Pfizer Posts Strong Data on COVID Drug Paxlovid

Pfizer (PFE) reported strong clinical data for COVID-19 treatment Paxlovid, but we don’t expect any major change to our fair value estimate or the fair values for firms with competing COVID treatments, including Merck (MRK). While the sales benefit of Paxlovid will probably be robust for Pfizer in the near term, we don’t expect a long tail of sales from the drug because of a likely decline in cases as vaccinations continue to increase. Nevertheless, Pfizer’s ability to quickly bring an effective treatment to the market underscores its innovative drug development power that helps support its wide moat.

The clinical data for Paxlovid looks strong. In a study of high-risk nonhospitalized COVID patients, the drug reduced the risk of hospitalization and death by 89%, surpassing the efficacy of Merck’s molnupiravir and several antibody treatments. Also, the side effect profile looks favorable. Based on the strong efficacy, reasonable safety profile, and ease of oral delivery, we expect the drug will probably take the leading share in the treatment of nonhospitalized COVID patients. However, we expect most of the contracted sales for the competing antibodies and Merck’s molnupiravir to remain intact, especially since Paxlovid doesn’t have emergency authorization yet (expected by late 2021/early 2022).

Also, since the duration of our projections for COVID treatments is relatively short, we are not making any fair value changes for Merck or other companies with competing COVID treatments based on Pfizer’s strong data. We think pressure on share prices for competing firms like Merck is overdone (albeit likely correcting for an overly positive reaction to the stock on the initial positive data for molnupiravir). Importantly, while sales for COVID treatments are likely to see major demand spikes in the near term, we expect these sales to taper off as the pandemic recedes with increased vaccinations, which should result in less of an impact on stock price valuations.

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