The initial order secures 100 million doses of mRNA-1273. However, said deal also provides the option to buy an additional 400 million doses.
And that’s not all. If other governments around the globe go with Moderna’s candidate, the company could wind up selling hundreds of millions more. Even at prices at low as $10 per dose, that could mean billions in revenue for this still-development stage company.
On the other hand, it’s not all said and done yet with mRNA-1273. Sure, it’s already in Phase 3 clinical trials. But the vaccine candidate still needs to get FDA approval. In other words, there’s still plenty of risk buying MRNA stock at today’s prices (just below $70 per share).
So, what’s the play here? Those who bought in at lower prices may want to take some risk off the table. But, for those looking to jump in now, there’s still an opportunity to take a small position in this high-risk/high-return coronavirus play.
Sell the News or Buy the Dip?
When I first saw that Moderna inked its first billion-dollar vaccine deal, I assumed shares would take off again. After reaching prices topping $95.21 per share back in July, this game-changing development seemed like it would jolt some life back into the stock.
Yet, based on price action post-announcement, the opposites happened. Instead of pushing shares higher, it’s driven investors to “sell the news.”
In short, investors are starting to think, “a bird in one hand is worth two in the bush.” That is to say, it’s better to take profit now, rather than risk losing said gains in the hope shares make another parabolic move higher.
For those who bought in at lower prices, this makes perfect sense. At today’s market capitalization of $27.5 billion, one could argue that the full potential of mRNA-1273 is already priced into shares.
Investors who got on board earlier may want to cash in some of their chips. Yet, those who missed the boat may still have an opportunity. With shares falling back, buying the dip may be worthwhile. Granted, it’s a high-risk, high-return proposition. But one where the proposition may still be in your favor.
A Vaccine Could Be an October Surprise
There’s good reason to believe Moderna’s $1.5 billion dollar vaccine deal is only the start. Firstly, there’s the potential for the U.S. government to buy additional doses of mRNA-1273. Secondly, as Jeffries’ Michael Yee discussed in a research note, other countries may strike supply deals with the company as well.
Why? With America securing supplies of not just this and other leading vaccine candidates, the capacity may soon be locked up. If this plays out, and the company inks additional billion-dollar deals, it’s hard not to see MRNA stock bouncing back to prior highs.
Yet, there’s still a major caveat: will mRNA-1273 get approved in time? The terms of deal require the company to secure FDA approval by Jan 31, 2021. If that doesn’t happen, this deal falls apart. Not only that, failure to secure approval means bad news for this stock. Shares will likely fall back to their pre-outbreak prices (below $30 per share). Or perhaps, even lower.
However, as InvestorPlace’s Ian Cooper discussed Aug 14, this vaccine has plenty of support from the Trump administration. In fact, it’s easy to see how the company’s Phase 3 clinical results could be the “October surprise” that President Donald Trump counts on to help win a second term.
That’s not to say Moderna has this in the bag. Critics may worry Trump is pressuring regulators to fast-track this candidate ahead of Election Day. Yet, politics or no politics, mRNA-1273 still needs to pass with flying colors. In short, having the current administration on its side is no slam-dunk. But it doesn’t hurt, either.
Consider MRDA Stock on the Pullback
In prior write-ups on MRNA stock, I took a bearish stance on the company’s shares. Seeing much of its potential already priced-in, cashing out seemed like the best move. Yet, with the recent developments, and the chances this leading candidate shows strong Phase 3 results in October, potential upside may exceed the risk the company’s vaccine catalyst falls flat on its face.
With this in mind, taking a small position in MRNA stock may be worth the risk. Don’t bet the ranch but consider shares a cautious buy.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.