The Covid-19 pill is here, and it couldn’t have come at a better time.
The pandemic grew darker over the past two weeks, as the Omicron variant swept into the U.S. With most of the widely used therapies rendered useless by the variant’s mutations, and case counts quickly climbing, doctors and public health officials have been increasingly worried.
The Food and Drug Administration’s authorization of Pfizer’s (ticker: PFE) Covid-19 pill Paxlovid on Wednesday offered some hope. The pill is cleared only for high-risk individuals, and supplies will initially be limited, but it will save lives.
The authorization represents an extraordinary coup for Pfizer, its second of the pandemic. Analysts expect Pfizer to sell $21.7 billion worth of the drug in 2022, according to FactSet, though the company now says that it will make 120 million courses of the drug next year, 40 million more than previously forecast, which will probably drive those estimates higher.
As Barron’s argued in November, the success of Paxlovid is more evidence that the company’s decision in 2019 to rid itself of all but its innovative biopharma business was a smart one.
Investors had been slow to buy into the revamped Pfizer, but late this year they caught up fast. In the 12 months before November of this year, Pfizer shares trailed the S&P 500 index, even as it rolled out its Covid-19 vaccine. Since the start of November, however, Pfizer shares have exploded. The stock is up 36.4% since then, while the S&P 500 has climbed just 1.6%.
And the stock remains relatively cheap, trading at just 9.8 times earnings expected over the next 12 months, according to FactSet, a discount to peers like Eli Lilly (LLY), which trades at 31.7 times earnings, and Johnson & Johnson (JNJ), at 16.1 times earnings.
The good news for Pfizer this week was matched by less-good news for Merck (MRK). Though early data on its Covid-19 pill molnupiravir sent vaccine stocks lower and Merck shares higher, the shine has since come off the drug, as updated data have suggested that it’s less efficacious than it initially appeared, and safety questions have lingered.
The FDA issued an emergency-use authorization for molnupiravir on Thursday, a day after it issued Paxlovid’s, under far more restrictive terms. The authorization allows for molnupiravir to be used only when other Covid-19 treatments, like Paxlovid, are not accessible or not clinically appropriate. The agency also did not recommend the drug for use during pregnancy, and advised that men who take molnupiravir should use birth control for at least three months afterward.
Earlier hopes that molnupiravir could be a long-term revenue driver are evaporating. The disappointment is a reminder of the challenge facing Merck before the end of this decade: the loss of patent protections on Keytruda, the cancer drug blockbuster that accounts for roughly a third of its revenue. Merck has been working toward filling that gap. It doesn’t appear that molnupiravir will be a big contributor to that effort.