by With people getting their Pfizer covid-19 vaccines, I began to wonder: How much did Pfizer invest in research and development of the vaccine? How profitable are the vaccines? What can we learn about their financials? Here are some interesting things about Pfizer from its annual 10-K form for calendar year 2020.
Contents
Patents
It should go without saying that Pfizer spends a lot of money on research and development, so it needs to safeguard its patents.
From Pfizer’s 10-K:
“Risks Related to Intellectual Property, Technology and Security:
- any significant breakdown, infiltration or interruption of our information technology systems and infrastructure;
- the risk that our currently pending or future patent applications may not be granted on a timely basis or at all, or any patent-term extensions that we seek may not be granted on a timely basis, if at all; and
- our ability to protect our patents and other intellectual property, including against claims of invalidity that could result in LOE and in response to any pressure, or legal or regulatory action by, various stakeholders or governments that could potentially result in us not seeking intellectual property protection for or agreeing not to enforce intellectual property related to our products, including our vaccine to help prevent COVID-19 and potential treatments for COVID-19.”
Business Areas
Pfizer does more than just manufacture vaccines. Pfizer conducts business in multiple areas including internal medicine, oncology, hospital, vaccines, inflammation and immunology, and rare disease.
R&D Pipeline
The development of some of Pfizer’s products go through its R&D pipeline which consists of 3 phases and registration.
Revenues by Market
China and Japan are the two biggest markets for Pfizer outside of the U.S. I was surprised that Canada was not one of the biggest markets.
From Pfizer’s 10-K:
“Revenues from operations outside the U.S. of $20.2 billion accounted for 48% of our total revenues in 2020. Revenues exceeded $500 million in each of 8, 10 and 10 countries outside the U.S. in 2020, 2019 and 2018, respectively. By total revenues, China and Japan are our two largest national markets outside the U.S.
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Our operations are conducted globally, and we sell our products in over 125 countries.
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One of the primary considerations in limiting our operations in some countries outside the U.S. is the lack of effective intellectual property protection for our products, although international and U.S. free trade agreements have included some improved global protection of intellectual property rights.
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The loss, expiration or invalidation of intellectual property rights, patent litigation settlements with manufacturers and the expiration of co- promotion and licensing rights can have a significant adverse effect on our revenues. Once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, we typically lose exclusivity on these products, and generic and biosimilar pharmaceutical manufacturers generally produce identical or highly similar products and sell them for a lower price.”
Environmental Expenses
Pfizer has to spend money on environmental expenses.
From Pfizer’s 10-K:
“We incurred capital and operational expenditures in 2020 for environmental compliance purposes and for the clean-up of certain past industrial activity as follows: $42 million in environment-related capital expenditures and $120 million in other environment-related expenses.”
Growth Risks
Pfizer faces several growth risks.
From Pfizer’s 10-K:
“Growth depends in large part on our ability to identify and develop new products or new indications for existing products that address unmet medical needs and receive reimbursement from payers. However, balancing current growth, investment for future growth and the delivery of shareholder return remains a major challenge. The costs of product development continue to be high, as are regulatory requirements in many therapeutic areas, which may affect the number of candidates we are able to fund as well as the sustainability of the R&D portfolio.
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Additionally, our product candidates can fail at any stage of the R&D process, and may not receive regulatory approval even after many years of R&D.”
Unpredictability
The discovery and development of drugs and biological products are time consuming, costly and unpredictable. The outcome is inherently uncertain and involves a high degree of risk due to the following factors, among others according to its 10-K:
- “The process from early discovery to design and adequate implementation of clinical trials to regulatory approval can take many years.
- Product candidates can and do fail at any stage of the process, including as the result of unfavorable pre-clinical and clinical trial results, or unfavorable new pre-clinical or clinical data and further analyses of existing pre-clinical or clinical data, including results that may not support further clinical development of the product candidate or indication.
- We may not be able to meet anticipated pre-clinical or clinical endpoints, commencement and/or completion dates for our pre-clinical or clinical trials, regulatory submission dates, regulatory approval dates and/or launch dates.
- We may not be able to successfully address all the comments received from regulatory authorities such as the FDA and the EMA, or be able to obtain approval from regulators. “
Pfizer vs. its Peer Group
Pfizer is slightly underperforming against its peer group.
From Pfizer’s 10-K:
“Revenues for 2020 included an estimated unfavorable impact of approximately $700 million, or 2%, due to COVID-19, primarily reflecting lower demand for certain products in China and unfavorable disruptions to wellness visits for patients in the U.S., which negatively impacted prescribing patterns for certain products, partially offset by increased U.S. demand for certain sterile injectable products and increased adult uptake for Prevenar 13 in certain international markets, resulting from greater vaccine awareness for respiratory illnesses, and U.S. revenues for BNT162b2.”
Safety Monitoring
Pfizer continues to spend money and resources on safety monitoring after the launch of a product.
From Pfizer’s 10-K:
“In addition, after a product has been approved and launched, we continue to monitor its safety as long as it is available to patients. This includes postmarketing trials that may be conducted voluntarily or pursuant to a regulatory request to gain additional medical knowledge. For the entire life of the product, we collect safety data and report safety information to the FDA and other regulatory authorities. Regulatory authorities may evaluate potential safety concerns and take regulatory actions in response, such as updating a product’s labeling, restricting its use, communicating new safety information to the public, or, in rare cases, requiring us to suspend or remove a product from the market. The commercial potential of in-line products may be negatively impacted by post-marketing developments.”
