Will Vaccine Manufacturers’ Windfalls Continue Beyond 2022?

We expect that vaccine manufacturers Pfizer/BioNTech (BNTX) and Moderna (MRNA) will again experience strong cash windfalls in 2022. Vaccines continue to play an essential role in the fight against the coronavirus as the emergence of new variants, including omicron, has reduced the effectiveness of antibody cocktail treatments, and oral antiviral supply is just beginning to ramp up. But as COVID-19 gets more under control and society returns to nearly normal by 2024, we expect these vaccine sales to decelerate. We think the treatment market–especially oral antivirals–will have more longevity.

Our 2022 forecast for the top vaccines is in line with consensus. But beyond this calendar year, our sales estimates fall substantially below consensus. This is for two main reasons:

1. We only expect annual boosters for vulnerable groups, not for the broader population.
2. We believe the playing field will grow more competitive in the long term.

When it comes to treatments, we're above consensus for 2022 and roughly in line with consensus in the longer term. We think a certain number of high-risk individuals will continue to contract COVID-19 each year for the foreseeable future, requiring treatment. And given the uncertainty around COVID-19's spread, we also expect there will be interest in maintaining stockpiles of treatments.

Vaccines and Preventive Therapies in 2022: A Lay of the Land

Though we've seen a sharp increase in COVID-19 cases in early 2022, we've also seen less severe disease in many areas, owing to both the biology of the virus and baseline immunity from prior infection or vaccination. As of Feb. 2, 2022, about 63% of the world's population (4.82 billion people) had received at least one dose of vaccine, and nearly 10 billion doses have been administered.

However, the baseline immunity provided by vaccination varies by vaccine. The mRNA vaccines from Pfizer/BioNTech and Moderna, which have dominated in the United States, have held up relatively well against omicron. But China's Sinovac vaccine, for example, has showed minimal protection from omicron, even after three doses.

In 2022, we think this market will begin to look more competitive:

• We expect to see more evidence that other technologies (viral shells at AstraZeneca (AZN) and protein-based vaccines from Sanofi (SNY) and Novavax (NVAX)) are capable of being quickly adapted as booster doses, similar to mRNA.
• Other mRNA programs beyond Pfizer/BioNTech and Moderna should continue to make progress with modifications and delivery, creating more mRNA competition in the midterm.
• We should see more use of select antibody programs–like AstraZeneca's Evusheld—to offer long-term protection for immunocompromised individuals. These could be particularly important for preventing the long-lived COVID-19 cases that can lead to new variants.

In the long run, we could even see technologies that allow broader protection against current and future variants of SARS-CoV-2. The spike ferritin nanoparticle vaccine developed at Walter Reed, for instance, demonstrated positive phase 1 data against omicron and other variants and is entering phase 2/3 trials in 2022.

That said, 2022 booster sales are likely to continue to focus on mRNA, with the lion's share of sales still going to Pfizer/BioNTech and its expected 4-billion-dose supply for the year.

We Don't Forecast Further Doses Beyond the First Three

While initial data on protection against omicron for individuals who have received a third dose of the vaccine is encouraging, the data still leaves room for infections and milder disease among those who have only received their initial two-dose series. Even so, we're still assuming that annual doses beyond the initial three will be reserved for more vulnerable populations. (Israel, for its part, has already begun offering fourth doses to older populations and medical workers.)

We would consider adding further annual boosters to our model for the broader population if:

• governments begin to broadly sign contracts covering fourth doses,
• we see evidence that healthy, boosted adults are developing severe disease from omicron, or
• the virus mutates further to become more contagious and escape vaccines without losing virulence (indicating a high risk it could both outcompete other variants and potentially trigger severe disease).

However, we anticipate this would have minimal impact on our long term, discounted cash flow-based valuation. We think there is a strong case that three doses will offer long-lived protection, from either antibodies or T-cells.

Omicron Surge Likely to Boost Veklury, but Oral Antivirals Have Long-Term Potential

The number of treatment options is growing, with authorized products covering a spectrum serving high-risk, nonhospitalized patients all the way to severely ill patients on ventilation. 

We continue to see Gilead's (GILD) Veklury as a mainstay of treatment for hospitalized patients. In addition, recent data around the drug's efficacy in high-risk nonhospitalized patients is competitive with antibody cocktails, and we would expect its efficacy against omicron to be preserved.

We assume continued demand for other hospital-based treatments that focus on tamping down the immune system overreaction, like Roche's (RHHBY) Actemra and Sobi's (SOBI) Kineret. Antibody sales are in flux, as Glaxo (GSK)/Vir's (VIR) antibody Xevudy appears most active among authorized antibody treatments against omicron, but supply is limited.

The limitations of these largely injectable treatments make the recent authorization of oral antivirals very encouraging, particularly Pfizer's recently authorized Paxlovid (88% efficacy against hospitalization and death in high-risk patients).

Although the drug must be administered within a five-day window of the start of symptoms to achieve this level of efficacy, we expect this treatment to be widely preferred, and we assume Pfizer will continue to sign contracts for treatment and eventually government stockpiling (like Roche's Tamiflu during fears surrounding avian and swine flu). We also think the virus is unlikely to mutate to become resistant to the drug.

Additionally, Paxlovid's authorization will likely gradually expand in 2022, from high-risk patients to standard-risk, to prevention of disease in household contacts. We see a longer-term role for Paxlovid, and given its differentiation, assume higher long-term sales than for other COVID-19 vaccine and treatments. And we expect Paxlovid to continue to serve unvaccinated individuals, as well as individuals with breakthrough infections (either because of waning immunity or new variants without variant-specific vaccines yet available).

Merck's (MRK) molnupiravir has also received FDA authorization, but we assume its peak sales and long-term sales will be more limited, because of its lower efficacy and uncertainty around safety. And Novartis (NVS) is starting development of a main protease inhibitor in 2022, which could also work against a broad range of coronaviruses and therefore be helpful in future pandemics.