It’s easy to miss the big picture of the actions by following the headlines. The writers focus on what fascinates investors right now, and why shouldn’t they? This is what people want to read the most.
But the great story of the moment often obscures the information that leads to greater wealth from long-term investing. One example is the British pharmaceutical company AstraZeneca (NASDAQ: AZN). The company has gained press attention for being a leader in the COVID-19 vaccine race, but its share price has gone virtually nowhere in 2020.
There has been a lot of vaccine-related news coming out of the company this year. In April, the company announced its partnership with the University of Oxford to bring the vaccine to market. The first results of the first tests followed in July. Last month, it was announced that the interim results of the Phase 3 trial were good enough to warrant submitting the vaccine for regulatory approval. However, there were also weak points. A pause in trial lasted most of September and October, and a dosing error in the Phase 3 trial cloudy water to interpret the results.
Why the vaccine does not matter
Through all of this turmoil, the share price hasn’t reacted much. Why? AstraZeneca will not benefit from the vaccine next year, and probably never. The company has pledged to forgo benefits from the vaccine during the pandemic, which is unlikely to end completely in 2021. Any investor who keep hope that the company will be able to raise the price once the pandemic is over should take into account that there will be multiple vaccine vendors at that time. There are 58 COVID-19 vaccines in development, all with stocks that will rapidly decline in value.
The vaccine also doesn’t prove anything about the company’s technology. wins by Moderna and BioNTech in its partnership with Pfizer are huge steps towards validating the messenger RNA technology that underpins all of their businesses. AstraZeneca did not even develop the AZD1222. Anyway, he doesn’t have a long-term vaccination strategy.
Why it doesn’t matter that the vaccine doesn’t matter
The market gives no love to AstraZeneca shares in this pandemic year. But the bull’s business has nothing to do with the vaccine. AstraZeneca could be a big winner from COVID-19 even if it practically gives up AZD1222.
AstraZeneca is in the advanced testing phase of an antibody cocktail that may prove superior to that of Regenerate which was given to President Trump. This drug, AZD7442, consists of two antibodies developed by Vanderbilt University that have been enhanced for a longer lifespan using the company’s proprietary technology. This long-acting antibody combination could not only strengthen the immune system of patients infected with COVID-19, but could also prevent disease for six to 12 months in people for whom a vaccine is not suitable. It could be used in conjunction with a vaccine to protect high-risk patients, or be given to people exposed to the virus who have not been vaccinated.
The benefit of this drug, which is priced much higher than that of a vaccine, could be a game-changer. A Morgan Stanley analyst believes it could boost AstraZeneca’s profits in 2021 by a jaw-dropping 30%.
But a potential COVID-19 windfall is not the main reason for owning AstraZeneca stock. The company is experiencing one of the best growths in large pharma, making it one of the the most attractive purchases in the sector at present. In a year when the pandemic disrupted routine medical care, the company increased its revenue by 10% in constant currencies and its basic earnings per share by 16% in the first nine months.
The main driver is AstraZeneca’s oncology portfolio, which increased its turnover by 24% in 2020. The successful cancer drugs Tagrisso, Imfinzi and Lynparza are showing strong growth in important indications such as lung, breast and ovarian cancer. It looks like the recently launched blood cancer drug Calquence will be a big winner as well. The company also has several blockbusters in its cardiovascular, renal and metabolic activities, including Farxiga for blood sugar control in type 2 diabetic patients and Brilinta, which reduces the risk of heart attack and stroke. The pandemic has disrupted the company’s respiratory drugs, which saw double-digit growth in 2019. AstraZeneca’s pipeline is busy, with 172 projects underway and nine new drugs in advanced trials.
A shift towards rare diseases
Oncology continues to be the field most invested by the pharmaceutical industry. Pharmaceutical companies love the rare disease arena as well, as insurance companies pay high prices for drugs that save small patient populations. AstraZeneca entered the rare disease space with an announcement this weekend that he plans to acquire Alexion Pharmaceutical (NASDAQ: ALXN) in a $ 39 billion deal.
Investors seem worried about the price, but the acquisition creates a fourth area of strength for AstraZeneca, making it one of the most balanced profit drivers in the pharmaceutical industry. Unlike many of his peers, he is not dependent on the growth of any particular drug. Instead, it is well diversified into some of the most attractive growth sectors in the pharmaceutical company. The company paid a hefty premium for the purchase, but Alexion was arguably undervalued, especially compared to companies get all the titles now. AstraZeneca says acquisition of Alexion will significantly increase cash flow generation, allowing it to increase R&D spending, reduce debt and increase dividend, making the stock more attractive to investors income.
Ignore vaccine news and buy the stock for the long haul
AstraZeneca will likely continue to grab the headlines as the world seeks hope in the face of increasing pandemics. Long-term savvy investors should look beyond current market obsessions and instead seek solid growth stories such as AstraZeneca. As soon as Fool’s disclosure rules allow, I will take advantage of the decline after the news from Alexion to start a new position in the stock.
AstraZeneca stock is 23% below its all-time high set this summer. It is selling 16 times lower than analysts’ consensus estimate for next year’s earnings, despite expectations of a 19% increase in earnings per share in 2021. The dividend returns 2.6%.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.