Pfizer Vs. Merck: Battle Between The Giants During Pandemic And Beyond
Summary
- Though Pfizer and Merck successfully developed their own COVID-19 anti-viral therapeutics, their similarities ended there. Pfizer's Paxlovid is clearly superior at 89% efficacy, boasting more than double Merck's order book.
- Despite the robust sales for Comirnaty and Paxlovid, Pfizer is still facing a patent cliff from FY2024 onwards, with a potential loss of $22B annual revenues.
- On the other hand, Merck has managed to extend Keytruda's patent by eight years, which may account for an additional $137B of revenues from 2028 to 2036.
- Moving forward, Merck is expected to report decent growth at a CAGR of 3.93% over the next five years, while Pfizer's revenue will return to its pre-pandemic stagnation.
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Investment Thesis
Pfizer Inc (NYSE:PFE) has achieved global success in FY2021 by distributing 3B of its COVID-19 vaccine, Comirnaty, in over 107 countries. In addition, the company's COVID-19 anti-viral pill, Paxlovid, is expected to be the therapy of choice for many infected patients due to its high efficacy at 89% and robust anti-viral activity to the globally dominant Omicron variant. With WHO and many scientists warning that the COVID-19 pandemic is here to stay, we may expect PFE to record robust sales for its COVID-19 related vaccine and therapeutics moving forward. However, the consensus has been less optimistic with COVID-19 related sales expected to wane from FY2024 onwards.
Merck & Co., Inc. (NYSE:MRK) has fallen short of the potential revenues it would have enjoyed from its COVID-19 anti-viral pill, Molnupiravir, due to its lower efficacy of 30%. Nonetheless, the company is projected to continue its steady revenue performance due to its blockbuster drug, Keytruda, and robust pipeline. In addition, we expect an upward re-rating of MRK's future revenues, assuming prompt regulatory approval for its first-in-class therapeutics for pulmonary arterial hypertension, Sotatercept.
Pfizer Is The Undisputed Winner During The COVID-19 Pandemic
Based on the existing order book for its COVID-19 anti-viral pills, PFE is expected to report at least $12.94B of additional revenues in FY2022, assuming a selling price of $529 per Paxlovid course. The US alone had ordered 20M courses, which accounted for $10.58B worth of revenues. In addition, assuming a total manufacturing capacity of 120M, the additional revenue from Paxlovid sales would account for the upper guidance of $63.48B. It would boost PFE's FY2022 revenue to over $100B, given that PFE guided sales of Comirnaty at $32B and Paxlovid at $22B in its FQ4'21 earning release.
We expect more countries to order more Paxlovid for stockpiling reasons, given its high efficacy of 89% for high-risk patients and 70% for standard-risk patients. PFE also had reported that its anti-viral pill is able to produce excellent anti-viral responses against the globally dominant Omicron variant. In addition, WHO had warned that future COVID-19 variants might be more transmissible than Omicron. As a result, PFE may continue to report robust demand for its mRNA vaccine, Comirnaty, and anti-viral therapeutics, Paxlovid. However, we expect these sales to be lesser moving forward, only at a small fraction of its current blockbuster sales.
PFE Revenue, EBITDA, and EBITDA Margin
S&P Capital IQ
In FY2021, PFE reported revenues of $81.3B, which represented a massive YoY growth of 93%. These are mostly attributed to its Comirnaty and Paxlovid sales in the same year, which accounted for $36.8B and $76M, respectively. Nonetheless, the company reported a slight decline in its FQ4'21 revenues by 1% QoQ, while also missing consensus estimates by 360M. The misses are partly attributed to lower demand for PFE's Prevnar family ( pneumococcal conjugate vaccine ), which recorded a -25% YoY decline at $732M.
PFE Projected Revenue & EBITDA
S&P Capital IQ
Based on the existing order book of $32B for Cominarty in FY2022, we can also observe a decline of -13% YoY for its demand. For FY2022, PFE guided revenues in the range of $98.0B to $102.0B, representing an increase of 25.4% YoY. However, consensus estimates that demand for its mRNA vaccine and anti-viral therapeutics will wane from FY2023 onwards. In addition, it is estimated that from FY2024 onwards, PFE may report flat revenue growth, similar to FY2018 and FY2019 revenues. Nonetheless, by FY2024, PFE would still have recorded excellent revenue growth at a CAGR of 10.53% since FY2019, discounting the effects of the COVID-19 sales.
Pfizer's Impending Patent Cliff From 2024 Onwards
Pfizer
Nonetheless, PFE is also about to experience a massive patent cliff from FY2024 onwards. It is estimated that PFE may lose approximately $22B of annual revenue from the loss of exclusivity by the end of the decade. Nonetheless, PFE has bolstered its pipeline by multiple acquisitions such as Arena Pharmaceuticals, Array BioPharma, Therachon, and Trillium Therapeutics Inc since 2019. In addition, out of 94 programs in its pipeline, PFE expects to obtain regulatory approval for multiple therapeutics, which may account for $15B of additional sales by 2025.
