Virus winner or loser?
AstraZeneca shares are soaring – but a vaccine may not be a cash cure-all
AstraZeneca, the British pharmaceutical giant, has made a giant leap forward in its hunt for a Covid-19 vaccine. Success would be a game-changer and mark a key turning point in the fight against the virus.
However, the enthusiasm from investors for the company, which has seen its share price rocketing 22pc higher this year, is misplaced according to Daniel Mahony, who co-leads a £2.5bn healthcare team at Polar Capital, an investment manager.
He argued that even if the vaccine from AstraZeneca is successful, it will not make a lot of money from it.
“If you are buying AstraZeneca on the basis they will make loads of money out of a vaccine, you are buying for the wrong reasons. I am still not convinced they are going to make a lot of money out of it or whether they even intend to. Say they provide 400m doses to America and it is sold at $20 (£16) a dose, they would only be making $3 (£2.40) in profit per dose, if that,” he said.
This would amount to around $1.2bn (£950m) in profits. While it sounds like a lot of money, Mr Mahony noted that the company’s value rose $4bn (£3.2bn) yesterday after the news was announced. “Companies are doing this out of social responsibility rather than to make a lot of money,” he said.
That is assuming the vaccine is a success. Before reaching that point, Mr Mahony said AstraZeneca must carry out a “stage three” trial, where 10,000 people and 10,000 placebos are vaccinated and the results are assessed after six months. There needs to be 50pc fewer infections in the vaccinate group versus the control group.
“Even at this stage of vaccine development, there is still a long way to go. Everybody is trying to extrapolate some measure of efficacy and decide if it is going to work. It is still too early to make any assumption on this,” he argued.
The market thinks it is a race to find a vaccine, but Mr Mahony disputes this view. “If you listen to public officials, what they really want is three or four vaccines that work well in different scenarios, such as for old people or young people. If five different companies get over the finish line, even if they are a year apart, then they will all win,” he said.
Alex Gold, manager of the £1bn Fidelity Global Healthcare fund, supported Mr Mahony’s argument.
“While some aspects are certainly promising, we think it is too early to ascertain which, if any, of these vaccines will have the requisite efficacy and safety data for global use,” he said. Mr Gold noted that AstraZeneca has already indicated that it would give away the majority of its vaccines at cost.
Gilead Sciences, an American pharmaceutical company, priced its coronavirus therapeutic drug Remdesivir at a low price so as to not be seen to be profiteering from the pandemic, according to Mr
Gold. “Given the early stage which we are at with the vaccine data, as well as the questionable economics, we are reluctant to make investment decisions solely based on vaccine potential,” he concluded.
Karen Andersen, of financial data group Morningstar, said while the firm’s not-for-profit plan for the vaccine limits the profit impact, its success shows the firm’s research excellence.
Ms Andersen added that AstraZeneca’s pipeline of drug development is emerging as one of the strongest in the sector which makes the stock a good investment, regardless of the vaccine outcome.
“The company is developing several key products that hold blockbuster potential. In particular, it recently launched cancer drugs Tagrisso and Imfinzi which are well positioned based on leading efficacy in hard-totreat cancers. These drugs should also carry strong pricing power,” she said.
Tineke Frikkee, of Waverton Investment Management, added that the relationships formed with Oxford University, regional vaccines manufacturers and national medicine organisations could add to the long term opportunities for AstraZeneca.
Spread your bets
With over 150 companies working on a vaccine, it will be very challenging for investors to find the winners, noted Nina Deka, a healthcare specialist at research firm ROBO Global.
“If most of these front runners are only able to produce 1bn doses, this means there’s room for several winners,” she added.
Ms Deka said a more prudent investment option is a diversified healthcare fund that provides exposure to a large number of companies which may benefit from vaccine development.
The ROBO Global Healthcare Technology and Innovation Index has Moderna, Lonza, Catalent, and Iqvia in its portfolio, which are all working on vaccines. It also holds another 80 firms that are innovating in areas as diverse as genomics, telehealth, and robotics.
Investors can buy the index via the L&G Healthcare Breakthrough UCITS ETF.
The race to find a vaccine for Covid-19 has sent share prices at AstraZeneca soaring – but the company has indicated it would give away the majority of its vaccines at cost