AstraZeneca (AZN +0.00%) has arguably been one of the more disappointing coronavirus vaccine stocks. Over the past year, its shares have returned a total of 2.1% to investors, which is far less than the S&P 500's 15% gain during the same period. In the eyes of many onlookers, the $134 billion market cap biotech has reached the peak of its growth cycle, and its prospects for 2021 and beyond seem bleak.
Just what could be so controversial about this pharmaceutical giant's growth catalysts? Should investors give its stock a chance or look for better alternatives?
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A satisfactory coronavirus vaccine
In a pivotal phase 3 study, AstraZeneca's viral vector vaccine AZD1222 demonstrated 70% efficacy in protecting patients from contracting the coronavirus. In a surprising result, among study participants who received a half-dose as the first shot in their two-shot regimen, followed by a full-dose, demonstrated immunity rates of 90%, compared to 62% among those who received two full doses.
Those results put AstraZeneca's coronavirus vaccine on par with those of Pfizer and Moderna (both of which have been shown to be more than 90% effective) if given in the half-dose/full-dose regimen. Nevertheless, AZD1222 is unlikely to significantly contribute to AstraZeneca's financials for some time.
AstraZeneca has pledged not to make a profit on its vaccine during the pandemic; it will charge just $3 to $4 per dose on the worldwide distribution of its vaccine. Hence, even though the company has over 800 million orders of its coronavirus vaccine and the capacity to produce three billion doses this year, it would not positively affect its business in any extreme way.
That said, the company should, by all means, be heralded for its humanitarian efforts. However, such actions do not make the stock more investable. Even though there is a time-limit on its non-profit vaccine development scheme, the vaccine's efficacy is still below that of its aforementioned competitors. So it's still uncertain whether the company will rack up as many orders as Pfizer and Moderna after the current vaccine shortage subsides.
An uphill battle to expand its core business
Even though AstraZeneca has 38 pipeline candidates in phase 1 trials, 54 in phase 2, and 41 in phase 3, it has been having trouble offsetting the declining sales of key products that have lost patent protection. In Q3 2020, the company grew its revenue by 3% year over year to $6.58 billion. Simultaneously, its earnings per share (EPS) decreased by 4% to $0.94 due to pandemic disruptions and declining sales of its respiratory drug, Pulmicort, in China.
To combat stagnation, AstraZeneca announced in December that it would pay $39 billion in cash and stock to acquire Alexion Pharmaceuticals (ALXN +0.00%). The biotech is known for its rare disease drug Soliris, which generates roughly $1 billion per quarter in revenue. For 2020, Alexion expects to bring in up to $5.95 billion in sales, up 19% from the year prior.
It is clear AstraZeneca has high expectations for the deal. By 2025, the company expects its new acquisition will be on track to generate double digit average annual revenue growth.
What's the verdict?
Given its valuation of 5.2 times sales and 54 times earnings, and its relatively low growth rate, AstraZeneca is definitely one of the more expensive biotechs out there. Overall, the rollout of its coronavirus vaccine is extremely unlikely to enrich the company's bottom line. In addition, it's not yet clear whether it overpaid for Alexion. For these reasons, investors who are looking for new stocks to buy in the coronavirus or life sciences spaces should probably consider other alternatives.
