Markets got rough recently on news of China reporting record-high COVID-19 infections, forcing fresh lockdowns across the county. This comes close on the heels of the World Health Organization’s warning of a rise in Covid-19 cases.
While a conspiracy of geopolitical factors – hot inflation, the Ukraine war and rising interest rates – continue to create a drag on equities, stocks of vaccine makers remain strong as they continue to roll out new and reformulated vaccines against new coronavirus variants.
The following vaccine makers continue to dominate their markets as many countries around the world use their vaccines as their primary weapon in the fight against the pandemic. These drug makers with robust research and vaccine development capabilities are well positioned to benefit from a steady demand for their treatments as a new wave of COVID-19 infections arrives this winter.
Global pharma behemoth Pfizer (PFE) has been spearheading the fight against Covid-19 with its mRNA vaccine. The company boasts nearly US$50 billion (excluding COVID-19 products) in sales, the majority of which was derived from prescription drugs and vaccines. The drugmaker sells pneumococcal vaccines, cancer, and cardiovascular treatments, among others. International sales account for close to 50% of its total sales. Within international sales, emerging markets are a major contributor.
“Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs,” says a Morningstar equity report.
After many years of struggling to bring out important new drugs, Pfizer is now launching a spate of potential blockbuster treatments for critical illnesses including cancer, heart disease, and immunology.
The company's large size creates significant competitive advantages in new drug development. “This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business,” says Morningstar sector director Damien Conover, who puts the stock’s fair value at US$48, and projects close to 6% annual sales growth between 2020 and 2025 as new drugs offset generic competition.
Pfizer’s patent-protected drugs confer strong pricing power which helps generate returns on invested capital in excess of its cost of capital. Moreover, “the patents give the company time to develop the next generation of drugs before generic competition arises,” asserts Conover.
Pfizer recently reported solid third-quarter results on the back of “better-than-expected COVID-19 vaccine sales,” Conover adds.
U.S. biotech major, Moderna (MRNA) is another leading player in the COVID-19 vaccine area. The firm's mRNA technology was rapidly validated with its COVID-19 vaccine, which was authorized in the U.S. in December 2020. As of early 2022, Moderna had 44 mRNA development programs – across therapeutic areas, including infectious disease, oncology, cardiovascular disease, and rare genetic diseases - of which 25 are in clinical trials.
“Moderna's mRNA technology has gained rapid validation as sales of its COVID-19 vaccine soared in 2021,” says a Morningstar equity report, noting that the firm created, developed, manufactured, and got regulatory authorization for its Covid-19 vaccine in a record-breaking span of just 11 months.
The vaccine was one of the first two mRNA vaccines ever authorized (alongside Pfizer/BioNTech's). “The pandemic accelerated Moderna's evolution into a commercial-stage biotech, and we expect that the firm's ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs,” says Morningstar sector strategist Karen Andersen, who recently lifted the stock’s fair value from US$202 to US$232, incorporating the base-case scenario for “long-term COVID-19 vaccine sales to include high-risk individuals between the ages of 50 and 64.”
The drugmaker’s vaccine showed a 94% efficacy rate against COVID-19 and 100% efficacy against severe disease. It delivered more than 800 million doses of the vaccine globally in 2021, ringing up US$17.7 billion in sales.
“Moderna's COVID-19 pipeline is also full as the firm attempts to prepare for future variants that could bypass protection from its first-generation vaccine,” adds Andersen.
British biotech firm, Astra Zeneca (AZN) sells branded drugs across several major therapeutic classes, including gastrointestinal, diabetes, cardiovascular, respiratory, cancer, immunology and rare diseases. International markets account for the lion’s share of sales while the U.S. represents close to one-third of it.
“AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat,” says a Morningstar equity report, adding that the replenishment of new drugs is setting up industry-leading growth.
AstraZeneca is developing several key products that hold blockbuster potential. It is emerging as one of the strongest in the drug group. The company's recently launched drugs for hard-to-treat cancer are particularly well-positioned based on leading efficacy.
“These drugs should also carry strong pricing power, driving the potential to expand Astra's margins,” argues Conover, who puts the stock’s fair value at US$74.
Astra’s recent US$320 million acquisition of biotechnology company Neogene Therapeutics boosts the former’s cancer treatment offerings. The company is making a big push into breast cancer therapy evidenced by the fact that it is showcasing 12 of its potential new medicines at the upcoming San Antonio Breast Cancer Symposium (SABCS).
Further, global sales of the company's COVID therapy, Evusheld, have steadily grown, somewhat offsetting the rapid decline in COVID vaccine sales.
The company recently raised its full-year earnings outlook after strong Q3 revenue and profit, boosted by its key cancer drugs. It reported year-to-date billion, an increase of 37%, in 2022.
