The past year has been a volatile one for many companies as COVID-19 has interrupted their activities. But for businesses selling COVID-19 vaccines or treatments, it has led to a bump in sales. Pfizer expects that for 2021 and 2022, it will generate a combined $65 billion in revenue just from its COVID-19 vaccine.
Drugmakers Eli Lilly (LLY -0.27%) and Regeneron (REGN -0.28%) haven't been nearly as fortunate, but they too have benefited from the sale of their COVID-19 antibody treatments. However, that's going to change moving forward.
FDA revokes Emergency Use Authorization
Both Regeneron's REGEN-COV2 and Eli Lilly's antibody combination of bamlanivimab and etesevimab are no longer approved for Emergency Use Authorization. The U.S. Food and Drug Administration (FDA) announced the change last month after data showed that the treatments were not effective against the omicron variant, which is now responsible for almost all U.S. COVID-19 infections.
The agency didn't rule out the possibility of authorizing them in the future again if there is a new variant for which they are effective. But for now, they are no longer authorized for use against COVID-19 in any U.S. state or territory. For the two companies, this is a blow as it will mean a reduction in revenue.
The effect this could have on their top lines
In its October 2021 earnings call, Eli Lilly's Chief Financial Officer Anat Ashkenazi forecast that the company's COVID-19 therapies will generate only "minimal revenue" for 2022, based on signed purchased agreements. And with omicron not yet a variant of concern then, it wasn't obvious that another surge would be taking place and that there could still be strong demand for a treatment.
For 2022, Eli Lilly projects that its revenue will be between $27.8 billion and $28.3 billion, which at best would suggest the company is expecting little to no growth. However, on an organic basis, the picture looks a bit better. 2021's revenue figures include more than $2 billion in revenue from the COVID-19 antibodies, which represents approximately 7% of the company's top line.
COVID-19-related sales have played a much bigger part in Regeneron's business. Of the $11.1 billion in revenue the company brought in over the first nine months of 2021, more than $3.5 billion was due to REGEN-COV sales, representing nearly one-third of all revenue. Without that boost, the company's revenue would have totaled $7.6 billion and grown by 25% year over year, as opposed to the whopping 83% revenue growth the company achieved when including the COVID-19 treatment.
Why these stocks are still good buys today
The loss of EUA for their respective COVID-19 treatments is a blow to both Eli Lilly and Regeneron. However, investing in a company based on how its sales might do during a pandemic can be risky and short-sighted. For investors, the key is to focus on the long-term opportunities that exist. While it can seem like the pandemic is never going to end, it's dangerous to assume that COVID-19 revenue will continue to play a role in a company's financials for a long time.
Regeneron posted impressive sales growth even when factoring out its COVID-19 treatment, and it has a potential blockbuster with cancer drug Libtayo, which is still in its early stages. Eli Lilly is a larger and more diverse business that can absorb the effect of this lost revenue with relative ease. Investors should instead be more focused on the company's Alzheimer's drug, donanemab which, if the FDA approves it, could be a much larger catalyst of long-term growth for the business. As a bonus for investors, Eli Lilly is also a top dividend stock with an incredible track record.
Although the FDA's move to revoke its EUA for their antibody therapies isn't good news for Regeneron or Eli Lilly, it doesn't change the fundamental growth prospects of either of these businesses. Both of these healthcare stocks remain good buys for the long term.