Moderna (NASDAQ:MRNA) rallied about 145% since early February amid hopes that its vaccine for the novel coronavirus will be effective. In a February column, I identified MRNA stock as one of three pharma stocks to buy.
One reason for my bullishness was the company’s coronavirus treatment.
And given the fact that the federal government has agreed to invest up to $483 million to facilitate the development of Moderna’s vaccine, the company likely has a better shot at developing a successful vaccine than any other company.
Not only will the government’s money enable Moderna to get the resources it needs to quickly develop the vaccine, but Washington’s investment suggests that the drug developer’s vaccine candidate is quite promising.
Meanwhile, in the months to come, the spread of the virus will ease as the weather gets warmer, and the mass closures of American businesses will be rolled back. That will tend to reduce the urgency on the part of governments to find a vaccine, weighing on MRNA stock.
Finally, over the longer term, there’s a good chance that Moderna’s vaccine will either fail completely or prove to be less effective than other companies’ offerings.
Remdesivir Is a Major Short-Term Threat to Moderna
Data reported by StatNews indicated that Gilead’s drug, remdesivir, could lower the death rate among patients with severe cases of coronavirus to less than 2%.
Specifically, after receiving the drug at a Chicago hospital, only two patients out of 113 with severe cases of the virus died. Meanwhile, StatNews reported that most of the patients who received the drug had been released from the hospital, according to the expert who was supervising the trial.
And a separate study reported by the prestigious New England Journal of Medicine found that 82% of patients who were receiving oxygen support and took remdesivir survived. From what I’ve read, usually around 65% to 80% of coronavirus patients who receive oxygen support die.
Neither the information reported by StatNews nor the data published in The New England Journal of Medicine was derived from a clinical trial with a control arm. As a result, both studies were largely dismissed by many pundits and scientists.
But multiple publications have reported that Gilead is slated to release information on clinical studies by the end of April. If the studies show that remdesivir cures 80% to 90% of patients with severe coronavirus, the urgency felt by state governments and Washington to develop a vaccine will drop meaningfully. I believe that such a change would significantly weigh on MRNA stock.
Further, as I reported in a previous column, remdesivir “was found to prevent MERS, which is similar to the coronavirus, in monkeys.” As a result, the drug could prevent people from contracting the coronavirus, greatly reducing the need for a vaccine.
Other Short-Term Threats To Moderna
Other changes that will reduce the urgency of finding a vaccine will also likely cause MRNA stock to drop in the next few months. As I’ve pointed out repeatedly in previous columns, there’s a large amount of evidence that the spread of the virus greatly decreases in warm weather. As that phenomenon takes hold in the U.S., the daily death totals here will fall tremendously.
Further, as I also predicted numerous times starting in late March, America’s economy has started to open in April. That process will greatly intensify in May. Assuming the process continues without disastrous consequences (and I think that will, thankfully indeed be the case), governments will feel less pressure to facilitate the development of a vaccine.
Longer-Term Threats for MRNA
Many other companies are working on developing a vaccine, including heavyweights GlaxoSmithKline (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), and Sanofi (NYSE:SNY). Although I see multiple signs that Moderna’s technology is quite impressive, it’s entirely possible that one of the other company’s vaccines will be more effective than Moderna’s.
Further, it’s possible that no treatment will work. After all, nobody has been able to develop a vaccine for some other viruses, including viral hepatitis, HIV, SARS, and herpes.
The Bottom Line on Moderna Stock
After the shares rallied tremendously in the last couple of months, there’s a very good chance that they’ll sink by the end of May. Further, Moderna’s longer term threats could cause it to drop more by the end of the year. Given these points, I’d recommend selling the shares. But, in light of Moderna’s promising pipeline, I think investors should consider taking a position in the stock if it drops below $37.
As of this writing, Larry Ramer owned shares of GILD stock. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.