Research

A Shot in the Arm: COVID-19 Vaccines and Their Impact on the Pharmaceutical Sector

Dr. Vamil Divan
Senior Pharmaceuticals and Biotechnology Equity Research Analyst
February 26, 2021

When the coronavirus pandemic surged across the world in 2020, the pharmaceutical sector pivoted to rapid response mode. Companies poured resources into developing new treatments and vaccines, while dealing with a temporary slowdown in sales of some other drugs. Now that COVID-19 vaccines are available, the landscape is likely to shift again.

As with the outbreak itself, the impact of the vaccine rollout will be widespread. Companies that make COVID-19 vaccines and treatments are in line for the more direct effects, but investors should be on the lookout for the impact on other prescription drugs, and how drug development pipelines have fared through the pandemic.

Pfizer’s COVID-19 vaccine is only part of the company’s story

Investor interest in the sales outlook for Pfizer’s COVID-19 vaccine is high. We received some clarity on that front during the company’s recent quarterly earnings call when executives estimated $15 billion in revenue from COVID-19 vaccine sales in 2021. The top-line upside may be higher, given that Pfizer is still in negotiations with other governments and sees potential for long-tail sales from vaccine updates or booster shots that address emerging virus strains.

That said, we believe the focus on vaccine results is overshadowing other parts of Pfizer’s business which also deserve attention. The company has a strong pipeline of drugs beyond its COVID-19 vaccine, and yet the stock price is largely unchanged from May of last year. The fact that Pfizer developed and manufactured this vaccine so quickly highlights the new, more nimble business approach championed by Pfizer CEO, Albert Bourla. All told, these factors point to Pfizer emerging from the pandemic in a stronger position—even before contributions from vaccine sales.

After a short pause, other drug sales are recovering

Non-vaccine makers entered 2021 in a better position than some investors may have expected after last year’s challenges. Although sales for many treatments declined in March and April of 2020 when doctors’ offices and other healthcare facilities temporarily stopped non-urgent patient visits, regular patient flow started to resume by the summer and alongside that, sales of many pharmaceuticals began to recover. As an example, sales of non-critical treatments like Botox (produced by Allergan, which was acquired by AbbVie in 2020), were nearly back to normal by the end of Q3 2020.

One outstanding question is the outlook for new COVID-19 treatments if cases begin declining significantly. While the long-term trajectory is unknown, we believe those treatments will be in demand for at least a year. Governments are signing contracts to procure those products which could benefit companies with approved treatments—such as Eli Lilly & Co. with its monoclonal antibody treatments, bamlanivimab and etesevimab.

Looking beyond 2021

What’s more important for investors is how the pharmaceutical pipeline looks in the coming three to five years. Bringing new drugs to market requires clinical trials which were not immune to the effects of the pandemic. Fortunately, critical late-stage trials largely continued during the year, facing only brief pauses or adjustments to their protocols, such as allowing for the inclusion of telemedicine visits.

Early-stage trials, which required healthy volunteers, experienced longer disruptions, but most delays only lasted a few months. Because major drug companies might have dozens of potential treatments in early-stage testing, it’s difficult to quantify the potential impact of these delays which are likely not to be felt for many years.

On the other hand, the pharmaceutical industry made some important gains that could pay off sooner. The all-hands-on-deck commitment to developing vaccines and treatments provided a valuable reputational boost for an industry that has long been criticized for its pricing practices.

Finally, the rapid development and approval of COVID-19 vaccines and treatments demonstrated a new approach for bringing important innovations to market. When you’ve seen just how much better and faster the process can work, it’s unlikely that the industry and regulators will go back to the way things used to be, even after the coronavirus crisis finally is behind us.

 

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