At the height of the pandemic, investors rushed into vaccine manufacturers, which were something of a safe bank. However, the decline in coronavirus infections has led to a reversal of fortunes for these Covid 19 winners, with shares falling on sales uncertainties and questions about their future growth.
Shares of Pfizer, which has developed a vaccine and an antiviral drug, have slumped 46 per cent since peaking in late 2021, while German vaccine partner BioNTech has fallen 75 per cent and rival Moderna 79 per cent.
Less successful vaccine makers have fallen even more: Shares in Novavax, whose Covid vaccine has sold far less than its messenger RNA vaccines, have fallen 97 per cent since the start of 2021.
Evan Seigerman, an analyst at BMO Capital Markets, said investors who drove these stocks up in a “sugar rush” are now “mentally over the pandemic”.
“In 2020, interest rates were at zero, everyone had extra cash because they weren’t spending it to go out, and there was the fiscal stimulus, so what do you do with your money? Invest it in the stock market,” he said.
Now that the boom in their stocks is over, companies have yet to deliver a compelling vision for life after the pandemic. The market for Covid vaccines is rife with uncertainty due to unpredictable demand, while companies are spending their profits on ambitious plans that will take years to realize.
Pfizer, the maker of best-selling vaccine Covid, expects vaccine sales to fall 64 per cent this year and antiviral Paxlovid to fall 58 per cent compared to 2022.
Pfizer CEO Albert Bourla said at the company’s recent financial press conference that it would have more clarity and certainty about the future of its Covid products by the end of the year. “We recognize that all of these uncertainties make it difficult to forecast Pfizer’s future revenues – and that they also impact our share price,” he said.
Michael Leuchten, an analyst at UBS, said many experts had predicted during the pandemic that the vaccines would not be a safe annual revenue stream. “It was obvious to anyone who has ever dealt with a pandemic that this would not be the case,” he said.
Pfizer’s future sales will depend on new variants that defy current protection. Factors to consider include the number of people suffering from vaccine fatigue and demand for paxlovid beyond that of the US government when the drugmaker begins commercial sales in the country.
Moderna and BioNTech also hope that the winter of 2023 in the Northern Hemisphere will bring more certainty about what a “normal” market for Covid vaccines will look like. Moderna president Stephen Hoge said the company expects sales of its Covid vaccine to reach $6 billion to $8 billion this year and does not know whether that figure will be repeated or somewhat lower in future years. “It really depends on what happens in the fall with the uptake of the vaccine,” he said.
How investors view the future of companies like Moderna and BioNTech will depend on how they assess the potential of mRNA, which was first used in the pandemic to rapidly produce adaptable Covid vaccines but is also being tested in cancer treatment.
The initial high efficacy rates of the vaccines excited some investors and fueled hopes that mRNA would be successful in other major vaccine markets, from improving the efficacy of flu vaccines to fighting difficult targets like HIV. After the disappointing initial results of Moderna’s flu programme, trials of an optimized flu vaccine looked more positive. However, shareholders are now more aware that mRNA is not a holy grail.
Gareth Powell, head of healthcare at specialist fund manager Polar Capital, said mRNA follows previous platforms such as antibodies, where investors were excited about developers using the technology first, but then quickly followed by other companies. The other major vaccine makers, including Sanofi and GSK, are now working on mRNA.
“They were thought to have these unique technology platforms, but it’s no longer about the platforms themselves, it’s about what they are developing in their pipelines,” he said.
BioNTech may face an even bigger challenge. The company specializes in oncology, but its only approved product is for infectious diseases. The German biotech wants to develop personalized cancer therapies that use mRNA among other technologies, but most of its programmes are still at an early experimental stage.
The profit from Covid vaccines gives the company the money to support research for many vaccines. But investors are also nervous about the company’s spending levels. Last month, the company lowered its full-year research and development spending projections by €400 million in an effort to “raise cost consciousness.
“I think that’s smart. When you are taking in billions, you don’t want to become a cash-burning biotech,” said Suzanne van Voorthuizen, an analyst at Van Lanschot Kempen. If costs are controlled, the $27 billion market cap is quite attractive, she said, as the company has €17 billion in cash and cash equivalents.
Ryan Richardson, chief strategy officer at BioNTech, said the company is focused on the medium to long term and most shareholders are long-term investors. “We don’t focus too much on share price,” he said.
“They certainly want to see more investment… to realize the full potential,” he said. “But on the other hand, they also want us to manage our P&L and expenses prudently, which sometimes means tough trade-offs between the short term and the long term.
He said the company was heading for a “data rich” 12 months in which it could show investors what it could do in oncology. Investors will have to wait until at least 2026 for an approved oncology product.
Pfizer has also invested its Covid money swiftly in replenishing its drug pipeline, aiming to bring 19 new products to market within 18 months, most of which were discovered internally, and to generate at least $25 billion in risk-adjusted revenue from business development by 2030.
The New York-based drugmaker has acquired four companies – Arena, ReViral, Biohaven and Global Blood Therapeutics – that it expects to contribute about $10 billion in revenue by 2030. And it plans to acquire oncology-focused biotech Seagen for $43 billion, which it expects to contribute more than $10 billion in revenue in 2030.
Powell said investors were concerned that Pfizer had paid a lot for what it bought. “You are punishing them for the increase in investment in the short term and not giving them a reward at the end,” he said.
Pfizer said its approach was to look for opportunities “where we are able to add significant value to bring new breakthroughs to patients quickly”.
Linden Thomson, senior manager of the AXA IM Framlington Biotech fund, compared the vaccine companies to other companies that had a stellar year because of a single drug, such as Gilead with its hepatitis C drug and to some extent Vertex with its cystic fibrosis treatment.
She said that a company like Moderna, which the fund holds, has massively expanded its production capacity and gained a huge amount of experience with its new technology because it is so widely used.
While some investors are skeptical of companies without long-term growth plans, she said Moderna has overcome all challenges.
“In my opinion, they should be given the benefit of the doubt because, frankly, they have done everything right in everything they have been accused of doing,” she said.
Thomson said that in future pandemics, vaccine manufacturers would probably still invest in developing a vaccine against a new pathogen if they thought they had a chance of successfully fighting it. “People have seen how much profit you can make on it,” she said.
However, companies may be more cautious about how long the new reality of a pandemic will last, she added. “With the next pandemic, investors might look back and will probably assume that the changes in the way we live will last a few years, rather than assuming from the outset that this will be the new normal in the long term,” she said.