Pfizer Inc.’s New Antiviral Cocktail to Combat Covid-19 Seems Likely to Turn the Tide on Hospitalizations. An Entire Industry Sector is Poised to Benefit Disproportionately as a Result.

Utilizing “off the shelf” research on SARS (Sudden Acute Respiratory Syndrome) era antivirals, Pfizer Inc (PFE-NYSE, $47.51) seems, more than likely, to have produced an elegant solution for a very pressing gap in the current approach to combatting Covid-19 infection. Inadvertently, Pfizer may have also created a potential longer term solution to those who fear annual, perpetual, booster injections of Covid-19 vaccines.

Paxlovid, a protease inhibitor, works to temporarily inhibit (block/reduce/eliminate) production of an essential enzyme required for the Covid-19 virus to replicate and multiply within the cells of the host. When Paxlovid is administered, concurrently, with a very low dose of another antiviral, Ritonavir, which slows the metabolism of the patient, the net effect is that the enzyme production required for the Covid-19 virus to replicate is diminished or eliminated.

A term utilized by the scientific community and thrown into the current lexicon to describe the spread of the Covid-19 virus from human to human is known as the r-naught. R-naught is used to describe human transmission, but it can also apply to cellular transmission. To offer up a sort of crude analogy; when humans ingest the two pill cocktail, our internal ability to produce the necessary enzyme, which the virus requires for replication, reduces the the viral cellular r-naught in a single host to below 1 (lacking the enzyme, the virus breaks down faster than it can enter human cells and flourish). To put it another way, without access to this enzyme, the virus, more than less, starves itself to death and the viral infection ends shortly thereafter.

For those readers that are purists in the world of science, please understand that I am aware this is not precisely how the inhibitor works, and I am also aware that viruses are not technically “alive” (they lack the genetic tools to replicate themselves), therefore, they do not die as do organisms. Rather, the description is designed to illustrate the end result after administration of the pharmaceutical compounds. Importantly, the illustration serves to assist the layperson who does not want to get too deep in the weeds but that wants to understand the difference between Paxlovid/Ritonavir and the actions of the covid-19 vaccine.

Paxlovid/Ritonavir is administered once the Covid-19 virus has worked its way into the human host in sufficient strength that a full blown symptomatic infection is the result. Upon diagnosis of a Covid-19 infection, 3 pills are taken twice a day for five days. After that course of 30 pills, the virus should essentially be eliminated from an infected individual.

Alarmed vaccine company investors and skeptics on antivirals fret ominously about the need for a total ingestion of 30 pills. Yet, when evaluated against a simple product monograph on a box of Flu-Cold decongestants, the average person can wind up consuming a total of 56 doses of that medicine within a week. 40 total doses of the most potent form of Extra-Strength Tylenol, within a that same five day period are also permitted to be ingested for almost any minor malady. The public regularly stuffs more than 30 pills of a lot of prescription pharmaceuticals in numerous regimens without a hue and cry. Sometimes, when the average influenza infection is severe, a patient will ingest maximums dosages of decongestants, anti-inflammatories + Tylenol, all together and in combination. This is clearly overkill, but people recover and head back to work as soon as the virus has run its course. Yes, these drugs are all OTC today, but that’s today; in the past, most were prescription products. I am offering up a more apples to apples comparison than you might think.

In the case of Paxlovid, the only difference between that pill consumption, vs our normal overconsumption of most medications utilized during annual influenza/cold infections, is that Paxloid pills are carefully counted out, in advance, so that you know exactly how many are to be consumed.

Skeptics also opine about the use of a SARS medication plus a compound presently used in HIV cocktails. Protease inhibitors do not permanently inhibit enzyme production, they do so temporarily, only as long as needed to starve the Covid-19 virus out of existence. We should probably be more worried about the long term impact of too much caffeine ingestion than we should in taking a 5 day course of treatment of a protease inhibitor.

Maybe the application of both a SARS antiviral and an HIV antiviral to combat Covid-19 isn’t nearly as much fortuitous luck, as some would believe.

