Pfizer (PFE) vs. Moderna (MRNA) vs. Delta

(Written on 08/11/2021)

PFE (-3.8%) and MRNA (-14.8%) are getting hit today because of new research that raises doubts about the vaccines’ durability and/or effectiveness against the Delta variant. The study conducted by nference and the Mayo Clinic (yet to be peer reviewed) compared the effectiveness of the Pfizer and Moderna vaccines from January through July. The study found that the vaccines were 86% and 76% effective against infection for MRNA and PFE, respectively, during the study period. Additionally, MRNA was 92% effective against hospitalization while PFE was 85% effective. The kicker is that in the month of July when the Delta variant was the predominate strand in Minnesota (over 70% of cases), Moderna’s effectiveness against infection fell to 76% while PFE fell all the way to 42%. Fortunately, Bloomberg claims that there has been no data so far that suggests that either vaccine’s protection against severe disease or death is significantly less against the Delta variant. This can be seen by the data Andrew presented last week (data as of July 26, 2021):

“26% of the reported 6,239 breakthrough hospitalizations were instances of asymptomatic cases in which the hospitalization was not COVID related. So basically those numbers don’t matter. 24% of the 1,263 fatalities reported were asymptomatic and not related to COVID.” – Andrew Hall

The paper finally ends with a claim that there were no differences between vaccines when it comes to the rate of complications experienced by breakthrough cases. What this means is that if you are a breakthrough case, your chance of severe disease or death is the same whether you received the PFE vaccine or the MRNA vaccine. However, it sounds like you are more likely to be a breakthrough case if you are vaccinated with PFE. As it stands, receiving the PFE vaccine is better than nothing, but MRNA is currently the vaccine winner. According to Cornell virologist John Moore, “There are a few differences between what are known to be similar vaccines… None of these variables is an obvious smoking gun, although the dosing amount seems the most likely to be a factor.” As such, perhaps PFE can close the gap by upping the dosage on the initial vaccine or by administering a stronger booster shot, but I’m sure this is much more difficult than meets the eye as I believe it would require new trials.

The question for the longevity of COVID then morphs into whether the vaccines’ effectiveness wears off over time or if the vaccines are less effective against the Delta variant. Jefferies analyst, Michael Yee, issued a note on MRNA citing a handful of studies showing antibody response provided by the vaccines drops after 6 to 8 months, opening the door to probable booster shots by the end of the year. The CDC and FDA both pushed back against PFE in early July stating that fully vaccinated Americans do not need a booster shot at this time. However, the CDC is set for a presentation this Friday on “updates on additional doses in immunocompromised individuals” and “considerations for booster doses of COVID-19 vaccines”. Provided that the majority of Americans got vaccinated in the first and second quarters of 2021, it is no surprise that cases are on the rise again and could cause some urgency in emergency approval by the FDA for a booster shot. PFE and MRNA have both already launched trials for their booster shots in the past few months.

As for vaccine efficacy against the Delta variant, I think it’s common sense that with each mutation, the vaccines will become less effective. However, even at the 76% and 42% effectiveness for MRNA and PFE, respectively, during the surge of Delta while antibodies were presumably dying off, this is still a much higher efficacy than the flu shot which has had effectiveness of 19-60% over the past decade.

Investment Implications

I think COVID will get worse before it gets better. I don’t know that this results in new shelter-in-place orders or even a large stock market reaction. After a literal weeks long recession last year that was met with strong buying pressure, I believe any market weakness on COVID concerns will be met with a strong buy-the-dip mentality. I think the government reaction to renewed COVID concerns will be more stimulus. The Biden Administration has already replaced some of the enhanced unemployment due to expire in September with monthly child tax credits. As more and more companies delay their planned return to the office, I believe we could continue to see other stimulus programs which could help keep inflation elevated and lead to upward pressure on interest rates. Additionally, Jim Paulsen, Leuthold Weeden Capital Management’s Chief Investment Strategist, claimed that the Fed has already started tapering by the simple fact that when they buy the same amount of securities every month, this becomes a smaller and smaller percentage of money pumped into the system. This smaller percentage impact by the Fed on rates should let rates rise as well. As such, for the first time in a long time, I am market weight Financials. I understand that’s not a bullish signal by traditional standards, but based on my investing history, this is as bullish as I’ve been.

As for PFE, I actually think they’re roughly fairly valued despite their recent run-up. Looking at the EQRV for the last 5 years and using multiples for Blended Forward estimates and for FY2 (next year) estimates, we get the following:

I wanted to compare the Blended Forward estimates with the FY2 estimates because right now, analysts are predicting that PFE’s COVID vaccine sales drop off significantly moving forward. However, the results aren’t too terribly different. Additionally, I looked at pulling out the EV/Rev implied price target because it appears to be an outlier and analysts aren’t predicting PFE to capture the windfall of vaccine revenues moving forward.

It’s interesting that analysts have the vaccine revenue growing through the end of FY21, but then have it immediately falling off a cliff in FY22 and FY23. I struggle to believe this will be the case. As we learned from the new study, the vaccine wears off after 6-8 months and could require boosters every 6 months until we eliminate COVID, which should provide a steady stream of revenue to PFE going forward. Additionally, as COVID lingers, PFE should see their vaccine margins expand as they begin to book more profits from the vaccine. PFE’s management expects EBT margins from the vaccine to remain in the “high 20s” which includes anticipated spending on additional mRNA programs, implying that as R&D falls, even higher margins should be anticipated. Additionally, management said, “If we contract for delivery of additional doses during the year, we will provide a guidance update in our subsequent earnings release.” Therefore, it might be within reason to include the EV/Rev estimated price targets from the EQRV analysis depending on how the CDC and FDA react to approving a booster shot (which I think will be favorable).

Furthermore, I see two paths for COVID moving forward:

COVID vaccines are federally required and we see COVID die out. In this scenario, PFE has a ton more revenue and earnings coming their way. The public’s treatment of COVID becomes similar to the flu with the development of a Tamiflu type treatment for COVID. In this scenario, people can make their own decision every year as to whether they want to get the COVID vaccine or if they just want to risk it knowing that if they get sick, they can just call the doctor and get a script and be on their way. This scenario provides an even longer tailwind to PFE’s revenue and earnings.

Unfortunately, based on the study’s results, a strong bear case has been formed: MRNA is the winner of the vaccine race and will capture all of the future revenues and cash flows that PFE could have had. I think this is somewhat valid in that people would prefer to get fewer vaccines and thus the medical field may opt for the MRNA vaccine. However, I don’t think this is too big of a concern given that the current push by the government is to get people some sort of vaccine, no matter which one it is. Provided the fact that only ~50% of the U.S. population is fully vaccinated, the vaccine push should remain strong. Additionally, PFE has administered 40% (or 56M) more vaccines in the U.S. than MRNA, providing a solid first-mover type of advantage (not to mention the additional studies that I think would be required to see if it’s safe for people to switch from the PFE vaccine regimen to the MRNA regimen).

All that said, I think PFE is somewhat interesting after today’s pullback. I’m not sure that I would advocate buying right now, but I would definitely advocate holding. My current weighting in PFE is 2.15%. On the next page are my MCS price targets for PFE under the 4 different 5 Yr. EQRV scenarios:

Blended Forward Estimates

FY2 (Next Year) Estimates

Blended Forward Estimates Excluding EV/Rev

FY2 Estimates Excluding EV/Rev