Several biotechnology names have been emerging as winners in the novel coronavirus battle, most notably Moderna (NASDAQ:MRNA). Year-to-date MRNA stock is up an eye-popping 275%, hitting an all-time high of $87 on May 18 on news of positive vaccine trial results.
You may well remember that in February, the shares were hovering around $20.
Therefore today I’d like to take a closer look at the prospects for the company to see if MRNA stock can indeed go up any further. May has especially been a good month to be a shareholder in Moderna. Yet the second half of the year may bring stomach-churning news headlines regarding vaccine development, which itself is a costly and long effort without any guarantee of success.
Therefore if you currently have paper profits in the shares, you may want to ring the cash register to realize at least some of those gains.
How Q1 Results Came
Moderna is a clinical stage biotechnology company. It uses an mRNA platform to create a range of medicines and vaccines. The company highlights that “mRNA medicines are designed to direct the body’s cells to produce intracellular, membrane or secreted proteins that can have a therapeutic or preventive benefit and have the potential to address a broad spectrum of diseases.”
Put another way, its novel scientific approach to vaccine development is not yet proven. In early May, the group reported Q1 results.
Moderna currently has nine development candidates in its prophylactic vaccines modality, including vaccines against:
- Respiratory infections
- Infections transmitted from mother to baby
- Highly prevalent viral infections
So it has a diverse portfolio of vaccine candidates in the pipeline, but no current drugs on the market. It is the potential vaccine against COVID-19 is what currently gets the attention of the Street. On May 12, it “announced that the U.S. Food and Drug Administration (FDA) has granted Fast Track designation for the Company’s mRNA vaccine candidate (mRNA-1273) against the novel coronavirus (SARS-CoV-2).”
A week earlier, the FDA had allowed the mRNA-1273 to proceed to a Phase 2 study.
Can MRNA Stock Reach New Highs?
Since early March, personal and professional lives have become consumed by COVID-19 developments. Now, states and businesses are opening-up. And many scientists concur that unless there is a vaccine, we will all have to live with a new level of normality.
Federal Reserve Chairman Jerome Powell has recently said that full and rapid recovery of the U.S. economy may indeed depend on the availability of a vaccine.
Whenever Moderna puts out a potentially positive press release regarding the vaccine, MRNA stock gets a bump up.
Seasoned investors are no stranger to biotechnology stocks that may look expensive on paper, but end up paying off rather handsomely. On the other hand, there have been many biotechs whose clinical trials have failed. And not all drug (or vaccine) commercialization efforts succeed. So it is not always easy to calculate a fair value for stocks like MRNA that are riding high on market sentiment as much as scientific data, as CNBC’s Jim Cramer reminded investors earlier this week.
The group has a wide range of partnerships with other established names in the pharmaceutical sector. They include AstraZeneca (NYSE:AZN), Merck (NYSE:MRK), and Vertex (NASDAQ:VRTX). Therefore, we can assume that these companies are also closely watching Moderna’s current efforts. In case of any further potential developments, one of them or even another big pharma company could make an offer to acquire the group. Needless to say, such a development would be good for investors in MRNA stock.
Other Companies Working on a Vaccine
In addition to Moderna, a large number of firms and research institutes are currently working on vaccine or drug development. Other publicly traded companies that investors are watching include Inovio Pharmaceuticals (NASDAQ:INO), GlaxoSmithKline (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), Gilead Sciences (NASDAQ:GILD) and BioNTech (NASDAQ:BNTX).
So Moderna may also face competition from other drug companies that could be ready to launch their own drugs against coronavirus. Any company whose vaccine is successful in late-stage testing in the coming months will likely see its stock reach new highs rather fast.
But many experts warn that a full vaccine may take well over a year to be ready and deployable. Scientists highlight that “A striking feature of the vaccine development landscape for COVID-19 is the range of technology platforms being evaluated … Many of these platforms are not currently the basis for licensed vaccines … The approaches being applied for COVID-19 development — which involve a new virus target and often novel vaccine technology platforms and novel development paradigms as well — are likely to increase the risks associated with delivering a licensed vaccine, and will require careful evaluation of effectiveness and safety at each step.”
In the U.K., Oxford University is working on a vaccine that has been highly anticipated. Yet the recent trials with monkeys has cast doubts on its effectiveness. The vaccine did not prevent these rhesus macaque monkeys from catching the virus.
Thus, it is hard to analyze the potential impact of such a vaccine on MRNA stock. It is not clear what sales there would be and how the revenue would then translate in profits. After all, such a fast development of the vaccine will likely be rather costly. At this point, no investor can fully tell how any of these vaccines or drugs may perform commercially.
Bottom Line on MRNA Stock
Even if Moderna were successful in developing the vaccine that got the approval of various authorities globally, there are many stages until the vaccine reaches the hands of billions of global citizens. So investors should have realistic expectations in terms of when a vaccine can indeed be ready.
If you are one of the investors who have paper profits, you may want to realize some of your gains. On May 18, the company said it would be offering new shares. In other words, it has to find new capital to fund these expensive steps in vaccine development. Management aims to raise $1.25 billion, rather a large amount. I expect there to be some profit-taking in the stock sooner than later.
Are you an experienced investor in the options market? If yes, you may also consider using a covered call strategy with approximately a two-month time horizon. An ATM covered call position with July 17 expiry would offer you some downside protection. It would also enable you to participate in a potential up move.
Investor interest in a coronavirus vaccine was what initially triggered Moderna’s ascent. Yet as news headlines continue to hit the wires, those willing to invest in MRNA stock should also be ready to embrace stomach-churning swings.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.