Rumors in the biotech community have always centered around the uniqueness of the Covid-19 virus. There really isn’t anything like SARS-Cov2 in the viral world; it shares similarities with a SARS virus, with a standard coronavirus and, oddly, with an HIV virus. A conspiratorially minded scientist might look at the makeup of the SARS CoV2 virus and declare privately: “by Jingo, its as though somebody mixed SARS and HIV into a common influenza virus”.

That same conspiratorially minded scientist might then have a Eureka moment: “As SARS Cov2 has structural similarities found in SARS and HIV viruses, why don’t we just treat the virus using HIV and SARS drugs“?

Et voila.

Vaccines and Antiviral treatments are Different.

A Covid-19 vaccine teaches the human immune system to recognize a specific viral outbreak. Once trained by the vaccine to recognize the virus, the human immune system then produces necessary antibodies needed to combat the virus and to maintain a sort of antibody memory in order to resume production as needed, should the exact same virus attack the host in the future. That’s a lot of work and in order for vaccines to work precisely as intended, all humans must have a roughly equivalent ability to produce the necessary amounts of antibodies to fight an infection. As we age, our immune systems’ ability to produce antibodies diminishes and the immune system can occasionally fail to register what type of antibodies are required.

In contrast, Paxlovid doesn’t teach the body anything, it just caps production of an necessary viral enzyme for a short duration. In some respects, it is a far less complex approach as compared to vaccination.

Vaccines and Antivirals Will Overlap, at Some Point During the Endemic Stage of the Covid-19 Outbreak, Perhaps Sooner Than We Think.

For a not insignificant percentage of the population, perhaps up to 25% that fall into the category of immunocompromised, vaccines cannot adequately train the immune system to do what needs to be done for neither the duration, nor with the vigor, to match the immune response of a young healthy individual. In such cases, vaccines don’t even prevent infection but rather help the immune system to fight off a viral infection to the best of its ability, which in some cases, is not well at all. For too many, a vaccine reduces the symptoms until the body, grudgingly, achingly, produces enough antibodies to clear the infection as best as it can, often resulting in modest persistent viral replication, ongoing, for some duration. These are referred to as “break-out” infections, ‘long-haulers” or any other set of media created terms used to describe the result of a vaccine that does its job well for many but possesses an Achilles heel; it is just a vaccine; it is neither an antiaging potion, nor is it a cure-all for the myriad of ailments, not viral, but that impact the ability of a body to generate robust antibody levels.

Sadly, the immunocompromised (the aged and chronically ill) are the segment of the population most vulnerable to a Covid-19 infection. These persons have been jabbed twice, for the most part, in the developed world. They are now in the process of being jabbed again with the same dosage of vaccine and are being told it is a booster. A year from now, the elderly and the immunocompromised will be likely jabbed again; while being the exact same vaccine in exactly the same antigen strength, it will be called a booster. For seniors and those with underlying conditions, a booster can only do so much; if the antibody production was tepid at the outset, it will, more likely than not, continue to be tepid with a repeat booster.

True infection will not be prevented for many, most of us will, at some point, receive a positive diagnosis of Covid-19, even after receiving three doses, four doses, as many doses as the medical community will inject into our arms. Most of us, possessing healthy and strong immune systems, won’t experience crushing symptoms that are so often reported, but we will still be infected and will still be able to pass that virus onto others, even with the benefit of a vaccine coursing through our veins.

As this reality sinks in, as the public, fully capable of as much comprehension as the medical community and with the ability to pour over the same freely available opensource databanks utilized by scientists, a certain segment will come to the conclusion that the vaccines, for a statistically significant portion of the population, do not actually prevent infection, they merely make an infection tolerable until it passes. Some in the public will then ask the question, “is there a difference between getting a vaccine that doesn’t fully prevent infection, vs a treatment that clears up the infection, perhaps even faster, should my natural immunity be impaired?” Then, science and the media will stutter and stammer and trot out diversionary commentary designed to mollify fears about the benefit of continued regular vaccine injections, but when directly pressed, they might be unable to provide an effective rebuttal to that question, because well compiled data is largely irrefutable.

A statistically determinable percentage of the population might read the data and conclude that little net difference is apparent for taking boosters featuring a short duration of maximum effect vs becoming infected and getting a 5 day prescription for Paxlovid.

