Waiting for Big Pharma's Coronavirus Profits to Impress Wall Street -- Heard on the Street
February 17 2021 - 7:29AM
Dow Jones News
By Charley Grant
For big pharma, a fresh $15 billion in sales just isn't what it
used to be.
Vaccines and therapeutics for Covid-19 have been an unexpected
windfall for the drug industry, and there is more where that came
from as the pandemic drags on. Pfizer said earlier this month that
it expects to book $15 billion in sales from its Covid-19 vaccine
in 2021. To put that figure in context, it is roughly equivalent to
Pfizer's entire oncology and immunology revenue in 2020. Pfizer's
total top line was just under $42 billion in 2020. What is more,
that vaccine sales forecast is very conservative, as it only
includes sales from doses from existing contracts with governments.
Meanwhile, Gilead Sciences announced that it expects to sell
between $2 billion and $3 billion of its antiviral drug remdesivir
in 2021. It booked $2.8 billion in sales of the drug in 2020, most
of it in the fourth quarter.
You wouldn't think the pandemic was generating unexpected
revenue by looking at those companies' share prices. Both Pfizer
and Gilead are down about 20% from their pandemic-era highs, and
both stocks peaked as their drugs approached the market. That
performance stands in marked contrast to smaller vaccine developers
such as BioNTech, Moderna and Novavax.
There are some valid reasons for that underperformance. Wall
Street tends to place a low value on blockbuster drug sales if that
drug faces a short shelf life, often because of an expiring patent
or the expected approval of a superior medication. Those concerns
are only amplified in a public health emergency since the
pandemic's ultimate duration is uncertain.
Even if annual booster shots become the standard in Covid-19
vaccination, as some drug executives and health officials have
predicted, the onset of new competition likely means a tougher
pricing environment in the future. After all, the flu shot is given
annually but isn't an especially lucrative product for the drug
industry. And governments will be far more inclined to drive a hard
bargain for future orders once the crisis abates.
Then there is the reality that big drug companies are value
stocks, which can seem unattractive in a go-go market. After all,
why bother collecting dividends and compounding your money when the
market is offering such quick rewards in hot stocks? Big drug
companies have outperformed the S&P 500 in just five calendar
years since 2005, according to Jefferies. In each case, it was when
the broad market was either down or flat. So far this year, the
sector has underperformed the market by about 3 percentage
points.
Still, betting this will be another one of those years isn't
expensive: Pfizer trades at about 11 times this year's adjusted
earnings guidance, while Gilead fetches around 9 times.
With so many signs of speculative froth elsewhere, these stodgy
cash gushers could regain their charm in a hurry.
Write to Charley Grant at charles.grant@wsj.com
(END) Dow Jones Newswires
February 17, 2021 07:14 ET (12:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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