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Pfizer’s Covid-19 vaccine doesn’t add a ‘tremendous amount’ to the company’s valuation: Analyst

Navin Jacob – UBS Pharmaceuticals Analyst joins Yahoo Finance’s On The Move panel to deep dive into the latest pharmaceutical earnings reports.

Video Transcript

NAVIN JACOB: We had a trio of big pharma earnings today. We talked about them at the top of the show– Pfizer, Merck, and Eli Lilly all reporting their numbers. To make sense of them, let’s bring in Navin Jacob. He’s a UBS Pharmaceuticals analyst. And, Navin, I want to take Pfizer first because not only, of course, did the company report its numbers– ProfitiX items did beat estimates– it saw a decline in sales overall.

But it said that 42,000 patients have enrolled in its final-stage clinical trial of its coronavirus vaccine. In your note on the company, you look at the idea of interim analyses of that vaccine trial. And for those of us who are not experts in this area, can you talk us through what the significance of that is and what conclusions you’re drawing from it?

NAVIN JACOB: Sure, so just for background for everyone, when you conduct a Phase 3 trial, particularly a large Phase 3 trial, the trial investigators have an ability to look during the course of the trial to run an analysis, which is called the interim analysis, to see if the drug– in this case, the vaccine– is more efficacious than the comparator arm, and in this case that’s placebo. And so with the Pfizer BioNTech COVID vaccine trial, there are four interim analyses and then the final analysis.

Now, the Street expectations, just mostly based on some of the commentary that came out of the Pfizer CEO, who had been discussing the possibility pretty robustly– discussing the possibility of seeing some data from the vaccine trial by the end of October– based on that commentary, as well as based on, for example, our analysis, and I’m sure others have run this, we had thought that the first interim analysis from that phase 3 COViD trial had happened on October 10, with the second interim analysis potentially this week. However, what Pfizer said today is that the first interim analysis has not even happened as yet. And they confirmed that on the conference call that just ended moments ago.

Now, there are some potential read-throughs there. On the other hand, it’s also a little bit confusing to some of us who are modeling this because we’re trying to understand what that means in terms of the epidemiology. And I’ll stop there and take any questions.

Um, well, we heard from Pfizer, too, quote, “I’m not bullish that the vaccine will work. I’m cautiously optimistic that the vaccine will work.” And that, you know, as an investor looking at pharmaceutical companies, would I be safer looking at a very large firm, perhaps like Johnson & Johnson, which isn’t gonna be dependent on a successful vaccine? I mean, we know that they’ve got one in the pipeline. But they’ve got so much more to that business. Can I protect myself going larger?

NAVIN JACOB: Um, well, we’re neutral rated on Pfizer, and we were neutral rated regardless of the COVID vaccine. So what I’ll say, I mean, is I’m just– with regards to size, obviously Pfizer is a very large company, and the COVID vaccine in and of itself does not add a tremendous amount to the valuation of Pfizer. You know, when we include $30 billion with a B on a cumulative basis spread across 10 years and assume a 60% probability of success and then split it 50/50 with BioNTech– remember, they’re not– Pfizer is not the sole owner of this vaccine, then the NPV to Pfizer is only $2, roughly. And even if we take that probability of success to 100%, then the additional NPV is also $2. So it’s not a huge swing to Pfizer’s valuation.

So I’ll just stop there and then– but, of course, for some of the smaller companies, it’s a massive, massive impact.

Navid, this is Tendayi. One question– so one thing that the big global pharmas are really good at is logistics, infrastructure, moving things around. For a vaccine like this, which is, you know, if it works, regardless of who creates it, it’s gonna have to be distributed really rapidly. Are you going to see more companies participate in the value chain than just the companies who actually develop the vaccine?

NAVIN JACOB: Most certainly that is gonna be the case, and particularly for Pfizer and BioNTech, as well as Moderna. So these mRNA quote unquote “vaccines,” which is this novel modality, they require special distribution capabilities– particularly Pfizer, BioNTech, that requires negative 70 degrees storage. So that’s super cold refrigeration. So there are certain companies that have been trading on the back of that, those sort of derivative calls. And then quite frankly, I can’t discuss that. That’s outside my sector. But we have expert analysts internally at UBS that can discuss that better than I can.

And similarly, for Moderna, its– the requirement is negative 20 degrees Celsius– not the super cold storage requirement, but nonetheless some special requirement that is needed there as well.

So Navin, you mentioned that, whether you’re looking at a Pfizer or some of the other big companies that are trying to develop vaccines, it doesn’t necessarily provide huge upside if they do indeed succeed from a financial perspective. But then you have Eli Lilly today and its attempts to develop an antibody treatment for coronavirus, and that seems to be hurting the company, right? Because it says this year it’s gonna spend about $400 billion on research and development. So how should we be thinking about how to trade these companies based on coronavirus vaccine and/or treatment prospects?

NAVIN JACOB: Well, I– I would just say that, for the large companies in particular, you should not be– my personal opinion is not to be investing in them solely based on a COVID treatment and/or vaccine. Most of them have said very clearly that during– especially during the pandemic phase, they’re gonna be providing drug at a very reasonable, accessible price. And so the economics associated with them are limited, especially given the size of these companies. And to your point, they’re spending money, and they’re doing so because it affects the world and they’re in a position to try and help in that, and they are.

On the other hand, for a smaller company that may have a very innovative technology, there may be some real economic benefits. And there could be– especially for those smaller companies– some read-through to the platform. That’s quite also true for some of the larger companies– Merck, for example, is a company that– and Pfizer as well– that has a history of vaccine development. To the extent that these vaccines are positive and successful, it’s not– it’s less about the value add for that particular vaccine. But it’s a reminder that these companies have these very unique business groups and development groups that not very many companies have. And it adds to the quote unquote “tail value” of these companies. It adds to the multiple–

Right.

–and terminal growth.


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