The FTSE 100 pharmaceutical giant AstraZeneca (LSE: AZN) has reported 70% success in its Covid-19 vaccine, developed along with University of Oxford. For a lay person like me, this looks like a positive. But, it also appears to be less positive than the results that either Pfizer and Moderna had this month. Both companies reported around 95% success rate in vaccine trials. This probably explains why the AstraZeneca share price is down almost 2% today. I’ll be very surprised if the AstraZeneca share price falls much further from here, though. There are four reasons why I think so.
#1. Measurement differences
Differences in measuring vaccine success could be one reason why the AstraZeneca-Oxford vaccine looks relatively less effective. The vaccine takes into account all cases from severe to mild. If it only considered prevention of severe cases, the efficacy rate would be higher, according to the Oxford Vaccine Group. Also, the vaccine itself has shown different success rates based on the amount of vaccine administered. I think only time will tell how effective each of the vaccines are.
#2. AstraZeneca’s practical solution
It’s possible, of course, that the Pfizer and Moderna vaccines are indeed more effective. But, according to a Financial Times report, AZN’s vaccine has practical advantages over them. It can be stored in the refrigerator, for instance. By comparison, the other vaccines need to be stored at extremely low temperatures that will required specialised solutions. It’s also available at a much lower cost, which is helpful in reaching more people.
#3. Sale at cost
This has been made possible quite likely because AZN has always maintained that it will sell the Covid-19 vaccine at cost price. With no profits in it, I don’t see how investors were going to gain from this particular initiative alone. Following from that, I don’t see why its share price should be affected at all. In fact, on the contrary, it’s another feather in AZN’s cap. Moreover, it plays a part in exorcising Covid-19 from our lives. That’s good for everyone, including AstraZeneca and its share price.
#4. AZN share price was always high
While Covid-19 has created a lot of buzz around the AstraZeneca stock, it was a star performer even earlier. Priced at over £80 for a single share, AZN looks pricey in absolute terms. It’s also so relatively speaking. Its price to earnings (P/E) ratio is 43 times, which is way higher than most other FTSE 100 stocks.
Moreover, it has been high for a while now. When I first wrote about the stock last year, its P/E was even higher at over 60 times. I had argued then that we shouldn’t see the stock as ‘expensive’. Rather, the P/E should be seen as the premium investors place on buying it. My view on it hasn’t changed. I think the dip is once again, an opportunity to buy.