The studies available on vaccine effectiveness typically report forth the highest levels of protection, either against infection or symptomatic disease, last only for a period of several months. Medical experts acknowledge that the duration of effect for coronavirus vaccines in general declines month over month, day over day. Given the data now available, a vaccine such as the BNTX/PFE product that reports a 94% initial level of protection against symptomatic infection declines steadily over the course of a year and things get dicey within as little as six months. At some point, even in the first six months, symptomatic protection falls below the 89% range reported by the use of Paxlovid; it seems that such a protection threshold happens just after three months. In contrast, the medical benefit of using Paxloid is consistent. Provided that the pills are taken early in the outset of a positive Covid-19 diagnosis, the effect remains the same.

Critics of the use of Paxlovid vs vaccine injection also point out that there is a difference in the cost of the two products.

We don’t know what Pfizer will charge for their antiviral compound, so critics apply the pricing set by Merck on its antiviral pill and declare the Pfizer product to be expensive. That seems odd; comparing the list prices of a completely different drug from the one being discussed and then concluding vaccination to be a cheaper option. Not only is this erroneous, critics ignore the total all-in cost of distributing, warehousing, administering and the copious paperwork involved that make up the very real expense of a Covid-19 vaccination. Covid-19 vaccines have a relatively short shelf life. This all adds to the cost for a taxpayer, a national government or a private sector company involved in the process such as a Pharmacy Benefit Manager or PBM. In contrast, shipping, storage and distribution of pills is proven, tested and inexpensive. There are significant cost advantages favoring pills vs injections. Paxlovid can be priced at up to several hundreds of dollars per prescription and on an all-in cost for most first world nations, it will be fully competitive with a vaccine.

If one, statistically, went out on a limb and considered the impact of NOT providing boosters to all, extrapolated the number that would get infected with Covid-19 and then took Paxloid upon a positive diagnosis, there might even be a convincing argument made that in favor of pills vs mandatory boosters. Net national savings could be had overall, because not everyone that foregoes a booster shot will ultimately contract Covid-19 in the year that they miss the booster. What we do not know, is exactly how many people will contract Covid-19 if they have been vaccinated in a year, but forego a booster in the following year.

Yet, in the US, the national planning assumes that we’ve got to buy as many as 280 million jabs annually to keep up, at a direct out of pocket cost of $6 billion US and an all in cost of about $30 billion per annum. That operating assumption works when no alternative to vaccination and boosters exist. Paxlovid represents a new variable that serves to change the framework; the prior working model needs to updated in consequence.

Rest assured, not all of us will contract Covid-19 in a single year requiring hospitalization or even symptomatic relief. You can buy a whole lot of Paxlovid with $6 billion dollars, certainly enough to probably eliminate the majority of hospital stays. More importantly, what if Pfizer charges less and opts for a market share grab vs a price grab? Pfizer has greatly underpriced its mRNA vaccine product in the joint venture with BioNtech as compared to Moderna. Why wouldn’t Pfizer choose to pursue volume over price and capture all the market share for antiviral treatments?

The public greatly refers pills to injections.

Pills typically DO NOT represent the best delivery system for medications. The acids in the gastrointestinal tract tend to dilute the effectiveness of most compounds delivered through ingestion. Yet, almost all of the top selling medicines in the world today are delivered in pill format. People just don’t like needles. Most will tolerate a needle, but you will be hard pressed to find a single person anywhere who loves being jabbed. All else being equal, a product that offers roughly the same benefits to a jab will likely be chosen by 99.9% of those given a choice of pill vs injection. Paxlovid, in the testing done to date, demonstrates a remarkably good ability to reduce the symptoms of Covid-19 for the duration of the infection and helps clear the infection faster than simply through vaccination for those most vulnerable.

Paxloid is not the same product as a vaccine, but the public might dispute that point.

89% effectiveness of symptomatic disease via a pill? That’s potentially a game-changer, even taking into account the fuzzy statistics that go into the production of phase trial studies. Most people understand that vaccination represents the first line of defense against Covid-19 infection. Nobody disputes that, certainly not I, who has been vaccinated now 3X within just the first year.

I will continue to get Covid-19 boosters as required.

