In the aftermath of its Q1 earnings call on April 19, Johnson & Johnson (JNJ -0.11%) Chief Financial Officer (CFO) Joe Wolk had a few quick words to say about the company's decision to stop offering financial guidance about its coronavirus vaccine sales. "With any product, we always look at demand relative to our manufacturing capacity," quipped Wolk.
Just like that, Wolk opened a can of worms that's liable to leave investors wondering about the future financial health of two key players in the coronavirus vaccine market: Moderna (MRNA 0.73%) and Pfizer (PFE 0.49%).
If one of the world's most successful pharmaceutical businesses is starting to de-emphasize sales of its COVID shots, it could mean that the heyday of the coronavirus vaccine market is drawing to a close. Such a shift isn't unexpected, but it could still leave investors in the lurch. Let's investigate what the CFO's comments mean in the context of the jab market today to understand what Pfizer and Moderna shareholders should expect.
Image source: Getty Images.
Implications abound
While J&J's coronavirus vaccine operations were conducted on a not-for-profit basis, the fact that the company will no longer provide guidance about it to investors is still quite important. J&J certainly isn't lacking manufacturing capacity, so the very first implication is that management is seeing demand for COVID vaccines start to taper. That Wolk would make such a comment suggests that the company doesn't expect the market to react negatively to this admission, which in turn means that management no longer believes that jab sales are a major driver for its stock.
That's an entirely reasonable assumption, as Johnson & Johnson's trailing-12-month revenue of $93.7 billion makes its Q1 coronavirus vaccine sales of $457 million a practically negligible addition. Plus, its shares are up by more than 3% in the days since the announcement -- unlike Pfizer and Moderna, which are down by more than 5% and 6% respectively.
Beyond that, J&J's management likely expects future sales to be lower in volume and more unpredictable than before. Johnson & Johnson specifically remarked that the global market is increasingly flush with doses, especially in developed countries. That's key because other manufacturers like Moderna and Pfizer might also start to face headwinds when they look beyond outside developed markets.
Here's a look at where Moderna has focused its business so far:
Image source: Statista.
In business, there's nothing wrong with chasing the low-hanging fruit, so long as there's enough to go around. It's a tautology that high-income countries have the most income to spend on medicine. If their share of the market is getting saturated, vaccine makers will have no choice but to chase growth in less lucrative locales, which might require slashing prices. Profit margins could drop.
Regardless of where sales will be made, Moderna expects to generate roughly $21 billion from jab sales this year, whereas Pfizer is banking on around $32 billion. For the sake of comparison, consider that Pfizer's trailing-12-month revenue totaled $81.2 billion, and Moderna's tallied in at $18.4 billion.
Though the vaccines produced by this pair have steered clear of major safety concerns for certain populations and are more effective than the J&J vaccine at preventing severe illness and symptomatic infections, Moderna and Pfizer both stand to face major impacts if sales disappoint. Between the two, Moderna will be hit harder if demand for doses starts to ebb, as it only has one product on the market, whereas Pfizer has many.
But there's another reason why Moderna's investors could struggle more. Take a look at the chart below, which tracks quarterly revenue for both companies.
MRNA Revenue (Quarterly) data by YCharts
The transition from Moderna's rapid quarterly revenue growth to a crashing or negative growth rate would be severely felt by investors. A change in COVID vaccine sales would also impact Pfizer's growth rate, but moving from Pfizer's moderate growth rate back to its long-term norm of slow expansion would represent a return to normalcy rather than a dramatic about-face. Of course, there's no guarantee that the vaccine market's transition away from its gold rush era will be quick, but it is almost certain that such a shift is on its way.
It's not all bad
Wolk's comment about Johson & Johnson's decision to stop offering guidance about vaccine sales likely heralds a shift toward a more difficult market environment, where demand for COVID vaccines is falling and the remaining sources of demand are more difficult to serve.
However, it's important to note that the higher efficacy of the Moderna and Pfizer shots means that they are likely to retain major portions of the market, even if that market could start to contract relatively soon. I wouldn't sell my shares of either company yet, but I certainly wouldn't buy any more at the moment either.
On the other hand, if the pair continues to develop their variant-specific vaccine programs, it's possible that their jab sales could stabilize. Investors should definitely stay tuned.
