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This is a guest post from Steven Desmyter, Man Group’s Co-Chief Investment Officer, argues that when it comes to the Covid-19 vaccine, it’s worth not benefiting from the disaster.
The markets seem to have decided that Pfizer and Moderna are the winners of the COVID-19 vaccine race. While readings of more than 90 percent effectiveness from their vaccine trials sent stocks skyrocketing for both companies, lower Oxford University / AstraZeneca effectiveness and more confusing safety publication made more than $ 4 1 billion will be wiped from the British-Swedish firm’s share price.
The answer was perhaps understandable. After such solid readings from the first two launches (three if you count Russia’s Sputnik V), the disappointing AZN figures would likely put downward pressure on the company’s shares. Since then AZN’s stock price has seen a slight rebound, but there is a distinct lack of euphoria around this vaccine compared to its mRNA competitors.
But we may be missing something crucial here: the fact that a COVID-19 vaccine is unlikely to be a great source of short-term profitability for any company.
We are not in a world where a company can be seen to be profiting from the pandemic and even if a coronavirus vaccine becomes as regular as flu shots, it is unlikely that it will ever be a high-end product. margin. Rather, the real winner in the vaccine race will be the company that can generate the most positive impact from its efforts and win the biggest public relations victory. When the dust settles, it could well be AstraZeneca.
The AstraZeneca case
One of the biggest financial stories of 2020 was the inexorable rise in ESG (environmental, social, and governance) investment. In the UK, investors allocated almost four times more to ESG-related strategies in the first three quarters of 2020 than in the same period last year: £ 7.1bn versus £ 1.9bn. This was overshadowed by global allocations – currently more than $ 1.2 trillion is managed according to ESG guidelines.
Yet it is surprising that the two leading ESG ratings providers, MSCI and Sustainalytics, rate the pharmaceutical industry poorly when it comes to key metrics and, in particular, the social impact of their activities. My colleague Mike Canfield pointed out in a recent article that the pharmaceutical industry seems to have taken a business model that is objectively good – curing the sick and protecting the healthy – and turning it into something much more misleading, with accusations of price hikes and risking in value of earnings. before patients. It may be that the COVID-19 crisis provides an opportunity for Big Pharma to regain some of the ESG-related ground they have lost in recent years.
The University of Oxford / AstraZeneca vaccine has clearly established itself as the supplier of choice for ESG investors. While Pfizer / BioNTech has agreed to sell its vaccine for $ 19 a dose and Moderna for around $ 30, Oxford / AZN has explicitly stated that it will sell its vaccine at cost until at least June next year, or as long as conditions persist. pandemics. a cost that works out to about $ 4 per dose.
Furthermore, there is a clear divide between the mRNA and Oxford / AZN vaccines in terms of distribution. Oxford / AZN has made it clear from the start that their vaccine is intended to be globally available and affordable to low-income countries. The chart below, from Airfinity, gives an indication of the likely distribution of each vaccine and illustrates the clear division between the mRNA and Oxford / AZN platforms.
About 64 percent of Oxford / AZN vaccines will go to low-income countries. For Pfizer / BioNTech the figure is just 4 percent, while Moderna will only distribute its vaccine to wealthy nations.
In part, this has to do with logistics: mRNA vaccines require super cold storage (Pfizer / BioNTech at -70 degrees), while Oxford / AZN vaccine can be stored for extended periods in normal refrigerators. The numbers also play in AZN’s favor: They just increased production to 3 billion doses, which, particularly if they end up using the seemingly more effective lower-dose model, suggests that there is a chance that the vaccine is the model. dominant to tackle a problem. decent proportion of the world’s population. Of note, Oxford / AZN has been working closely with a number of supranational agencies, including Gavi and the Serum Institute of India, to coordinate the delivery of vaccines to low-income countries. At every turn, the Oxford / AZN team appears to be led by the clear long-term ESG and reputational benefits that will accrue to those who see COVID-19 not as a profit opportunity but as a means to restore faith in a much maligned industry.
Benefit from not benefiting from the crisis
It was telling that Donald Trump’s first big step after the election was to start his drug price reforms. Big Pharma is almost unique in drawing ire from both sides of the political spectrum; Trump seems to want to make sure he gets the credit for tackling an issue that he can be sure his successor will tackle if he doesn’t. The industry faces a public relations crisis; COVID-19 and Big Pharma’s pioneering role in providing a solution to the pandemic may be a counterweight to these reputational issues. But while Pfizer / BioNTech and Moderna have been aiming for an equitable and affordable distribution, Oxford / AZN appears to be seizing the opportunity with both hands.
A recent report by the People’s Vaccine Alliance (PVA) found that, as of December 8, countries with 14 percent of the world’s population had obtained 53 percent of the most promising vaccines. The PVA identified 67 low-income countries in which 9 out of 10 people are expected not to receive the vaccine in 2021. Of these countries, five (Kenya, Myanmar, Nigeria, Pakistan, and Ukraine) have reported a combined case burden of more than 1.5 million. people.
Both governments and the pharmaceutical industry should focus on the worrying discrepancy between wealthy nations, which have stockpiled enough vaccines to inoculate their populations three times, and poorer countries whose governments struggle to secure doses for healthcare workers and health workers. the most vulnerable.
There is a reason beyond ethics why ESG has gained such a following in recent years. You don’t have to be Thomas Piketty to recognize that inequality poses a significant risk to the global system as it stands. Forward-thinking investors recognize that companies must help correct the most egregious imbalances, be they social or environmental. So while mRNA vaccine producers may have had a brief spell in the sun after their stellar efficacy readings, I still think AstraZeneca may be the long-term winner of the vaccine race.
