With potential results like these, pharmaceutical stocks become top of mind for investors.
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The race for a COVID pill
Merck and Ridgeback are not the only ones searching for an oral therapy for coronavirus. Atea Pharmaceuticals (AVIR 2.04%) is backed by industry heavyweight Roche (RHHBY 1.39%). The $330 billion-plus gorilla has the exclusive rights to research, develop, and distribute oral antiviral AT-527 as a treatment for COVID-19 outside the United States, while Atea has the U.S. all to itself. And updates to AT-527 trials are due any day.
We already got a peek at interim phase 2 results for the Roche-Atea antiviral at the end of June. Patients who took the experimental treatment demonstrated a rapidly and persistently reduced amount of the coronavirus in their bodies during the study period. At 14 days after the initiation of treatment, 47% of patients who received the Roche-Atea drug had no detectable COVID-19 on nasopharyngeal swabs, compared with 22% in the placebo arm.
Does an approximately 50% reduction sound familiar? Merck and Ridgeback reported just under a 50% improvement in rates of hospitalization and death with molnupiravir. It is important to note that these trials are not an apples-to-apples comparison, as we do not have data on this sort of meaningful patient outcome for AT-527. However, if AT-527 can come close to molnupiravir -- and with similar mechanisms of action, it is entirely possible -- investors might be looking at the next Moderna (MRNA 3.20%).
How big can Atea get?
As for the addressable market, there have been over 43 million COVID-19 cases in the U.S. since the start of the pandemic. The addressable market in the U.S. would likely be partially offset by the presence of effective vaccinations as time goes on. If only 5% of those are candidates for these oral antivirals, at a projected cost of $700 a course for molnupiravir that could provide a market of over $1 billion annually in the U.S. alone. And since Merck already stated it has the capacity for over 10 million courses of the drug to be produced by the end of 2021, I suspect that $1 billion in U.S. sales might be a low estimate.
Since the short-lived market drop that occurred on March 20 of last year, the S&P 500 index is up over 85%. Coronavirus vaccine champion Pfizer (PFE -0.06%) is up only 54% during the same time, despite estimates of $33 billion in COVID-19 vaccine revenue in 2021. Compare that to Moderna, which is up over 11 times since March 20, 2020, and is planning on $20 billion in vaccine sales in 2021. And unbelievably, Novavax (NVAX 3.56%), despite never being a serious vaccine contender, is still up 17 times in value since March 20 of last year in the hope of it somehow catching up in the vaccine race. A few billion in revenue may not mean much for $330 billion Roche and its estimated 16 blockbuster drugs in 2021, but for a sub-$4 billion market cap like Atea's, that's a lot of fuel for a potential rocket.
Merck definitely has the early lead in this race, but it is a mature company, so even a molnupiravir win may not matter much to shareholders. Take a look at Pfizer. Even a $33 billion boost in revenue from its vaccine couldn't push Pfizer to beat the S&P since March 2020. Despite having excellent data so far, molnupiravir may not move the needle much more for Merck's share price. If AT-527 is able to produce strong data, sales of the drug will likely follow, as will Atea's share price. The medical world is waiting for something that can effectively treat this virus. If AT-527 has similar efficacy to molnupiravir, clinicians will prescribe it. And a billion in revenue will mean much more for Atea shareholders than it will for Merck or Roche.
A market big enough for two
The thought of two meaningful treatments just around the corner is a breath of fresh air for weary healthcare workers and even better news for the general population. Do you remember the supply chain problems with mRNA vaccines that needed to be shipped at subzero temperatures? And the initial cautious rollout of vaccines during the early part of 2021? Surely producing and distributing a pill will be easier. And with two mega-cap companies producing them, I expect the supply chain to be bountiful, just in time for a busy holiday travel season.
Just like the vaccine market, the oral antiviral market is big enough to support more than one player. Uncle Sam has already pledged $1.7 billion for molnupiravir, and with any positive data from AT-527, I can easily see a massive green runway ahead for Atea investors.
