[Editor’s note: This article was updated on March 11, 2020, to add additional information.]
For those who haven’t yet heard of Moderna (NASDAQ:MRNA), it’s a Massachusetts biotech company developing a coronavirus vaccine.
As you can imagine, MRNA stock is getting a tremendous amount of goodwill as a result. The stock is up 36% from Feb. 5 to March 5.
There’s only one problem: It’s going to take 12-18 months to determine whether that vaccine is safe to use on humans. By then, the coronavirus outbreak could easily be in the rearview mirror.
In the meantime, investors are speculating that MRNA has hit the jackpot. Here’s why I don’t think that’s the case.
Moderna’s at the Mile Pole
While the company’s managed to translate the coronavirus’s genetic code and turn that into a testable vaccine in just 42 days, it will take a least a month before it’s ready for testing on humans, and another 12-18 months or more before it’s safe to distribute at scale.
“I don’t want to over-promise. I said a month and a half the other day; it may be about a month or so. And then very soon, we’ll be sticking the first person with the vaccine,” the Director of the National Institute of Allergy and Infectious Diseases Anthony Fauci told reporters on March 3.
“We’re not going to be able to start that [phase two] for at least another three or four months after we go in. So the whole process is going to take a year, a year and a half at least.”
As my InvestorPlace colleague Luke Lango recently stated on March 5:
“Moderna’s stock looks overextended due to hype about its potential coronavirus vaccine…. The problem is that this hype may not be sustainable. No one really knows if mRNA-1273 [coronavirus vaccine] will protect people against coronavirus. Even if it does, there’s no certainty that Moderna will make a dime off of it.”
Moderna Doesn’t Operate in a Bubble
The problem here is that investors are looking at Moderna’s coronavirus vaccine in a bubble. They’re assuming that because Moderna might have reached the mile pole first, its vaccine is the one the healthcare community will use for humans if approved.
As far as I know, the Food and Drug Administration (FDA) is still an impartial government agency. If other companies with potential vaccines and treatments — think Regeneron (NASDAQ:REGN), Gilead Sciences (NASDAQ:GILD), and Inovio (NASDAQ:INO) — meet the efficacy standards the FDA requires for human use, those companies would also roll out their vaccines to patients across the country.
This is not a zero-sum game. Moderna’s win is not necessarily Regeneron’s loss, etc.
The second point, and probably the more relevant of the two, is that the summer is coming. From everything I’ve read, hot weather will burn out the coronavirus, leaving developed vaccines sitting on the shelves for potential use the next time a super-virus comes along.
“Three things the virus does not like: 1. Sunlight, 2. Temperature, and 3. Humidity,” University of Hong Kong pathology professor John Nicholls recently told Accuweather.
“Sunlight will cut the virus’ ability to grow in half so the half-life will be 2.5 minutes and in the dark it’s about 13 to 20 [minutes]. Sunlight is really good at killing viruses.”
The professor expects the virus to burn out within six months; that’s approximately the end of August. Moderna’s vaccine won’t be ready until sometime in 2021.
More importantly, Nicholls downplays the severity of the coronavirus.
“Compared to SARS and MERS, we are talking about a coronavirus that has a mortality rate … eight to 10 times less deadly to SARS to MERS,” Nicholls said. “So, a correct comparison is not SARS or MERS but a severe cold. Basically, this is a severe form of the cold.”
I’m not suggesting that all of these companies should pack it in, far from it.
However, I can remember the SARS outbreak of 2003. My dad had his first bout of prostate cancer and was receiving treatment at St. Michael’s Hospital in downtown Toronto. Masks were everywhere. The only difference between then and now is social media wasn’t nearly as prevalent back then, keeping the hysteria to a dull roar.
The Bottom Line on MRNA Stock
Not being a speculative investor, I have no idea why anyone with a regular paycheck would risk money on Moderna at this point in its development. It’s a company that lost $514 million in fiscal 2019. By comparison, Regeneron made $2.1 billion over the same period.
As my colleague points out, Moderna’s work in the area of messenger RNA (mRNA) could generate significant long-term revenue. However, you have to walk before you can run.
To think the biotech company can go from $514 million in losses to massive profits on the back of a coronavirus vaccine seems, at best, naive, and at worst, greed personified.
If you’re one of those lucky people who’ve made close to 40% year to date on MRNA stock, you might want to take profits. I’m not going to suggest it’s an outright sell at this point, but I wouldn’t consider buying until it’s trading in the double digits.
Remember, you always have options.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
