With the coronavirus being the only story anyone is talking about, it is natural to assume that pharmaceutical companies will do well. Indeed, the AstraZeneca (LSE: AZN) share price is almost at record highs. I have long considered Astra a worthwhile investment. I suspect these latest developments will only make it more so.
Creating a vaccine
The company announced today that it would be joining forces with Oxford University to develop and manufacture a coronavirus vaccine. The deal would see AstraZeneca distribute the prospective vaccine, known by the catchy title “ChAdOx1 nCov-19”, which is currently being developed at the university.
The aim is to mass-produce up to 100m doses by the end of the year. The pair also said their intention is to first prioritise the UK, before extending the programme to other countries.
Somehow, I can’t help but suspect that any developments in the coronavirus field just won’t translate to the bottom line as much as we would like. With all the publicity surrounding Covid-19, I am not convinced the company will actually make money from this vaccine.
With Oxford leading the way in developing this vaccine, fear of price gouging will likely keep margins low. AstraZeneca shares may be helped by the news, but perhaps more because of perception than fact. This isn’t necessarily a problem, however, for one main reason.
AstraZeneca is a strong company anyway
Even if this latest vaccine brings in no profits for AstraZeneca, I believe it is still a very strong company. As an income play, its current yield of 2.7% is not the highest I have seen, but better than nothing.
Likewise its share price is not exactly cheap at the moment. It has a forward-looking price-to-earnings ratio of 25 this year. Having said all this, of course, if the price continues to climb, we may indeed look back on the £85 price tag as cheap.
In its quarterly results this week, AstraZeneca reported revenue up 16%, with earnings per share up 27%. It has a diverse portfolio of drugs on its books, and while any Covid-19 treatments may end up weak earners, they certainly won’t hurt.
The company has a particularly strong presence in oncology drugs. While most cancer treatments focus on the later stages of the disease, AstraZeneca instead focuses on early detection, prevention, and treatment.
AstraZeneca is also holding up well against the threat of cheap, generic version of its drugs. The company works closely with local governments and hospitals in China to help secure fair prices for its treatments.
As an investment then, I think you can do far worse than AstraZeneca. Though it may be worth waiting for a small dip in its share price, there is every chance one will not be forthcoming any time soon.
I think work on a coronavirus vaccine will only be helping AstraZeneca shares further this year.