However, a lot will tire of perpetual boosters. Some will find the scheduling for boosters to be a pain. Lots of people just abhor needles. As more and more “breakouts” occur, there is the real possibility of “booster fatigue” or complacency about vaccination deadlines, leading to a material downtick in total booster shots per nation. Annual boosters for most endemic viral infections tend to have annual uptake far below 50% of the public. As soon as the general public becomes aware that a pill is available that does more than simply alleviate symptoms of Covid-19, there could be a meaningful shift for a pill and against a booster injection. The medical community is completely aware of this point and are sound-biting narratives that indicate that the use of Paxloid is not an “either-or choice” in comparison to an injection. Their rebuttals represents false choices and medical spin-doctors are aware of the lack of logic behind the portrayal. The hard-press campaign has cracks in it already; nobody in the medical community will lie on tape and tell us that Paxlovid doesn’t work, that it doesn’t work well, that it doesn’t do as much to alleviate Covid-19 symptoms or that it is a highly risky drug to take. Clearly, behind the scenes, a real concern exists that the issue of vaccine substitution, for some, is a probability. Paxlovid was not designed to be an alternative to vaccination, but for those who are immunocompromised, it very well could be. The only question seems to be the degree of substitution by the public for a pill vs a vaccine.

There will also be pushback in certain demographic groups based upon age. How often are we expected to inject children? We certainly don’t anticipate annual booster shots for the very young, but the pro-vaccine lobby will certainly be in favor of it. For the young, an initial vaccination might not require an additional booster when a 5 day course of Paxlovid should suffice should symptoms appear.

Paxlovid resolves issues for those in the travel industry.

If while on business or vacation, one contracts symptomatic Covid-19, it is far easier to get a 5 day prescription of what could be a widely available antiviral treatment, which will speed up the viral shed and permit one to get back on a plane faster, than simply by waiting things out. Time is money. Paxlovid represents a highly viable option for the cruise ship industry, for the hotel industry, for the convention industry, for the airline industry.

Does one buy Pfizer on the strength of Paxlovid and sell vaccine producers?

Many investment managers and a lot of the public at large might do so; that seems the simple choice. But, does that represent the optimal choice? I have little doubt that Paxloid will sell incredibly well once production ramps up, in the billions of dollars of product annually. However, Paxlovid revenues will displace vaccine sales at its joint venture with BioNtech. Pfizer wins at one end and loses at another end; they will need to sell more Paxloivd than they lose in vaccine sales. That math is a bit too hard to quantify for the present and I hate guessing.

There will be a loss of future business for vaccine producers. In my view, that’s a given. However, vaccine producers such as BNTX and Moderna are selling for such a low multiple to trailing earnings that it seems well understood by professionals; windfall earnings from vaccine sales are unlikely to hold up for more than a year, maybe two. Now, the debate and modelling will center around the timing and magnitude of the decline, and will the vaccine producers find/buy/develop new revenue sources to offset that vaccine revenue decline. Smarter minds than I are doing that legwork; the current declines in both mRNA vaccine producers clearly suggests that managers have already modelled a large revenue shortfall into their DCF analysis.

The big winners of Paxlovid will be, in my opinion, publicly traded health maintenance organizations, HMO. Companies such as UnitedHealth, Humana, Cigna etc.; all publicly traded HMOs have been reporting 10%+ annual hits against profit growth due to Covid-19 since the outbreak. Once Paxlovid can be widely distributed via prescription form, it should greatly reduce hospital stays for most and eliminate hospitalization for many. Abnormal expenses borne by HMO’s to provide additional care, which they have been gladly paying so as not to appear heartless during this pandemic, will abate. UnitedHealth has been expensing several billions annually on these Covid-19 costs, as has Cigna and most other sizeable HMO businesses. Elimination of an expense increases the pretax bottom line by the same amount. Paxloid has not been approved yet by the FDA but I don’t see major obstacles preventing HMOs from greatly reducing expenses going forward upon such an approval.

Remove $2 billion of annual expenses from UnitedHealth due to Covid-19, assign the current market multiple of 24x trailing earnings to that saving and the EPS accretion for any HMO becomes readily apparent.

Et Voila.

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