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Pharma earnings: COVID ‘is highly uncertain for this year,’ analyst says

Wells Fargo Managing Director Mohit Bansal joins Yahoo Finance Live to discuss pharmaceutical earnings amid COVID uncertainty, the impact of diabetic weight loss drugs on the market, and the outlook for drugmakers.

Video Transcript

RACHELLE AKUFFO: Pharma in focus now. Drugmakers out with results as the companies try to explain their strategies in a post-COVID world. Joining us now, Mohit Bansal, Wells Fargo Managing Director of Biopharma Equity. And also with us is Yahoo Finance's Anjalee Khemlani. So good to have you with us, Mohit.

So we already saw what happened with Pfizer. What about other expectations for potentially some of these other companies as well who have had their pandemic-related medicines and treatments now forward-looking? What are you expecting in terms of guidance here?

MOHIT BANSAL: Great. Thank you, Rachelle, for having me today. So like we saw with Pfizer as well, COVID is really highly uncertain for this year-- COVID is probably going to stay here, but the question is, what would be the testing rate? What would be the diagnosis rate? And how many people would actually go and get their COVID pills or vaccines?

So because of that, I mean, I think most of the drugmakers-- I mean, Lilly has basically guided really-- guided for pretty much low expectations for this year. And Merck has also said only $1 billion in their COVID pill revenues. And Pfizer also brought down the expectation significantly.

So overall, COVID is pretty much out of the models. Pfizer is probably the only one in our coverage where it is still significant part of it, because it was their-- it was their biggest business last year. But for rest of the companies, it is a smaller business now.

ANJALEE KHEMLANI: Mohit, it's Anjalee here. I know that Pfizer is a little bit in the rearview mirror right now, but I heard you on the call and I know that of the four companies we're looking at today, Pfizer is one of the three that really has a lot of pressure from COVID. And I've said that they're sort of back at square one compared to where they were in 2019 when Bourla first took over.

I mean, looking at what their quarters were, quarter-over-quarter absolutely blowout-- 80%, really high numbers in terms of operational growth. Now, they're looking at their pipeline and trying to figure out how to, number one, combat that loss of exclusivity, as well as sort of tempering expectations for the COVID products.

But we do know that there is still demand there. What are you seeing in terms of-- what are your expectations in terms of this balance that's now going to be struck between the continued offsetting of revenue coming in from COVID versus the rest of the pipeline?

MOHIT BANSAL: Right. So this is a great question. And the way we think about Pfizer, you kind of have to look at Pfizer as, like, two different businesses. They have an ex-COVID business, and the COVID business, because COVID is really uncertain here. So for COVID, they had more than $50 billion revenues last year.

And that number is coming down to-- they guided for $13 billion or so for vaccine, $8 billion or so Paxlovid. So it's significantly declined. But the question is, how would it look like for a tail? Pfizer thinks that the tail could be bigger in terms of there could be vaccination rates improving in all over time, and the pricing could improve for vaccines.

We think it could be a little bit of show-me story. We are modeling it to be a $6 billion sale, which is where most of the investors agree with. Pfizer's number could be in double-digit billion dollars or even higher there. So that's where the data is.

But for the rest of the business, I think Pfizer has generated a ton of cash with the COVID business so they can actually go out and do more deals, which could help them offset some of the core business [INAUDIBLE] that are coming in 2025 and beyond. So that's how we see it.

There is a tail for COVID, the question is how much it is. And then rest of the business-- can they offset the LOEs? It is, again, a show-me story. And that's the challenge of owning Pfizer right now.

ANJALEE KHEMLANI: And talk to me about Lilly, because I know that diabetes drug, the myths that they got there. But we've also seen the excitement around the potential of it to be used as a weight loss drug. And so I wonder, what are we looking at in terms of this company also coming off of a two-company look with the COVID product, the monoclonal antibody, and then the rest of the pipeline. What are your thoughts about this new diabetes drug?

MOHIT BANSAL: Right. So COVID is a significantly smaller part of Lilly's business versus Pfizer. I mean, I did not even remember that they had a COVID business until you mentioned it. That's how much people don't think about COVID for Lilly.

Lilly is a really good growth story. And I mean, today, diabetes was a little bit weak-- or [INAUDIBLE] a little bit weak. But I think today's weakness has less to do with the numbers, per se, and more to do with some rotation out of biotech and pharma, given that we can see the NASDAQ is doing so well-- so probably rotation into the tech sector at this point probably.

That's where we are heading. But, again, Lilly is one of the best growth stories in biopharma right now. However, the challenge is that you are paying for it. Multiples are clearly reflecting that. So that's why they really don't have a lot of room to miss.

And when they came out a little bit lower on that consensus-- or, sorry, of course, consensus they came out a little bit lower, it hurt them a little bit more than others because this has been a high flyer for a while now. So that's why there is a rotation there. But overall, I mean, COVID is probably not-- COVID is pretty much going to be zero this year for them. And it is not-- and I don't think investors even think about COVID business.

RACHELLE AKUFFO: And, Mohit, of course, I want to ask you about Merck. You do have an overweight rating for them. What do you like here? Obviously, a lot of disappointment at the moment, but then also looking forward, we know that they're going to be having some new product cycles coming up as well. What is giving you hope, at least for now, for Merck?

MOHIT BANSAL: Right. So Merck, we like Merck because they have a base business with Keytruda, one of the biggest cancer drugs out there. And it's growing significantly. And it could become a $30 billion-plus product by the end of the decade.

I think why we like it is because investors in general are concerned about Keytruda losing patent exclusivity in 2028 and beyond. And now, onus is on Merck to figure out pipeline so that they can offset that loss. And what we like about Merck is that they are working on it. They have cardiovascular pipeline. They acquired an asset from Axiron last year, or maybe a year and a half back.

And that trial has worked out. They have an oral PCSK9 that can be combined with statins to provide 40% to 50% incremental cholesterol reduction. So that's a pill. So that could be a-- that could be a decent drug. So they have guided that in cardiovascular business, they can generate $10 billion revenues.

And in oncology, [INAUDIBLE] they can generate another $10 billion product revenues. So you cannot eliminate-- you cannot completely offset Keytruda when it goes off patent, but then the Keytruda problem slower. So this will be an evolving story over time. And that's why we like the name.

RACHELLE AKUFFO: We do appreciate you joining us with your insights-- Mohit Bansal there, Wells Fargo Managing Director of Biopharma Equity and Yahoo Finance's Anjalee Khemlani. Thank you both.