A temporary threat to the intellectual property of vaccine makers could prove to be a lasting headache for shareholders.
The U.S. said Wednesday that it would support a temporary waiver of intellectual-property rights to enable developing countries to make their own Covid-19 vaccines. Shares of Pfizer, PFE 1.00% Moderna and several other vaccine developers fell sharply in response. The selloff continued Thursday morning.
There is no immediate reason to fear the waiver itself. Should World Trade Organization members approve it, it won’t hit drugmakers’ short-term sales and profits since contracts are already signed with governments. It also won’t do much to change the global outlook for production: Pfizer and Moderna expect to produce more than three billion doses this year, and it is unlikely any generic competitors could scale up quickly enough to meaningfully boost that figure. Both companies expect significant increases in output next year.
But news of U.S. support for the waiver comes as vaccine sales are setting records. Moderna said it has signed contracts for $19.2 billion in product sales this year. Earlier this week, Pfizer boosted its 2021 sales forecast for its vaccine to $26 billion from $15 billion. These estimates are based on signed contracts with governments, so there is still some upside.
Such numbers exceed even the world’s bestselling drugs. For instance, sales of AbbVie’s anti-inflammatory drug Humira reached nearly $20 billion last year. Back in 2015, Gilead Sciences ’ hepatitis C drugs also approached that figure before eventually falling off.
But durability of cash flows matters to Wall Street just as much as magnitude. A drug that patients take regularly is far more valuable to investors than a one-time treatment. Wednesday’s news raises the question about just how long the blowout vaccine sales will last.
The drugmakers are optimistic about their prospects. Pfizer Chief Executive Officer Albert Bourla said Tuesday that lasting demand similar to the flu vaccine is a “likely outcome.” Beyond this year, the company has signed contracts with Israel and Canada for more supplies. In the latter case, Pfizer could book revenue in 2024 from the contract. More contracts seem likely since governments might want to stockpile vaccines as insurance even after the pandemic eventually ends. Analysts at RBC Capital Markets project $11 billion in Pfizer vaccine sales in 2023.
But it remains highly uncertain what kind of pricing power these companies will have in a post-pandemic environment, even before considering the possibility of cheaper competition.
The pace of vaccinations already has slowed in the U.S., for example. By comparison, the flu vaccine, while an annual ritual for many, isn’t an especially valuable product for the industry.
The stock market can be an unforgiving place for drugmakers that sell a blockbuster treatment with an uncertain future, even while cash is still coming in the door. Gilead’s stock peaked back in the summer of 2015. even though its hepatitis C sales didn’t start falling until the next year. It remains nearly 50% below its record high.
Pharmaceutical investors who don’t own vaccine stocks should be paying careful attention as well. The Biden administration wasn’t viewed by Wall Street as especially unfriendly to the industry when it took office. Wednesday’s news could change that perception. Discussion of reining in prices in Washington, D.C., has been the trigger for pharmaceutical-stock weakness in the past, but intellectual property is the backbone of the drug industry. Investors should take any challenge to it seriously.
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