Here’s what the market got wrong about AstraZeneca’s potential coronavirus vaccine

We have a lot of faith in the market to properly value stocks over the long term, but if you’ve been investing long enough you know it can run out from time to time. Monday, AstraZeneca (NASDAQ: AZN) announced that its coronavirus vaccine candidate, AZD1222, has been shown to be effective in preventing infection. Shortly after the announcement, its stock sank, while the rest of the market and major competitors love Modern Pink.

It is true that there are a few questions that need to be answered regarding the effectiveness of AZD1222 and its specific dosing protocol. But I am of the opinion that the lower selling price and the significantly higher ease of transport and storage will help AstraZeneca’s vaccine to outperform the competition. Let’s explore the details and identify why.

Image source: Getty Images.

Market confusion is understandable

After Monday’s announcement, the elephant in the room with AstraZeneca’s vaccine is effectiveness. Clinical trials have examined the effectiveness of two different dosing regimens. One regimen initially used one full dose of the vaccine, then another full dose after a month. Only 62% of people in this group were protected against infection. The other used a half dose at first, then a full dose later, which protected 90% of participants. There is undoubtedly a big difference in efficiency between the two, and so far management has refused to speculate on what this means and why it is.

The answer may come from the modified adenovirus that AstraZeneca uses as a vehicle for its vaccine payload. Since many people have existing immunity to adenoviruses, which can cause the common cold, their immune system may respond to it rather than the anti-coronaviral payload. Thus, a smaller first dose of the vaccine could attenuate this effect, thus more effectively priming the immune system against the coronavirus. But the full story is still unclear, so be sure to watch AstraZeneca’s tracking reports carefully.

Assuming these results stand up to further clinical examination, that’s still good news. If the full cycle of inoculation requires a smaller dose than initially expected, manufacturing costs will be lower than expected. Importantly, AZD1222 is already expected to be the cheapest coronavirus vaccine at around $ 3 per dose. This is a stark contrast to competitors like Moderna, which aims to charge around $ 25 per dose, or $ 50 for a full course.

Protection at a great price

So why did Moderna’s stock take a bump when AstraZeneca released interim results? The most obvious reason is that its candidate claims to be 95% effective against infection, while AstraZeneca only achieves 90% even using the better of the two regimens. Also, if you take the average of the results of the two regimens, you end up with an efficiency of only 70%, which makes for a much less flattering picture. Few people would want to take a poor vaccine if they knew about a highly protective vaccine. However, it’s important to remember that the US Food and Drug Administration’s requirements for coronavirus vaccines specify that 50% efficacy is the minimum to gain regulatory approval.

Here’s the crux of what the market got wrong: The vaccine will not be administered using the less effective schedule, nor will it be administered on average of the two. Even under the pandemic’s accelerated development timeline, regulators are not close to approving a dosing strategy that has not been proven safe and effective in large clinical trials. In other words, the candidate will be used under conditions known to maximize its safety and effectiveness. People can count on the candidate to be around 90% effective until there is new evidence to indicate otherwise.

Buy the dip

With AZD1222 costing less than $ 5, Moderna’s small efficiency advantage seems pretty expensive. Especially as AstraZeneca releases more data and allows for more in-depth analysis of its clinical trials, the market will recognize that its low cost will be a major boon to the company’s market share. When paired with other benefits like stable storage in refrigerators rather than freezers, it’s hard to see how other candidates will compete.

Eventually the market will recognize the real value of the vaccine, but this could take some time. Likely enablers include additional data publications that document final clinical trial results (rather than interim analyzes). These will likely be delayed now that there is a discrepancy in the effectiveness of the two dosing regimens that needs clarification. Further down, earnings reports are another opportunity for investors to see the impact of its sales. In the meantime, it might be a good idea to buy. Especially since a volatile market continues to lack key details, investors shouldn’t be afraid to take a stand behind the facts.