- Profits to finally accrue from the vaccine roll-out
- Shares dip as Q3 margins take a hit
Is the pandemic over? Apparently so, judging by AstraZeneca’s (AZN) third-quarter update. As part of its original agreement with Oxford University Innovation, the pharma group committed to a non-profit roll-out of its Covid-19 vaccine for the duration of the pandemic, but it has now signed standard commercial agreements, thereby enabling it to fund the development of its antibody treatment for the virus.
It should be noted, however, that it will still provide the vaccine to emerging economies at cost, so profit will be relatively modest by comparison to its US rivals.
The AZN vaccine, in common with those developed by US drug companies, has come under increased clinical scrutiny as the various vaccine programmes progressed, but by the end of September the group and its sub-licensing partners had delivered more than 1.5bn doses in over 170 countries. That’s a laudable effort by any stretch of the imagination, but what are the commercial implications?
Well, if the group never made a penny from the vaccine, the programme has enabled it to move ahead with the creation of a vaccine and immune therapies unit, offering treatments for viral respiratory illnesses. It has also built up its capabilities in this area, the value of which will become more apparent over time.
In the here and now, however, the group’s shares were marked down on the quarterly update after it revealed a steep fall in the operating margin, from 19.1 to 5.3 per cent. Margins have been under pressure throughout 2021 due to the dilutive effect of the non-profit vaccine roll-out, together with the negative impact from increased profit-sharing arrangements.
Total (ex-vaccine) revenue in the year-to-date increased by 17 per cent at constant currencies to $23.2bn (£17.3bn), with the rate of growth accelerating through the third quarter. This was driven by the $39bn acquisition of Alexion, a deal that was immediately earnings accretive and also boosted the group’s presence in the fast-growing field of immunology.
The group booked $1bn in revenues from the vaccine in the third quarter, a far cry from the sales generated by the likes of Pfizer (US:PFE) and the other rapacious US pharma groups which have opted for new mRNA technology over a conventional vaccine approach.
Despite the margin hiccup, the group has not changed its full-year earnings guidance, with core EPS of between $5.05 and $5.40. Total revenue is expected to grow by a mid-to-high 20s percentage.
Even with a market cap of £147bn, it’s still a development story for AZN. The long-term commercial benefits from the integration of Alexion will become clearer in the months ahead, but the marked rise in new medicine sales throughout 2021 and the 140+ clinical developments in train provides the focus for analysts. Long-term buy at 9,076p.
