As President Joe Biden announced in his 2022 State of the Union address, the U.S. government is pioneering a new treatment program for members of the public who are sick with the coronavirus. Dubbed Test to Treat, the initiative aims to give people who have positive COVID-19 test results immediate access to antiviral therapies for free at participating pharmacies and healthcare centers. This could be massive for Pfizer (PFE 0.55%), maker of the antiviral drug Paxlovid, which the program will heavily rely on.
Pfizer has said it expects to make around $22 billion from global sales of Paxlovid antiviral in 2022, though management did suggest that it could potentially make more. And if the Test to Treat initiative proves popular in the U.S., we could be talking about billions more.
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A potentially huge boon for Pfizer
In 2021, an estimated 54.9 million coronavirus cases in the U.S. were confirmed by testing and registered with public health authorities. For several reasons, it's improbable that the country will have a similar quantity of new cases this year, but let's assume that it will for the sake of discussion.
Per last year's contract between the U.S. government and Pfizer, each course of Paxlovid treatment costs around $530. For the government's first order of 10 million courses of treatment, Pfizer will receive $5.3 billion.
But that was just to start. The initial purchase order in late 2021 has been subsequently amended to provision for a total of 20 million courses of treatment instead of 10 million, presumably at the same price per treatment. Therefore, the government's existing purchases should account for around $10.6 billion in revenue for Pfizer. And even that might be well below its actual sales figure.
Suppose we assume similar case numbers to 2021, and also assume that this new government program can get the antiviral treatment to 20% of those who test positive. In that case, Pfizer could make as much as $5.8 billion in a year from Paxlovid. That's roughly in line with the $5.3 billion cost of the supply that the government initially purchased. So, that level of program utilization doesn't imply anything beyond what Pfizer has already projected and collected the revenue for. And the government wouldn't need to buy any additional courses of treatment for this year, either.
On the other hand, if the program is a stunning success and Paxlovid is used more widely -- for example, 60% of people who test positive getting treated -- its sales could be as high as $17.4 billion for one year. Treating that many people -- 32.9 million of them, to be exact -- would require the U.S. government to buy around 12.9 million additional doses on top of the 20 million it has already committed to, implying new sales of $6.8 billion.
And adding several billion dollars to the top line beyond what's already expected just might juice Pfizer's stock.
Keep things in perspective
How much would a windfall in the $6.8 billion range mean to Pfizer -- one of the world's largest pharmaceutical companies with a market cap near $306 billion? Certainly it would be material -- management's revenue guidance for 2022 featured a midpoint of $100 billion.
If we forget the fact that many other countries may also want to buy more Paxlovid than they initially said, and just assume that high utilization of the Test to Treat program leads to $6.8 billion in new sales beyond what was expected, Pfizer's top line could grow by as much as 6.8% thanks to that program alone. For shareholders, that's enough to salivate over.
Still, as beneficial as this program may be, both for the public and for Pfizer shareholders specifically, it's important to remember that these numbers are just estimates for one year. If the program continues for multiple years, its revenue impact could easily be diminished by falling caseloads or reduced participation by the public. Or the program might not get funded in future years' budgets, thereby reducing government-driven demand for Paxlovid.
Therefore, I wouldn't think of buying Pfizer stock on the basis of this new initiative alone, even if the back-of-the-napkin numbers look compelling.
