AstraZeneca And The COVID-19 Vaccine: The Financials – Seeking Alpha

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Last year, Pfizer (PFE) made $36 billion from its COVID-19 mRNA vaccine, while Moderna (MRNA) made $5 billion in the third quarter alone. Pfizer's BioNTech SE (NASDAQ:BNTX) partnered vaccine is the best selling pharmaceutical product of all time in a given year - and Pfizer, at least, has received considerable flak after Albert Bourla, its CEO, called the demand for sharing vaccine recipes as 'dangerous nonsense.' Of course, Bourla's unstated claim that developing countries do not have the expertise to make these vaccines is balderdash, which has been so proven by the very successful Covaxin vaccine developed indigenously by India's Bharat Biotech with technical knowhow from the Indian National Institute of Virology. Although not an mRNA vaccine, Covaxin has very good immunogenic results, and its fridge temperature storage is a blessing for poorer countries because storing in extreme cold is expensive (the Moderna vaccine does not require such low temperatures).

So there's a clear crack/powder dichotomy between the vaccines the richer western countries are getting versus what the RoW is getting. Everybody - except the virus itself - is clearly financially profiling the global vaccine effort. The virus doesn't care how expensive your vaccine is.

In the midst of this dichotomy comes AstraZeneca (AZN) with its traditional non-mRNA vaccine that it has promised to give away at-cost to poorer countries while the pandemic lasts. AZN investors want to understand why the company took this huge charity effort while competitors large and small are raking in billions in vaccine profit. First, here's a pricing chart of current vaccines:

Covid vaccine prices

BBC

AZN is, as we can see, pricing itself at the lowest among peers. How it is able to do so is a mystery. Its November quarter was a mess. Not only was there a 13% EPS miss, but its second guidance for Q4 did not jive well with the consensus, which was well below even the bottom end of its guidance range. See what Bloomberg says about this:

A messy quarter, with a 13% EPS miss but reiterated guidance, suggests AstraZeneca has a cost-phasing issue, and consequently needs to beat 4Q consensus even to make the bottom end of its reiterated range. A slight revenue miss ex-COVID-19 vaccine was driven mainly by Tagrisso, but focus will be on whether the EPS miss is down to a lack of appreciation for the newly-incorporated Alexion cost base or frontloading of launch costs. A reiteration of guidance suggests the latter, though Astra has chosen to incorporate some first-time vaccine profit into guidance, but not amend it.

Clearly, profit-making was a missed opportunity for AstraZeneca. Neither was it a huge marketing achievement. AstraZeneca's vaccine is selling almost exclusively in the poorer countries of the world, and this isn't a segment the company probably intends to focus on with its marketing efforts. Moreover, clotting issues, rare if verified, trial data concerns, and now the belated profit-making, none of these have helped any possible marketing effort. Thus, the question remains, why did Pascal Soriot take the call to sell the vaccine at cost?

"A key element of Oxford's partnership with AstraZeneca is the joint commitment to provide the vaccine on a not-for-profit basis for the duration of the pandemic across the world, and in perpetuity to low- and middle-income countries," Oxford and AstraZeneca said in a statement in early 2020. The company also received funds from Covax and the Coalition for Epidemic Preparedness Innovations (CEPI), possibly under a not-for-profit arrangement. It is interesting that despite the initial burst of charity, the University changed course, see what Fortune magazine said in August 2020:

A few weeks later, Oxford-urged on by the Bill & Melinda Gates Foundation-reversed course. It signed an exclusive vaccine deal with AstraZeneca that gave the pharmaceutical giant sole rights and no guarantee of low prices-with the less-publicized potential for Oxford to eventually make millions from the deal and win plenty of prestige.

Since the third quarter, AstraZeneca has started making some money from its vast vaccine effort. In the first quarter of last year, it made $275mn, then $894mn in 2Q, and $1.05bn in the third quarter. In the entire year so far, they made $2.2bn from the vaccine. The development began when AZN decided to remove a number of middle-income countries from the list of its not-for-profit beneficiaries. This has caused it to face a lot of criticism, for example this one:

However, Nick Dearden, director of campaign group Global Justice Now, said AstraZeneca's decision to start profiting from the vaccine while the coronavirus pandemic was continuing "shows the utter folly of giving away publicly-funded science to big pharma".

"This moment was always going to come - and it's exactly why public health experts have demanded a waiver of intellectual property on COVID-19 vaccines," he said.

I think this criticism is missing the point. It is true that the entire science was developed through government funding, even the manufacturing was heavily subsidized for even the profit-makers and fully funded for the others. However, there's a reason the government asked Big Pharma to actually make the vaccines - because if it could, it would; but it can't, so it didn't. Big Pharma has done the world a service by enabling vaccine manufacturing and distribution - and now they want to charge for it. That, at least, is Astra's argument.

In their latest earnings results statement, the company said:

Prior guidance excluded the revenue and profit impact of sales of the pandemic vaccine. The Company is now expecting to progressively transition the vaccine to modest profitability as new orders are received. COVID-19 vaccine sales in Q4 2021 are expected to be a blend of the original pandemic agreements and new orders, with the large majority coming from pandemic agreements. The limited profit contribution from the vaccine in Q4 2021 is expected to offset costs relating to the Company's long-acting antibody combination (AZD7442), resulting in no change to Core EPS guidance.

The vaccine could actually become an important earner for the company. If you look at the revenue breakup, below, you can see why:

AZN drug performance

AZN

What we see here is that outside of Tagrisso - which has had a bad year due to Chinese hiccups - the vaccine is still, despite all the charity talk, Astra's top earner. Alexion's soliris might top that next year, but the vaccine revenue is going to continue to grow. So the decision to generate that revenue is actually a good decision. The current talks about booster doses are also good for Astra's topline. Recently, it was disclosed that a third dose of AstraZeneca's Vaxzevria increases antibody response against the Omicron variant. The increased response was seen in individuals previously vaccinated with either Vaxzevria or an mRNA vaccine, meaning that the booster dose works even for those who have taken Moderna or Pfizer's vaccines.

AZN is playing a volume game; emerging markets still represent its top earning geography:

AZN PERFORMANCE BY GEOGRAPHY

AZN

"Total Revenue from Emerging Markets increased 33% (28% CER) to $8,618m, of which $1,139m came from the pandemic COVID-19 vaccine. Excluding the COVID-19 vaccine, Total Revenue from Emerging Markets increased by 16% (10% at CER) in the year to date to $7,479m.

In the third quarter of 2021, the Company delivered approximately 67 million doses of its pandemic COVID-19 vaccine through COVAX17. As of 30 September 2021, the Company and its sublicensee Serum Institute of India Pvt. Ltd. (SII) have delivered more than 145 million doses with COVAX to over 125 countries, approximately half of all COVAX supply. The majority of the doses have gone to low and middle-income countries. Globally, AstraZeneca and its sub-licensing partners have released more than 1.5 billion vaccine doses as of the 30 September 2021, for supply in over 170 countries."

These numbers are a big deal. Of the nearly 10 billion vaccines delivered globally, nearly 20% are AstraZeneca's. This is the creation of a large market. If this can be monetized - as the company has begun to do now - I see great future for the company.

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AstraZeneca And The COVID-19 Vaccine: The Financials - Seeking Alpha