AstraZeneca's Pause on Vaccine Raises Uncertainty

AstraZeneca’s AZN decision to put late-stage development of its COVID-19 vaccine on hold raises the uncertainty around the viability of the vaccine but doesn’t affect our fair value estimate or moat rating. Since Astra was targeting a nonprofit strategy for the vaccine, our valuation model for the company excludes the COVID-19 vaccine. However, if an independent committee signs off on restarting the trial and Astra can bring the vaccine to the market, we expect the firm will create strong goodwill that can be used in pricing discussions with government policymakers regarding any future changes to overall drug prices.

While AstraZeneca has not released details around the specific illness that triggered the pause, according to The New York Times this is a case of transverse myelitis, which may or may not be related to the vaccine. Astra has late-stage studies ongoing in several locations, and we had expected data in September from some combination of the firm's first late-stage studies, including a large 10,000-patient phase 2/3 study that started in the United Kingdom in May and studies in South Africa (2,000 patients) and Brazil (5,000 patients) that started in June. As of mid-August, AstraZeneca had already enrolled roughly 11,000 volunteers out of the total 17,000 to be enrolled in these trials, according to Politico.

While Astra could still be one of the first companies to bring a COVID-19 vaccine to the market, the safety setback could delay potential emergency use authorization beyond the fourth quarter. Before the clinical hold was announced, we had projected a 50% probability that the vaccine would be approved. The clinical hold increases the uncertainty of approval, and we expect more data over the next few weeks to help shape the outlook for this vaccine. While the clinical hold is disappointing, several other vaccines are fairly close in time alignment to Astra, so we still expect approval of a COVID-19 vaccine before the end of the year.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.