Moderna (NASDAQ:MRNA) just got pushed to the front of the line by the Food & Drug Administration. That’s excellent news for anyone betting on MRNA stock.
But if you own stock in one of the other biotech companies, you shouldn’t lose hope. Moderna’s partnership with Swiss-based Lonza (OTCMKTS:LZAGY) is expected to be able to produce 1 billion doses of the novel coronavirus vaccine, leaving 85% of the planet unable to benefit from mRNA-1273.
Not only did Moderna announce on May 7 that it got the go-ahead from the FDA for a Phase 2 trial, but it also delivered its first-quarter results. Investors barely glossed over those numbers. In two days of trading since the two announcements, Moderna’s stock is up 18%. Through May 7, its stock is up 66% over the past month, 129% over the past three months and 172% year to date at the time of this writing.
If you’ve been one of the brave souls to be holding MRNA stock since the beginning of the year, kudos for hanging in there. Now, the tough part begins.
Moderna Is Overvalued
I won’t pretend to know the best way to value a biotech stock like Moderna, which had $8.4 million in revenue in the first quarter, most of it from grants, and $139.3 million in operating expenses, for an operating loss of $130.9 million. That’s down from $141.6 million in Q1 2019.
InvestorPlace’s Thomas Niel believes Moderna’s stock is ready for a fall as its valuation is unsustainable. Niel recently argued that the company’s other possible vaccine, mRNA-1647, which is designed to prevent against congenital cytomegalovirus (CMV) infection, a leading cause of birth defects, leading to the death of many newborns, is already priced into the value of the stock.
Meanwhile, InvestorPlace’s Luke Lango suggested in March that at its maximum, mRNA-1647 could generate $1.5 billion in annual profits. Based on a price-to-earnings multiple of 12, it’s worth $18 billion.
Coincidentally, Moderna’s current market capitalization is $18.9 billion, just $900 million more than my colleague’s best-case scenario.
So, it’s a bargain, then? Not quite.
First, as life often does, it throws impediments in our way. While Moderna’s coronavirus vaccine looks like a relatively sure-thing, it’s not over the finish line just yet. There’s a possibility the company could blow hundreds of millions for phase 2 and 3 trials and ultimately not be given the green light.
“We view the current expectations for a vaccine in this time frame [by 2021] as the equivalent of standing 24 feet from a dartboard with one dart in hand and counting on a bull’s-eye from one throw,” said SVB Leerink analyst Geoffrey Porges. “It’s theoretically possible, but highly unlikely.”
Moderna might be getting the star treatment from the FDA, not to mention $483 million in funding from the Department of Health and Human Services, but ultimately mRNA-1273 has to be 100% effective on sick people to be commercially viable. That’s anything but a lock.
How about its CMV vaccine? What are its odds?
Moderna said in its Q1-2020 business update that it had completed enrollment for its Phase 2 dose-confirmation study with the first data expected in the third quarter with Phase 3 in 2021.
So, let’s see if I have this straight.
Moderna barely has any revenue, it has been burning through almost $500 million in cash flow annually, and that’s before stepping up expenses for mRNA-1273 and mRNA-1647, and these two potentially lucrative vaccines are just now entering Phase 2.
Does that sound about right?
And for that, investors believe it’s worth upwards of $18 billion? Man, I’m in the wrong business.
The Bottom Line on MRNA Stock
I keep thinking about the quote above from SVB Leerink Geoffrey Porges. Moderna has to be perfect the next three to six months to have a shot at commercially developing either vaccine.
That’s a lot of pressure for any CEO, let alone one that’s trying to help the world get on with life. So, from that perspective, I have nothing but good thoughts about its task ahead. I hope Moderna is a home-run success. I really do.
However, Murphy’s Law tends to show up more often when it comes to new drugs and their effectiveness.
Knowing how far Moderna’s stock has come in 2020, despite the good news, I could not buy this stock in the high $50’s and be able to sleep at night.
While Moderna is at the front of the pack, the horse race isn’t over by a longshot. A lot can happen in the next few months. Good and bad.
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.