The pharmaceutical industry has been ranked among the most profitable and dynamic industries for a long time now. The hold of the prominent players in this industry has only strengthened in the market during the past few years. With the onset of COVID-19 and increased attention of the market towards pharmaceutical companies, the stock prices of medical stocks began to climb. Investors started to flock toward stocks like Moderna and Pfizer Inc., which led to an increase in the prices.
As the threat of the virus is subsiding, the question that is on many investors’ minds is whether it’s still recommended to invest in these pharmaceutical stocks. The massive rollout of vaccinations across the world caused the stock prices to soar, but in recent days, they have been on a downward trend.
Business Update
Pfizer
Pfizer reported US$81.3 billion in revenue for FY2021. The COVID-19 vaccine alone earned it US$3.5 billion in revenue in the first quarter of 2021, but that was the peak.
Over the past 5 years, Pfizer has experienced slow growth across their total revenue, gross profit, as well as net income with low single digits, but Pfizer’s growth picked up rapidly in early 2021 when COVID-19 hit.
Recently, Pfizer came up with an antiviral drug for COVID treatment by the name of “Paxlovid”. The company expects to make approximately 80 million courses of the antiviral drug by the end of 2022. Of course, this pill is not unmet with competitors as Merck and Co has also launched an antiviral drug of their own, partnering with Ridgeback Therapeutics. Despite the competition, a recent report by Merck reported the risk reduction in hospitalization and death from its antiviral drug, “Molnupiravir”, fell from 50% to 30% in the final analysis. Meanwhile, Pfizer’s Paxlovid has shown an 89% risk reduction in outpatients. On top of all this, Pfizer has filed Paxlovid for an FDA Emergency Use Authorization and has signed a contract to provide 10 million courses to the U.S. government by 2022 for $5.29 billion.
Even though sales are currently hovering above the Wall Street forecasted demand by about $1 billion, the supply deals being signed by Pfizer are slowing down, which is causing concern among investors and analysts. The key reason behind this is limited awareness and publicity of the new drug, inadequate testing, and physicians’ concerns about the interaction of Paxlovid with other drugs.
Moderna
Moderna reported US$18.5 billion in revenue for FY2021. Its revenue for the first quarter of 2022 when compared to that of 2021 has more than tripled from US$1.9 billion to US$6.1 billion.
Similar to Pfizer, Moderna also experienced low growth over the past 5 years but has since picked up pace after COVID-19 hit. Of note is the signing of a deal with the US government to purchase an updated version of the COVID-19 vaccine worth $1.74 billion. An Omicron booster is expected, but there are hurdles to overcome, which include acquiring an Emergency Use Authorization by the FDA and a supply deal with the US government.
Now that we are up to date with the recent business developments with Pfizer and Moderna, let us consider both the bull and bear cases to decide if these 2 companies make for a good investment at this point in time.
Bull Case
Even with coronavirus concerns starting to fade out, the virus is not completely out of the picture, especially in the commercial context. Vaccine booster doses are making these companies millions and billions of dollars even to this day.
In Pfizer’s case, they are expected to release an Omicron-tailored version of the vaccine in fall, which will boost sales, and the stock price is also expected to follow suit. COVID-19 treatment pills like Paxlovid are also expected to keep making hefty profits.
There has also been an increase in health consciousness as well as a concern for physical wellbeing with the outbreak of the pandemic, which might indicate an increase in the sales of vitamins, immunity boosters, and other such supplements. All of these factors will continue to help medical and pharmaceutical companies thrive as the economy and the world moves into a post-covid state.
Bear Case
In the bear case, the ongoing decline of medical stocks will continue. With the COVID-19 crisis waning, the revenue and popularity of pharmaceutical companies are not certain to be maintained. Pharmaceutical companies are also often at the brunt of criticism and scrutiny because of their unethical practices and lack of sustainability.
Their role in vaccine distribution was heavily criticized by a lot of entities. With the pandemic, the general outlook in the corporate arena is shifting, and awareness amongst the public regarding corporate social responsibility has increased. On many occasions, pharmaceutical companies are being portrayed as villains who capitalize on disease and suffering. This will erode their image and might eventually end up making a sizable impact on the bottom line.
Moreover, with more and more companies joining the industry, companies in this sector will always remain in heated competition. Not forgetting the fact that they can easily be pushed into obsoletion due to lack of innovation or loss of patents for drug formulas.
Final Thoughts
In a nutshell, considering this information, the decision of investing in medical and pharmaceutical companies might not be as straightforward as one might think. The industry is very fast-paced and dynamic, with new viruses and diseases constantly being discovered. It is up to the company and its management to be forward-thinking and innovative to remain ahead of its competitors.
So to answer the important question: are medical stocks still worth buying today? It boils down to what you think will happen over the next 12 to 24 months. If you are anticipating a huge slowdown in covid cases as well as other new diseases (i.e. monkeypox), then perhaps medical stocks won’t give you a good Return on Investment (ROI).
On the flip side, if you think that there will be a continued demand for COVID-19 drugs and vaccinations with or without the rise in cases, then you can expect these medical stocks to continue prospering and giving you a handsome ROI.
Written by Gavin Tan, in collaboration with StocksCafe.
Disclaimer: The content in this article (the “Information”) is not and shall not be construed as investment advice. This Information is meant to be informative and for general purposes only. Investment involves risk. Past performance is not indicative of future performance. Investors should refer to the offering documentation of the product(s) for detailed information (including risk factors) prior to investing in the product(s). If you have any query on the above information or any product offering documentation, you should seek independent professional advice.
