A $27 billion vaccine is not pharma's new normal

Vaccines have traditionally been among the least glamorous and most challenging areas of pharma. Developing new shots is uniquely time-consuming and expensive, and despite the extra effort required, sales are consistently lower than in other drug categories.

The arrival of Covid-19 changed everything.

Pfizer Inc and BioNTech SE's Covid shot is poised to shatter the single-year sales record for a drug. Wall Street analysts expect more than $27 billion in 2021 revenue from their highly effective Covid vaccine, a shot that uses new messenger RNA technology. Add in $18 billion in expected sales of Moderna Inc's similar vaccine, and you get more than $45 billion from two medicines. That's more revenue than 88% of S&P 500 companies generated last year. It's hard to believe, but estimates could grow after Pfizer's second-quarter earnings update yesterday as the surging delta variant boosts demand. The company announced a new order of 200 million doses from the US government on 23 July.

These extraordinary numbers are already shifting behaviour. Moderna's market cap has ballooned above $130 billion even though it sells only one product, and vaccine investment is suddenly hot. But some caution is warranted. The economics of the drug industry doesn't change easily.

A look at the best-selling pharmaceuticals is revealing. There was just one vaccine among the world's 15 most lucrative medicines in 2020: Pfizer's pneumonia shot Prevnar. You'll find it toward the bottom of the chart below, which ranks expected drug sales leaders through 2023. The industry's biggest blockbusters tend to be expensive, like cancer drugs Keytruda and Imbruvica, each of which can cost more than $100,000 for a year's treatment. Other drugs that rank highly in the sales charts are ones that treat chronic conditions and are prescribed for many years or a lifetime instead of just a few times like most vaccines. Drugmakers have responded to these incentives by shifting investment toward cancer and away from infectious diseases.

All things being equal, vaccines should be an attractive market. They're complicated to make and face extra regulatory scrutiny, which creates barriers to entry. And because otherwise healthy people get jabs, they're high-volume products. But they're also crucial to public health and vulnerable populations like children and the elderly. As a result, governments do much of the purchasing, and prices are much lower than other branded drugs.

When it comes to Covid vaccines, the mRNA Covid shots from Moderna and Pfizer will have a brief and enormously profitable window while the whole world needs shots. But eventually, the market will trend toward normalcy, with sales narrowed to boosters for limited high-risk populations and more competition. Analysts expect sales to plunge after 2022.

In order to sustain optimism at that point, investors will have to believe that a technological leap can more permanently change the market. That's a pretty big risk, even if mRNA does allow for more flexible and faster development and has been validated by pandemic success. Research and development efforts will be richly funded. But it will take years to find out whether the technology is consistently more effective or can target diseases that other methods can't reach. It isn't just shareholders who should hope that technology proves out.

The future of vaccines may otherwise rest on governments supporting continuing investment in ways they haven't after past outbreaks or transforming how they pay for medicines. That's far from a sure bet.

Consensus for Pfizer revenue from the vaccine is $27.265 billion as of 7/23. BioNTech directly records sales in Germany and Turkey, but most of its revenue comes from its 50/50 profit share with Pfizer. It recorded $2.39 billion in revenue from the vaccine in the first quarter, $235.3 million of which came from direct sales. If you apply that proportion to the consensus estimate for its total revenue from the vaccine, which doesn't distinguish between direct and partnership sales, you get $536 million in revenue that might not be in the Pfizer estimate. Pharma is strange sometimes.

Other shots are available, of course. But the lion's share of the revenue is going to the companies making mRNA shots. That's in part because they're most in-demand in wealthier nations that pay more. Additionally, other companies including Johnson & Johnson and AstraZeneca PLC are selling vaccines at non-profit prices.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Disclaimer: This article first appeared on bloomberg.com and is published under a special syndication arrangement