Vaccine Boost Fading For Big Pharma, Leading To Cost Cuts In Biotech

The global emergency effort to devise and deliver coronavirus vaccines was a shot in the arm for many large pharmaceutical companies, leading to rising profits, extensive reinvestment in research and vast expansions of biomanufacturing capacity.

That boost, it seems, is running out. And those cuts in research and other investments may trickle down, leading to more conservative or restrained spending on real estate and development as the lab market is already seeing a slight surge in supply. 

Recent financial statements and announcements from many of the firms associated with this surge, including Pfizer and Catalent, contain a combination of spending and job cuts. 

Pfizer is considering an “enterprise-wide cost improvement” program based on expected fall Covid-19 vaccine sales — which, despite significant evidence of a new surge, have been disappointing — and BioNTech will cut research funding by $440M this year, Endpoints reported. Bivalent booster sales have been difficult to predict as the market shifts to a “commercial endemic market,” Moderna executives said on a recent earnings call, suggesting firms need to downgrade their expectations of future profits. 

“What we've seen in the real estate implications is smaller and more conservative decision-making,” said Matt Gardner, leader of CBRE's advisory life sciences practice. “That is rational to me that those companies that are having to make those decisions are shrinking them down and slowing down the burn rates.”

The announcement that the Biden administration will begin Medicare price negotiation for 10 drugs has caused anxiety for Big Pharma. The industry has already filed at least eight lawsuits, and companies are starting to price this effort into their projections. Novartis reported that it is cutting its drug development pipeline in response.

“As this winds down, we've got clear winners, we've got clear losers in terms of the platforms,” said Dr. Amesh Adalja, a senior scholar and professor at the Johns Hopkins Center for Health Security. “We're kind of coming back to the status quo.” 

Revenues have dropped for Pfizer and Moderna, while Catalent, a contract manufacturer that expanded to produce vaccines for Johnson & Johnson and AstraZeneca, saw revenue drop 6% and laid off hundreds of employees. Its CEO spoke of an “operational Covid cliff,” and plans announced in 2022 to invest $350M to expand in Bloomington, Indiana, and create hundreds of jobs are now in question.

“There’s a significant drop in demand for biomanufacturing facilities, driven by the decline in vaccine development and demand,” said Shane Poppen, senior vice president at Hughes Marino, an advisory firm that specializes in life science. “It’s a big factor, as well as the overall capital market picture for life sciences, in terms of the IPO market and financing. The last thing companies want to do when they’re looking to cut expenses is invest in something that requires a lot of capex spending. Lots of developers bought industrial buildings to convert into biomanufacturing facilities that are now sitting vacant.”

“We see Moderna’s expansive operational footprint as unsustainable without a substantial recovery in Covid vaccine demand — without which MRNA is a likely candidate for restructuring and headcount reduction,” Dr. Mani Foroohar, an analyst with Leerink Partners, wrote in response to recent earnings statements.

At the same time, Moderna during its Q2 earnings call underscored plans to expand its manufacturing footprint to support more clinical development and expand potential commercial markets, with both investments aimed at improving opportunities for future profits. It also has significant office and research space in development in Cambridge, Massachusetts.

Adalja said he isn't surprised to see this boom-bust cycle and that it is common with infectious disease development and research, which can soar during times of emergencies and sink after reality sets in. The high opportunity costs, public relations challenges and lack of government funding remove many of the temporary incentives that fueled growth, he said. Global calamity drives dollars and de-risks extensive investment. 

CBRE’s Gardner said he isn’t too worried about the overall industry direction.

“I think you’re looking at too small, too narrow a focus if you’re just looking at what’s happening in vaccines right now,” he said. “Any individual area of the science goes through these huge ebbs and flows.” 

In this case, vaccine programs and extensive government spending behind them helped prove out the promise of mRNA technologies. Gardner said that in the long term, the winners will be the firms that can steer these profits to research and continue expanding these platforms. He said he is already seeing examples of direct reinvestment and a parlay into new areas for many of these companies. 

Moderna, for instance, is partnering with Merck for a cancer vaccine, an avenue that offers steadier, more reliable profits than a global health crisis.

“Vaccines are not the same thing as treating a lifestyle disease or treating cancer,” Adalja said. “It’s a different dynamic.”

UPDATE, AUG. 31, 4:30 P.M. ET: Story has been updated to include a quote from Shane Poppen.