In addition, PFE is currently adding mRNA technology into its pipeline, with the Influenza program in Phase 1 studies now. However, based on PFE's FY2020 data, only 9% of its clinical trials made it to regulatory approval. Furthermore, given the complicated process for clinical trials, it may take easily another 3 years to achieve regulatory approval. As a result, despite the patent cliff, we may expect PFE to at least maintain stable revenue within the next few years, bolstered with residual sales for its COVID-19 related products.
Molnupiravir's Lower Efficacy Meant Lower Sales For Merck Moving Forward
In its recent FQ4'21 earning calls, MRK reported that Molnupiravir accounted for $952M of sales, representing 7% of its FQ4'21 revenues. In addition, MRK expected approximate sales of $5B to $6B for 10M courses of Molnupiravir in FY2022. We are assuming that the higher-income countries are paying $700 per course, while the lower-income countries, such as the Philippines, paying $118.4 per course of 40 pills, at $2.94 per pill.
However, compared to Paxlovid's obvious victory, we expect a smaller degree of success for Molnupiravir, due to its lower efficacy rate. It is evident as MRK only committed to producing over 20M courses of its anti-viral therapeutics in FY2022, compared to 120M courses of Paxlovid by PFE in the same year. In addition, others had raised concerns about the drug's side effects, which may fuel further COVID-19 variant mutations, and potential congenital disabilities/ cancerous tumors in prescribed patients. As a result, once the advance purchase agreements are fulfilled, we expect a dramatically reduced sales attributed to Molnupiravir, moving forward.
MRK Revenue, EBITDA, and EBITDA Margin
S&P Capital IQ
In the past five years, MRK reported decent revenue growth at a CAGR of 5.74%. The company has also been improving its EBITDA margin from 31.4% in FY2017 to 40% in FY2021. In FY2021, MRK experienced a remarkable recovery from the COVID-19 pandemic, with revenues of $52.6B, representing an increase of 9.6% YoY and 12.3% from FY2019. In FQ4'21, MRK reported excellent revenues of $13.52B, representing an increase of 2.8% QoQ, 23.4% YoY, and 13.9% from FQ4'19 levels. As a result, it is evident that MRK's revenue growth had normalized from the effects of the COVID-19 pandemic.
Beyond its COVID-19 anti-viral therapeutics, MRK also reported excellent sales for its three blockbuster drugs. Keytruda, Gardasil/9, and Januvia/ Janumet accounted for $17.2B, $5.7B, and $5.28B of sales in FY2021, representing an incredulous 53.6% of its annual revenue. Moreover, due to MRK's clever patent applications, we may expect Keytruda to deliver its exceptional revenues for the company until its patent expiry in 2036. With 8 years of extended patent protection from 2028 to 2036 in the US, Keytruda is expected to bring a total of $137B of additional revenues to MRK.
MRK Projected Revenue & EBITDA
S&P Capital IQ
In FY2022, MRK is expected to report revenues of $57.45B, representing a remarkable increase of 9.2% YoY, partly attributed to the sales of its COVID-19 anti-viral pill, Molnupiravir. Nonetheless, in the next five years, MRK is expected to report a deceleration of revenue growth at a CAGR of 2.47%, potentially attributed to reduced demand for most COVID-19 related therapeutics.
As part of its future pipeline, MRK poured $12.45B into its Research and Development in FY2021, while also acquiring Acceleron Pharma for $11.5B. Merck currently has 96 programs in Phase 2/3 clinical trials, with three already in the regulatory processing stage. In addition, the company expects 90 potential new regulatory approvals by 2028, which would definitely boost MRK's revenues moving forward, given the lack of a patent cliff similar to PFE (Januvia's patent related to its monophosphate version will only expire in 2026).
In addition, assuming a prompt regulatory approval for Acceleron's lead therapeutic candidate, Sotatercept, we may expect a further upwards re-rating for MRK's future revenues. Sotatercept is currently in Phase 3 clinical trials, which has massive potential as the first-in-class therapeutics for pulmonary arterial hypertension (PAH). So far, no therapeutics have been able to reverse and/ or manage the progression of pulmonary arterial hypertension. As a result, we expect strong demand for the product moving forward, with a potentially bigger patent wall than Keytruda to protect Sotatercept from any future biosimilars.
So, How Do PFE and MRK Stocks Compare?
MRK & PFE EV/Fwd Revenue
S&P Capital IQ
MRK is currently trading at an EV/NTM Revenue of 3.74x, lower than its 3Y mean of 4.58x. While Pfizer is at an EV/NTM Revenue of 3.2x, lower than its 3Y mean of 4.53x. Consensus estimates also rate MRK and PFE stock as attractive now, given their under-valuation and robust pipeline. As a result, aggressive pharmaceutical investors may use this opportunity to add MRK and PFE stock to their portfolios.
Nonetheless, investors must be aware that PFE's current valuation has priced in strong growth momentum for FY2022 and FY2023. In addition, it is also evident from the EV/NTM Revenue chart that consensus estimates PFE to report sideways revenue trends from FY2024 onwards. As a result, we encourage investors interested in PFE to wait for a deeper retracement and clarity from its pipeline before adding to their portfolio.
Therefore, we rate MRK stock as Buy with a neutral rating for PFE stock.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.