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Why Pfizer Will Profit From Merck's Rival Pneumococcal Vaccine

By Keith Speights and Brian Orelli, PhD – Oct 9, 2021 at 11:15AM

Key Points

  • Pfizer and Merck recently settled a lawsuit related to Pfizer's patents for pneumococcal vaccines.
  • Pfizer will receive 7.25% royalties on Merck's vaccine through 2026 and 2.5% from then through 2035.
  • The settlement makes sense, but Pfizer's vaccine is likely to be the bigger long-term winner.

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Pfizer is now set to receive money from its top rival in the pneumococcal vaccine market.

Pfizer (PFE 1.07%) and Merck (MRK 1.06%) compete head-to-head in the pneumococcal vaccine market. While Pfizer's Prevnar 13 remains the best seller, both companies have newer vaccines on the market. In this Motley Fool Live video recorded on Sept. 29, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss why Pfizer will profit not just from its new entrant but also from Merck's rival pneumococcal vaccine.

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Keith Speights: There's one other story that I saw with Pfizer recently that I thought was interesting. Both Pfizer and Merck have won FDA approvals over the last few months for their new pneumococcal conjugate vaccines. Pfizer's 20-valent Prevnar 20 vaccine won approval in June. Merck's 15-valent vaccine got the green light from the FDA in July.

These two vaccines will compete and are competing head-to-head against each other. But now it looks like Pfizer is going to receive a nice chunk of Merck's vaccine sales here. What's the story?

Brian Orelli: The companies have been arguing over patents that Pfizer has that cover the use of pneumococcal conjugate vaccines. I guess rather than leave it to the court's hands the company's compromised and Merck is going to pay Pfizer 7.25 percent of net sales through the end of 2026. Then that royalty rate drops to 2.5 percent until 2035.

I'm not a patent lawyer and I don't play one on the Internet, but I think this is probably a good move for both companies. They avoid the worst-case scenario where Pfizer doesn't get anything or the worst-case scenario from Merck where the court say, "Well, can't sell your vaccine anymore and you having to pay 7.25 percent down to 2.5 percent after a few years, is probably a lot better than not getting anything."

In the long run, I'm not sure if it really matters that much because I think Pfizer's 20-valent is going to win out in the long run. Whether it matters that much to either Merck or Pfizer may not matter that much because if Merck's is only getting a fraction of the total market, then it doesn't really benefit Pfizer that much to get 7.25 percent of a fraction of the market. If Merck only has a fraction of the market than giving up 7.25 percent of that small revenue is really not that big of a deal for Merck.

Speights: Yeah, and Pfizer's Prevnar 13, is the leader in this market right now. But I suspect you're right Brian, that over the long run, Pfizer's 20-valent vaccine will probably end up being on top here.

Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pfizer Stock Quote
$50.24 (1.07%) $0.53
Merck Stock Quote
$110.09 (1.06%) $1.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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