Financial Data
Here’s some select income statement financial data from its 10-K.
Retirement Plan
Pfizer used to offer some new employees a pension; however, now it appears that they primarily offer defined contribution plans.
“The majority of our employees worldwide are eligible for retirement benefits provided through defined benefit pension plans, defined contribution plans or both. In the U.S., we sponsor both IRC-qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans. A qualified plan meets the requirements of certain sections of the IRC, and, generally, contributions to qualified plans are tax deductible. A qualified plan typically provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. A supplemental (non-qualified) plan provides additional benefits to certain employees. In addition, we provide medical insurance benefits to certain retirees and their eligible dependents through our postretirement plans.
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We have defined contribution plans in the U.S. and several other countries. For the majority of the U.S. defined contribution plans, employees may contribute a portion of their salaries and bonuses to the plans, and we match, in cash, a portion of the employee contributions. Beginning on January 1, 2011, for newly hired non-union employees, rehires and transfers to the U.S. or Puerto Rico, we no longer offer a defined benefit pension plan and, instead, offer a Retirement Savings Contribution (RSC) in the defined contribution plan. The RSC is an annual non- contributory employer contribution (that is not dependent upon the participant making a contribution) determined based on each employee’s eligible compensation, age and years of service. Beginning on January 1, 2018, all non-union employees in the U.S. and Puerto Rico defined benefit plans transitioned to the RSC in the defined contribution plans. We recorded charges related to the employer contributions to global defined contribution plans of $685 million in 2020, $659 million in 2019 and $622 million in 2018.”
Covid-19 Vaccine
Pfizer worked with BioNTech to develop the Covid vaccine otherwise known as BNT162b2.
From Pfizer’s 10-K:
“Pfizer-BioNTech COVID-19 Vaccine (BNT162b2) is an mRNA-based coronavirus vaccine to help prevent COVID-19 which is being jointly developed and commercialized with BioNTech. Pfizer and BioNTech will equally share the costs of development for the BNT162 program. BNT162b2 has now been granted a CMA, EUA or temporary authorization in more than 50 countries worldwide. We will also share gross profits equally from commercialization of BNT162b2 and are working jointly with BioNTech in our respective territories to commercialize the vaccine worldwide (excluding China, Hong Kong, Macau and Taiwan), subject to regulatory authorizations or approvals market by market. For discussion on BNT162b2, see the Overview of Our Performance, Operating Environment, Strategy and Outlook—COVID-19 Pandemic section within MD&A.”
Agreement with BioNTech
From Pfizer’s 10-K:
“On April 9, 2020, we signed a global agreement with BioNTech to co-develop a mRNA-based coronavirus vaccine program, BNT162b2, aimed at preventing COVID-19 disease. The collaboration rapidly advanced a COVID-19 vaccine candidate into human clinical testing based on BioNTech’s proprietary mRNA vaccine platforms, and the vaccine has been granted EUA in the U.S., the EU and the U.K., among other countries. We are working with BioNTech to manufacture and help ensure rapid worldwide access to the vaccine. The collaboration leverages our broad expertise in vaccine R&D, regulatory capabilities, and global manufacturing and distribution network. In connection with the April 2020 agreement, we paid BioNTech an upfront cash payment of $72 million, which was recorded in Research and development expenses in our second quarter of 2020, and we made an additional equity investment of $113 million in common stock of BioNTech. BioNTech became eligible to receive potential milestone payments of up to $563 million for a total consideration of $748 million. Under the terms of this agreement, we and BioNTech will share gross profits and development costs equally after the vaccine is approved and successfully commercialized, and we were responsible for all of the development costs until commercialization of the vaccine. Thereafter, BioNTech was to repay us its 50 percent share of these development costs through reductions in gross profit sharing and milestone payments to BioNTech over time. On January 29, 2021, we and BioNTech signed an amended version of the April 2020 agreement. Under the January 2021 agreement, BioNTech will pay us their 50 percent share of prior development costs in a lump sum payment during the first quarter of 2021. Further R&D costs will be shared equally. We have commercialization rights to the vaccine worldwide (excluding Germany and Turkey where BioNTech will market and distribute the vaccine under the agreement with us, and excluding China, Hong Kong, Macau and Taiwan, which are subject to a separate collaboration between BioNTech and Shanghai Fosun Pharmaceutical (Group) Co., Ltd). We recognize Revenues and Cost of sales on a gross basis in markets where we are commercializing the vaccine and we will record our share of gross profits related to sales of the vaccine by BioNTech in Germany and Turkey in Alliance revenues.
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We made an additional investment of $50 million in common stock of BioNTech as part of an underwritten equity offering by BioNTech, which closed in July 2020. As of December 31, 2020, we held an equity stake of 2.5% in BioNTech.”
Putting It All Together
So, how profitable is the Covid-19 Pfizer Vaccine?
Pfizer does not outright state how profitable (or unprofitable) its Covid-19 vaccine is. Probably for good reason.
To most if not all Americans like me, the vaccine was “free”. But there is no such thing as a free lunch.
There are many expenses which are required to roll out a vaccine including costs associated with materials, research and development, safety monitoring, and environmental expenses. Pfizer must also weigh significant risks when developing a vaccine including failure to protect its patent, failure to pass clinical trials, and potential litigation.
