Vaccine Profits Fading For Big Pharma, But mRNA Tech Could Bring Back A Boost
A pair of pessimistic third-quarter earnings calls from pharmaceutical giants Pfizer and Moderna, tracking decreased coronavirus vaccine demand and declining revenue projections, suggests biotech retrenchment that reaches into real estate.
On its Oct. 31 Q3 earnings call, Pfizer reported a 42% year-over-year drop in quarterly revenue to $13B due to declining vaccine sales and significant inventory write-downs. It also announced the closure of a 150-acre New Jersey plant and two facilities in North Carolina, the 40K SF Kit Creek facility in Morrisville and the 60K SF Durham Clinical Manufacturing facility, part of a $3.5B cost-cutting measure.
Moderna saw similar declines, announcing a 44% decrease in sales of Covid-19 vaccines during its Nov. 2 Q3 earnings call.
But biotech analysts see more of a mixed message. Those losses, as well as layoffs at other large firms like Biogen, are viewed as short-term losses in a challenging market and not indicative of the potential for research and development investments to pay off and raise demand for lab and life sciences real estate in coming years.
“I don’t know that it’s enough to disrupt our long-term thoughts on the market,” Colliers Research Director Jeffrey Meyers said.
The declines are a continuation of a trend that was evident after last quarter’s earnings calls, when numerous pharma firms announced cost cuts. The end result of investments made with vaccine profits will determine if the diminishing revenues are a temporary hurdle on the way to sustained growth or a larger issue for pharma companies.
“Obviously there was a peak for all of those Covid products,” said Matt Gardner, leader of CBRE's advisory life sciences practice. “That was a market unto itself for a couple of years, and that's going to naturally recede. The products that were developed for that peak cycle may ebb and flow, and there may be new competition. But you also see those companies that participated reinvesting in further product development in other areas.”
When asked about the impact of the closures and declines in research and development budgets and real estate, Pfizer responded by pointing to comments made in January about its 2023 spending plans, including raising R&D spending by at least 8.7% in 2023 to between $12.4B and $13.4B. The company also plans to continue developing its pipeline of products in support of 2025 to 2030 revenue goals.
“R&D expenses are expected to be significantly higher in 2023 versus 2022, despite the fact that our overall revenues are coming down,” Pfizer Chief Financial Officer Dave Denton said during the call.
Abrysvo, a new vaccine for respiratory syncytial virus, or RSV, posted $375M in sales. The results for the product were higher than expected and represented a significant part of the 10% revenue growth Pfizer saw in non-Covid-19 products.
During its Nov. 2 call, Moderna representatives said the biomanufacturing footprint, “built for a pandemic,” will be downsized and that “the company will be disciplined and will adjust its investments in R&D and [selling, general and administrative expenses] based on its sales performance.”
Additionally, the “current balance sheet is sufficient to fund its planned investments without raising additional equity,” according to executives on the call. This includes the new headquarters in Cambridge, Massachusetts, being developed by Alexandria Real Estate Equities that should deliver soon.
Both firms have significant domestic real estate footprints, especially after expanding earlier in the pandemic, as well as wide-ranging manufacturing deals and developments. Pfizer, which counts $17.4B in plant, property and equipment assets, last fall announced a $750M investment in expanding a plant in Kalamazoo, Michigan, after breaking ground on a 420K SF facility in Portage, Michigan.
Moderna holds 1.4M SF of leases for its Massachusetts-area properties and forthcoming new headquarters, with $720M of construction in progress as of the end of September and roughly $161M in contract manufacturing leasing deals, a quarterly decrease of $262M.
The overall mRNA market is different from the coronavirus market. The long-term prognosis of mRNA vaccines and therapeutics is positive, according to Amesh Adalja, a senior scholar and professor at the Johns Hopkins Center for Health Security. He said he sees a “flourishing market” going forward as more and more vaccine candidates come forward and prove themselves.
“The adjustment of the Covid market doesn't really reflect the value of the mRNA technology,” Adalja said. “Pfizer, BioNTech and Moderna are all developing more mRNA candidates for influenza, for RSV, for other conditions, and Moderna just signed a big deal with CEPI, the Coalition for Epidemic Preparedness and Innovation.”
Despite the earnings news, the biotech market reacted positively overall. The XBI Nasdaq index measuring biotech performance surged in recent days, in part based on news of the European Union’s approval of Pfizer’s acquisition of Seagen and a successful Food and Drug Administration advisory panel hearing Tuesday about a new CRISPR-created cure for sickle cell anemia, a potential first approval for a therapeutic developed using the gene-editing technique.
Gardner says the sector is still “feeling the headwinds,” and small-cap firms and publicly traded, pre-product biotech firms are still feeling substantial pressure to conserve runway and hit key development milestones.
But there is potential that some of the products in the pipeline may hit just as significant new real estate supply opens in late 2024, matching up demand with excess lab space that has helped soften the market’s long-term outlook.
According to recent data published by BiopharmIQ, Big Pharma acquisitions numbered 16 in 2021, 38 in 2022 and 58 so far in 2023, suggesting a product pipeline that will be increasingly full. Eli Lilly is planning to expand its hiring at its forthcoming facility in Boston’s Seaport neighborhood.
“It's a very complicated picture when you take into account how all that M&A and partnering activity may be changing the way some of those companies are thinking about how their product development strategy is going to come together,” Gardner said.
