The third time's the charm. That's what the U.S. Food and Drug Administration (FDA) thinks could be the case with messenger RNA (mRNA) COVID-19 vaccines developed by Pfizer (PFE -0.68%), along with its partner BioNTech (BNTX -0.77%), and Moderna (MRNA -1.72%).
Last week, the FDA granted Emergency Use Authorization (EUA) for boosters of the two mRNA vaccines for all adults ages 18 and older. Previously, the agency had authorized boosters only for ages 65 and up, individuals who are at high risk of developing severe COVID-19, or those who work in especially risky environments. Now, any adult who has received the original two-dose regimen of the Pfizer-BioNTech or Moderna vaccines can get a third booster shot six months after their second dose.
Based on the immediate moves of these vaccine stocks, it might seem that the authorization of boosters really isn't all that big of a deal. But here's why the FDA's boosters authorization could be more important for Pfizer and Moderna than you might think.
Lots of extra doses, no extra revenue
Let's first address why the stocks didn't soar on the news of the FDA's expanded EUA. It wasn't because investors don't expect many Americans to get the boosters.
Actually, around 20.3 million people in the U.S. have already received a Pfizer-BioNTech booster. Another 14.6 million have received a Moderna booster dose. It seems highly likely that millions more Americans will get booster shots over the next few months.
The reason why shares of Pfizer and Moderna didn't take off is that the companies will make little extra revenue from these extra doses. Why? The U.S. government has already committed to purchase more than enough doses to provide boosters.
Both Pfizer and Moderna have sold 500 million doses each to the U.S. excluding doses to be donated to other countries. That's a total of 1 billion doses -- enough to fully vaccinate more than 333 million Americans with the two primary shots plus a booster. The population of the U.S. right now is between 333 million and 334 million.
Remember, too, that the U.S. has ordered 200 million doses of Johnson & Johnson's COVID-19 vaccine. So far, nearly 15.8 million Americans have received the single-dose vaccine with more than 450,000 receiving a J&J booster shot.
Three key takeaways
Neither Pfizer nor Moderna will make additional revenue over the near term from booster doses. So why is the FDA authorization for boosters still important? There are three key takeaways from the agency's EUA decision that could bode well for the companies' future vaccine sales.
First, the FDA tacitly acknowledged that the mRNA vaccines' efficacy has waned less than one year after the initial authorizations. Acting FDA Commissioner Janet Woodcock stated, "COVID-19 vaccines have proven to be the best and highly effective defense against COVID-19." However, the agency also noted that the number of COVID-19 cases in the U.S. has increased recently.
Second, the FDA acknowledged that the Pfizer-BioNTech and Moderna boosters work. The agency reviewed immune response data for both mRNA vaccines. It concluded, according to Woodcock, that authorizing a booster for the vaccines "helps to provide continued protection against COVID-19, including the serious consequences that can occur, such as hospitalization and death."
Third, the FDA determined that the risk-benefit profile for boosters was compelling six months after a second dose. Some individuals who have received the mRNA vaccines experienced myocarditis (inflammation of the heart muscle) or pericarditis (inflammation of the outer lining of the heart). But the FDA found that the benefits from boosters in preventing COVID-19 outweighed the risks from these heart diseases.
These three key takeaways from the FDA's EUA decision for boosters arguably increase the likelihood that annual shots will be required going forward. The logic behind the authorization could pave the way for a determination perhaps sometime next year that annual COVID-19 vaccines will be given similar to how flu shots are already administered.
Pfizer projects sales of around $29 billion in 2022 for its COVID-19 vaccine. Moderna looks for COVID-19 sales next year of between $17 billion and $22 billion.
Both stocks trade at relatively low forward earnings multiples (less than 12 for Pfizer and less than 11 for Moderna) in large part because investors don't know how much vaccine revenue to count on after next year. If annual boosters become a reality and both companies can increase the prices of their vaccines, though, Pfizer and Moderna could continue to generate massive sales of their COVID-19 vaccines well into the future.
Granted, this scenario isn't a slam dunk. Should COVID-19 cases decline significantly and remain low, the agency could determine that the risk-benefit proposition of mRNA vaccines doesn't justify annual boosters in the future.
But the FDA has made it clear with its recent expanded EUA that boosters work. Pfizer and Moderna executives and shareholders probably should now have more confidence that annual COVID-19 vaccines are on the way.