UK hedge fund Argonaut takes aim at AstraZeneca-Oxford vaccine and warns against “silver bullet” recovery


The recent stock market “exuberance” sparked off by breakthroughs in Covid-19 vaccine trials may give way to disappointment next year, says Argonaut Capital CEO and CIO Barry Norris, who continues to build short positions in a number of drug companies, including AstraZeneca, amid continued uncertainty over efficacy and dosage in its trial process.

Norris, who runs the UK firm’s Argonaut Absolute Return equity long/short hedge fund, has taken a negative stance on several pharmaceutical stocks this year as the hunt for an effective Covid-19 treatment heated up.

He is maintaining his bearish stance on the recent Covid-19 vaccine announcements, and believes a market recovery may not be as smooth or as quick as hoped by investors.

“At the risk of being obviously non-consensual, I think that the market reaction to the vaccines was a group-think reaction. It’s just totally illogical to see this as a silver bullet,” Norris told Hedgeweek on Monday.

“To price in a back-to-normal for the global economy next year, which is essentially what the market did in November, to my mind is incredibly risky because most of the recovery potential is already priced in,” he continued.

Stocks markets surged earlier this month following breakthroughs in separate trials run by Pfizer-BioNTech, Moderna, and AstraZeneca-Oxford University. Vaccines are being prepared for a potential roll-out in a few weeks’ time.

But Norris warned the likelihood of market disappointment early next year “is going to be extremely high”, comparing the heightened market “exuberance” which followed the recent vaccine announcements earlier in November to a Christmas credit card splurge by consumers.

“By the time it gets round to January, it’s time to pay the bills,” he said.

Setting out his sceptical stance, he said vaccines may significantly lessen the chances of disease progression among healthy adults who were never at risk of hospitalization or death from Covid – “but they don't stop virus transmission.”

In an interview with Hedgeweek in September, Norris explained how Argonaut has built bets against several drug manufacturers, given the challenges surrounding the vaccine search and the likely high degree of volatility in the sector’s share prices.

Following the AstraZeneca-Oxford University announcement, Argonaut took out a short position against the firm.  After an initial rise, AstraZeneca’s share price has fallen consistently in recent days, amid doubts raised over how much money the firm stands to make from the roll-out. Concerns were also flagged over the vaccine’s reported 70 per cent efficacy, which fell short of the 90 per cent-plus shown by Pfizer-BioNTech and Moderna.

Norris said uncertainty over efficacy levels and differing dosage amounts in the AstraZeneca-Oxford University vaccine could delay the regulatory approval process for the drug.

“I think there seems to be a lot of reputational risk on the downside for AstraZeneca, and not much upside, given that the pricing of the Astra vaccine is very low,” he said of Argonaut’s bearish position.

He added that, “from a clinical perspective”, the AstraZeneca vaccine “does appear to be inferior to the mRNA vaccines”, which are expected to be among the first Covid-19 treatment authorised for use in the US.

The fund also has small short positions in a handful of US pharmaceutical stocks, where companies “just have a promotional press release to say they have a ‘promising’ Covid vaccine candidate, with no track record of ever having any credibility in this area,” he explained.

“The position sizes are pretty small, just because at the moment there’s a high degree of risk appetite for these kind of speculative investments.

“But the fact is people appear to be willing to throw money at any company that says they’ve got a solution for Covid, without actually working out whether that’s credible, or what the duration of any revenues from those products would actually be.”