Takeaway: PFE's effort to provide clarity only seems to make things a bit muddier especially as it relates to Comirnaty

Below is a complimentary Health Policy Unplugged research note written by Hedgeye Health Policy analyst Emily Evans.

Health Policy | More Clarity From Pfizer Only Raises More Questions - Pfizer

Pfizer (PFE) held a call yesterday morning to answer questions about their guidance revision in response to a contract amendment with the United States government on supplying Paxlovid. While they were at it, they sliced $2B from their Comirnaty guidance. The Street certainly liked what they heard, because perhaps the whisper number was worse. Of course, there is still time for that, and the disclosure raised quite a few questions.

  • The original contract between PFE and the USG was for 20M courses in return for $10.6B. That contract was amended in December 2022 to add 3.7M additional courses. Since late 2021, all 23.7M doses were delivered to the government and PFE was paid $12.5B. Under the contract amendment announced on Friday, the government will return 33% of its purchase and receive store credit of $4.2B. Additionally, PFE will be tossing in the trash about 8.6M courses. 
  • PFE will reverse the federal government's credit by providing courses of Paxlovid free of charge to Medicare and Medicaid beneficiaries, the under insured and the uninsured through a Patient Assistance Program until the end of 2024. PFE will extend the PAP to the under/uninsured through 2027.
  • PFE will provide 1M courses for the strategic stockpile a la George W. Bush's move with Tamiflu.
  • Beginning in 2024, Paxlovid will be available via commercial coverage with price negotiated in the normal course of business.

Health Policy | More Clarity From Pfizer Only Raises More Questions - asdfasdfdffffffd

Thought Bubble: If the government was unable to hand out Paxlovid free of charge in 2023, why do they think they can do so in 2024?

It seems Paxlovid's problem is that it is not a particularly good drug with a spotty record of rebound. The Patient Assistance Program will presumably operate outside the Part D benefit and thus not count toward the beneficiaries True Out of Pocket Cost. It also will not be subject to all the rebate/fees shenanigans for which the Part D program is known.  

The credit scheme heightens the oversight issues and it seems likely one of two things is possible. First, the credit is eventually written off by the government and quietly disappears. The second is that, similar to Tamiflu, members of Congress start asking why the federal taxpayer is paying for a bad product that nobody wants. We do not rule out nothing happens due to Pharma's outsized influence on the normal influences like national media.

There was no mention of a commercial price for Paxlovid. I am sure some Blues plan will be happy to pay $531, but most insurers are either going to balk or demand rebates/fees to list it that way. Additionally, Paxlovid's off-label use is well known, something that is not likely to be tolerated by those that underwrite risk. The drug is indicated for people with mild to severe COVID at risk for hospitalization and death. Read: the elderly with comorbidities.

Even for the frail, however, COVID is becoming much less of a threat. With test positivity at levels seen in 2020 and 2021, hospitalization have declined. This effect, no doubt a result of the evolutionary tendency of viruses, contributed to the return of the federal government's purchases and is likely to be a factor going forward.

  • In a rare moment of self-awareness, CEO Dr. Albert Bourla acknowledged that we are at "peak COVID fatigue." 
  • Nonetheless, Dr. Bourla believes, notwithstanding the current uptake of about 2%, Comirnaty will achieve uptake of 17% in 2023.He made no mention of market share.

Thought Bubble: Comirnaty is not a particularly good product. It does not stop transmission or illness and claims that it reduces severity of disease are plagued with health subject bias. The recommended use of the product Ex-US is primarily for the elderly and the most recent booster has gotten plenty of pushback from the medical community

If PFE is able to support the 17% uptake, they would reverse a trend that has been evolving since 2021 – less people uptake with each successive dose. We should note that as recently as September, the company expected 24% uptake, which suggests the company doesn't have uptake modeled well, or they do not want to say.

There was no mention of the supply challenges being raised by customers of some of the larger chain pharmacies which suggest wholesalers and retail pharmacies do not anticipate demand for the latest booster to match the bivalent uptake in 2022. In the alternative, PFE may not have been able to negotiate the level of incentives such as rebates, performance fees, etc., which maybe limited supply. With an nearly identical product available from MRNA, playing these two off each other should be a walk in the park for a PBM.

Bourla also confined analyst assessment of the Ex-US market to the EU contract that will generate revenue regardless of how many vaccines get administered. It begs the question: "What about the rest of the world?"

Barring a change in the nature of the SAR-CoV-2 virus, uptake of Comirnaty is more likely to be closer to 8% than 17%, which means there is probably more revenue disappointment to come.

To view all of Hedgeye's Health Policy research from Evans, visit Health Policy Unplugged

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Emily Evans has worked at the intersection of politics and finance for 30 years, making her an ideal translator and tour guide of the often arcane and counterintuitive U.S. and state health policy. Her career includes many years spent financing brick and mortar health care businesses like skilled nursing facilities, hospitals and retirement communities. In recent years, she has worked with early stage companies, helping them understand and navigate the minefields of public policy. Emily was elected three times to local office and continues to be active in politics at the state and local levels from her home in Nashville, TN.

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