- Pfizer falls behind in RSV rollout
- GSK needs ex-US growth
The spread of Covid-19 showed the value of being able to quickly roll out a vaccine, both in the number of lives saved and the size of the profits available. But recent earnings announcements from top drug companies raise questions about the business model in the future, as established vaccine sales fall.
Pfizer (US:PFE) slashed its full-year revenue outlook by around $10bn (£8bn), or 14 per cent, alongside a 42 per cent decline in sales in the third quarter. Meanwhile, Moderna (US:MRNA) swung to a loss and reported huge writedowns on unused stocks of its coronavirus jab. Against this ominous backdrop, GSK (GSK) has pinned its hopes for medium term growth on vaccines for other viruses.
Whether these products are enough to help it offset an expected drop-off in revenues from HIV drugs before the end of the decade ultimately depends on their uptake. The group’s Q3 figures showed demand for Arexvy – which protects against the common respiratory infection RSV – was stronger than expected among US consumers. It claimed that the jab made up two-thirds of the country’s retail vaccinations (i.e. those offered in pharmacies) in the third quarter.
If there is any lesson to be learned from the pandemic, it’s that the vaccines with the best safety and efficacy profile tend to dominate in terms of market share. This is why Pfizer and Moderna’s mRNA-based jabs won out over rivals such AstraZeneca (AZN), which saw its Covid vaccine sales stall following rare reports of blood clots. Preliminary research has indicated that Arexvy offers more durable protection against RSV than Pfizer’s rival Abrysvo, which also received regulatory approval from the FDA in May.
“The ability for GSK’s vaccine to confer the same level of protection over two RSV seasons that Pfizer’s vaccine […] can only offer with over one season, is something we believe supports a best-in-class claim,” said analysts at Shore Capital. Arexvy also has another major advantage over its closest rival: It’s the only RSV jab being stocked by CVS Health Corporation (US:CVS), the largest US pharmacy chain. This explains why the vaccine was able to garner more than £700mn in sales across the three months to the end of September.
However, analysts have warned that some of Arexvy’s success is down to a pattern of inventory buildup by pharmacies, meaning Q4 revenue could be somewhat less impressive. “GSK doesn’t know what the underlying demand is in terms of how many people are going to come forward this winter for an RSV vaccine,” said Adam Barker, the head of healthcare equity research at stockbroker Goodbody. “The good news is that the product is resonating very well with physicians, who seem very willing to recommend it.”
GSK’s management has predicted that Arexvy could generate peak annual sales of £3bn towards the end of the decade. This would be ideal timing for the company, as its HIV treatment Dolutegravir – an important revenue contributor – is due to go off patent in the US and Europe in 2028 and 2029, respectively. Once a drug loses its patent exclusivity, cheaper generic alternatives enter the market and erode sales of their branded predecessors.
Revenue growth from another of GSK’s key products, the shingles vaccine Shingrix, has also begun to slow in the US as it has been on sale for five years – meaning that it needs demand to pick up in other regions. In August, management estimated that around 30 per cent of eligible Americans had now received the vaccine – a figure it says amount to around half of the total opportunity there.
However, outside of a pandemic situation – in which people of all ages and demographics require multiple doses of a jab – demand for vaccines against common viruses is likely to be fairly stable. Both Shingrix and Arexvy, for instance, are aimed at older and/or medically vulnerable people.
“A given number of people in a year will be diagnosed with cancer, unfortunately, so there will always be a new market for that drug,” Barker said. “Whereas when you’re protecting people with a vaccine, you probably get a smaller amount coming into that cohort every year who benefit from it.”
Shingrix initially received approval in the US in 2017, though its wider rollout was disrupted by the pandemic and related supply issues. This means there is a global market that has yet to be developed – and this revenue opportunity may help to alleviate investors’ longstanding worries about the strength of GSK’s pipeline.
With shares up more than 3 per cent across the past 12 months, GSK certainly appears to have less to prove than Pfizer, which has tumbled some 41 per cent. "Vaccine fatigue", as it was labelled by an analyst, is likely to impact demand for the group’s other respiratory jabs. In response, chief executive Albert Bourla claimed the biggest impact “will be when and if we develop combination products” that are capable of protecting against multiple viruses.
Pfizer is currently in the early stages of testing a combined Covid-19 and flu vaccine. But until it brings another novel product to market, investors may remain fixated on how to replace the pandemic profits.
