What happened

Pfizer's (PFE 0.91%) stock is poised for a potentially historic day today. The pharma titan's stock jumped by as much as 12.7% in premarket trading Friday after the company announced that a pivotal trial for its oral COVID-19 pill called Paxlovid was stopped early after the drug slashed the risk of hospitalization or death among adults at risk of developing severe disease by a jaw-dropping 89%.

Merck's (MRK -0.94%) rival oral treatment for COVID-19, known as Lagevrio (molnupiravir) and jointly developed with privately held Ridgeback Biotherapeutics, only reduced the risk of hospitalization in this same patient population by half. As a result, Merck's stock fell by more than 9% in premarket trading today. Shares of the COVID-19 vaccine developer Novavax (NVAX 1.16%) are also taking a big hit on this news, with the biotech's stock falling by as much as 10.5% in early morning action today. 

A piggybank taking off like a rocket.

Image source: Getty Images.

So what

Pfizer's market cap rose by more than $32 billion in premarket trading today on the back of this potentially game-changing news. Investors are bidding up the pharma titan's stock in a big way this morning for a very good reason.

The backstory is that Merck's Lagevrio was forecast to generate upward of $7 billion in sales per year over the next three years at a minimum. As Pfizer's oral medication appears to be far superior than Merck's from an efficacy standpoint, the drugmaker stands a good chance of dominating this high-value slice of the COVID-19 treatment market. This turn of events shouldn't necessarily surprise investors. Pfizer, after all, already dominates the COVID-19 vaccine market by a wide margin with its BioNTech-partnered mRNA vaccine known as Comirnaty.  

Novavax's stock, for its part, is reeling today because its protein-based COVID-19 vaccine, known as NVX-CoV2373, was widely believed to be a compelling alternative to the top-selling mRNA vaccines from Pfizer and Moderna. A highly effective oral COVID-19 pill, however, might be even more appealing to this particular target market. Novavax, in turn, may have trouble meeting the high expectations for its COVID-19 vaccine in the wake of this news. Time will tell. 

Now what

Is this eye-popping upswing in Pfizer's shares warranted? The answer is a resounding yes. Pfizer has already proven its ability to dominate key portions of the COVID-19 treatment space with Comirnaty, and this oral antiviral pill appears to be significantly more potent than Merck's Lagevrio. Pfizer, in turn, will more than likely usurp Merck's oral COVID-19 therapy at the end of the day -- despite the latter's first-mover advantage.

On the vaccine side of things, Novavax's core value proposition is definitely at risk following this development. The biotech was clearly planning on targeting individuals concerned about the potential long-term side effects from mRNA vaccines like Comirnaty.

Unfortunately for the biotech's shareholders, this key demographic will likely be even more receptive to a simple oral therapy for the treatment of COVID-19. Now, Novavax's protein-based vaccine should still earn a healthy amount of revenue when everything is said and done. But there's no doubt that Pfizer's oral drug could significantly undermine NVX-CoV2373's long-term commercial potential.