Covid revenue is giving way. New boosters may not help.

This fall, shot makers are faced with an unprecedented challenge. Both ran costly covid-19 vaccine manufacturing and distribution operations in 2021 and 2022 as governments bought billions of doses. Now, demand is evaporating as the pandemic ends, while in the lucrative US market, the federal government is largely getting out of the business of procuring Covid-19 vaccines, leaving the purchase to pharmacies, health systems and other actors.

Together, these two factors create uncertainty about the future of the covid-19 vaccine business and depress company stock prices.

Pfizer

and

Modern

amid falling earnings and revenue, and deep unease among investors seeking long-term growth. Next month, it will all come down to one question: how many Americans will choose to take this year’s Covid-19 boosters?

Companies know they have a problem. “We are very aware that all of these uncertainties make it difficult to forecast Pfizer’s future earnings…and also (are) affecting our share price,” Pfizer Chief Executive Albert Bourla said on an earnings call to beginning of this month.

Pfizer shares are down 30.1% this year to $35.84, the first time the stock has traded at that level since the spring of 2021, when the vaccine was first released and before Covid-19 products. 19 of the company will generate two years of record profits. For Moderna, the selloff has been steeper: shares are down 43.1% this year. Actions of

BioNTech

(BNTX), the German company that partnered with Pfizer on its vaccine, are down 28.3% this year.

Moderna executives said on an earnings call in early August that they now expect the 2023 market to be between 50 million and 100 million doses, while Pfizer executives said on a call the same week as the 12.4 million doses administered so far in the US this year was “behind” their previous projections.

“I think investors still think the near-term guidance is pretty ambitious,” says Mizuho healthcare stock strategist Jared Holz. “I think the true demand is much more in line with 50 (million) than 100 (million).”

Even as companies revise their forecasts, lower-than-expected demand could push share prices even lower. Third-quarter earnings should provide more clarity for investors, after contracts with pharmacies and other distributors are more firmly established.

In September, Pfizer, Moderna and a smaller vaccine maker

novavax

(NVAX) are expected to release updated boosters targeting the XBB.1.5 strain of the virus, developed following a Food and Drug Administration request issued in June. US health authorities are taking a similar approach to the flu this year that will see the bulk of the year’s Covid-19 vaccine doses administered from the launch of the updated shots in September through the end of the year. .

Optimistic estimates for vaccine acceptance in 2023 have generally been based on the US market for influenza vaccines, which is in the neighborhood of 150 million doses a year, or about half of the US population. More pessimistic estimates assume that uptake will be limited to older adults and other high-risk groups. Using the latter approach, Goldman Sachs analyst Salveen Richter’s team estimates that just 23.7 million doses were sold in the US in 2023. (Richter’s estimate of $7 billion in COVID revenue -19 in 2023 for Moderna is based on a combination of that estimate and a separate estimate based on flu vaccine uptake).

Estimates are falling as Covid-19 recedes into the background as a global health problem. The official public health emergency ended in the US in May, as did the World Health Organization’s global health emergency. The number of people currently hospitalized with Covid-19 in the US is lower than at any point since the start of the pandemic, even accounting for a recent uptick. And while the virus continues to evolve, variants are emerging they do not appear to pose a particular threat to public health.

Last year, the Centers for Disease Control and Prevention recommended the 2022 bivalent boosters for anyone older than six months. This year, that recommendation could be narrower. “I think they would do what almost every other country in the developed world does, which is target this vaccine to those who are most likely to benefit,” said Dr. Paul Offit, a professor of pediatrics at the Children’s Hospital of Philadelphia. and a member of the Food and Drug Administration’s vaccine advisory committee.

Moderna CEO Stéphane Bancel told Barron’s you wouldn’t be surprised if the CDC recommendation were more specific. “Do I personally believe that a healthy 24-year-old needs another COVID vaccine? Maybe not,” she said. Still, he said, “they may want to not be sick.”

Last year, 48.9 million doses of the updated 2022 boosters were administered between its launch in September and the end of the year. Bancel said Barron’s that he had originally expected demand during the fall 2023 booster season to far exceed the number of doses administered in fall 2022, because the round of reinforcements authorized in the spring of 2022 had undermined the lawsuit in the fall.

“Many people received multiple injections because of the Omicron wave,” which peaked in the first few months of 2022, Bancel said. “I wasn’t too surprised that in the fall term, some people just didn’t get another booster.”

Bancel said Moderna had arrived at its initial estimate of 100 million doses after looking at flu demand. “We believe in a rational place, people who want to get a flu shot should get a covid shot,” she said. “The only thing I think about a lot, that I can’t understand, is that, if you think that there will only be 50 million (covid vaccines) produced this year, it means that two out of three people will walk to a pharmacy or a doctor’s office. asking for flu vaccines they are going to reject a covid vaccine ”.

Not all experts agree with Bancel’s framework of flu and covid-19 vaccines as roughly equivalent. “The flu is different than the SARS-CoV-2 virus,” Offit said. When annual flu shots target the wrong strain, Offit said, they offer very little protection. with covid-19, T cell protections provided by previous rounds of vaccination can still offer protection against serious disease, even in the absence of new antibodies to prevent infection.

Amid a growing sense that demand for Covid-19 vaccines could be drastically lower than expected, both companies are planning cutbacks. Pfizer said in early August that it had a cost-savings plan that it would put into effect if U.S. acceptance of the vaccine fell short of expectations.

“We want to strike that appropriate balance (and) make sure that the investments we make against COVID are aligned with the public need from a COVID vaccination perspective,” said Pfizer CFO David Denton. Barron’s At the time. “We’re going to make sure we have the right field structure, the right cost infrastructure, the right R&D emphasis to make sure everything is aligned with what we expect for COVID going forward.”

Meanwhile, at Moderna, selling, general and administrative expenses increased 57% over the same quarter last year, while research and development expenses increased 62%. “Their cost base is incredibly high,” says Holz.

Bancel acknowledged that the company has too much capacity to manufacture vaccines against Covid-19. “Our cost of goods is too high, because we now have too much capacity,” he said. He said the company will work to reduce its manufacturing capacity for Covid-19. “We are not going to maintain for the next five years, 2X or 3X of the capacity that we need, that is costing us dearly and it is not necessary,” he said.

For now, it’s only a matter of weeks before the updated boosters start arriving in US pharmacies and companies start to see a much clearer picture of what demand for the vaccines will look like this year and into the future. future.

Write Josh Nathan-Kazis at josh.nathan-kazis@barrons.com