Virus win­ner or loser?

As­traZeneca shares are soar­ing – but a vac­cine may not be a cash cure-all

The Daily Telegraph - Business - - Front Page -

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.

‘Ques­tion­able eco­nomics’

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.

Re­search ca­pac­ity

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

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