Making medicines to prevent and treat coronavirus infection is big business, and where there's money to be made, there are always winners and losers. Over the last year, returns from Pfizer's (PFE +1.58%) stock have smashed Merck's (MRK +0.43%), rising by over 48% against the other pharma's growth of near 7.5%.
There's reason to believe that Pfizer will be the victor once again in 2022. It all boils down to two numbers, both of which pertain to the company's sales of its coronavirus vaccine, Comirnaty, and its antiviral pill for treating COVID-19 infections, Paxlovid.
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This contest isn't even close
While Pfizer is a major producer of all manner of drugs, it shouldn't be surprising for anyone to hear that its coronavirus medicines are what's driving the most growth at the moment.
Per its latest estimate on Feb. 8, sales of Comirnaty should total near $32 billion in 2022. Income from Paxlovid is expected to hit $22 billion. Those two numbers will juice the top line to reach as much as $102 billion for the year, which will be the most it has ever made. And those two numbers are also exactly why it'll handily beat Merck this year.
Given that the company generated $81.3 billion in 2021, the upper bound of the full-year estimate implies revenue growth in excess of 25%. That's nowhere near its 95% revenue jump between 2020 and 2021, but for a business with a nearly $280 billion market cap, it's still a significant expansion, and it could easily supercharge the stock.
Merck has little going on in comparison.
At the most, it expects to make $57.6 billion in sales this year, of which up to $6 billion will come from sales of molnupiravir, its new antiviral drug for people infected with the coronavirus. For reference, Merck's sales were $48.7 billion in 2021, so 2022's total will only be around 18.3% higher at best.
Not too shabby -- but hardly as impressive as its competitor.
What's the right move?
Assuming that things go according to plan, it's hard to see how Pfizer's stock could underperform Merck's this year. Nonetheless, as sunny as Pfizer's predictions for 2022 are, it might not be the best moment in time to buy shares of the stock.
The market's initial reaction to its latest earnings report on Feb. 8 was somewhere between muted and slightly downbeat, which suggests that there weren't any favorable surprises. This might be a sign that Pfizer is already falling victim to overly high expectations that'll prove difficult to top. And for the company to beat the market rather than just Merck, it'll need to demonstrate that its rollout of Paxlovid is proceeding more than just smoothly.
Things might get complicated on that front, as Paxlovid's debut has gone off without a hitch so far.
Since issuing the first estimates for Paxlovid production capacity in 2022, management has promised larger and larger volumes of doses, eventually settling on making enough doses for 120 million courses of treatment after starting at 50 million. If the business can ramp up its manufacturing capacity fast enough to top this latest quota, it'll be a strongly positive development for investors.
On the other hand, if the ambitious scale-up plans fall short, it'll be a blow to the share price. And it's hard to see how the company could plan to produce even more courses of treatment after growing its initial estimates for the year by more than double.
So, buying shares of Pfizer is a gamble right now, as it'll take truly great news to provide more upside in the short term. Still, there's plenty of room for Pfizer's valuation to grow as revenue rolls in. Its price to earnings (PE) multiple is 13, which is lower than the market's average PE of near 22.
In my view, it's worth a purchase if you're comfortable with taking on an average amount of risk. If you're a more conservative investor, you should still stay tuned. Falling short of its Paxlovid targets will be like aiming for the stars and hitting the moon, and there's nothing wrong with that.
