It has been several months since I last wrote about Moderna (NASDAQ:MRNA), so I was delighted to read the company’s Sep. 22 press release that the Canadian government has committed to buying 20 million doses of Moderna’s Covid-19 vaccine, mRNA-1273, with an option to purchase an additional 36 million doses.
As a Canadian, I like to think my government is treating the novel coronavirus seriously. I’m not sure Americans can say the same. That said, in parts of Canada, the cases are rising rapidly, a sign that we all must double down on the preventive measures that reduce one’s chances of getting infected: wearing masks, social distancing, and washing your hands.
Looking Back at MRNA Stock in May
When I last wrote about Moderna in May, there was talk Moderna could have its vaccine ready to go by July. In hindsight, we know this was wildly optimistic. However, it’s made a lot of progress in the four months since.
On Sep. 17, Moderna said at its Research & Development Day that it had enrolled 25,296 of the 30,000 people it is targeting for its Phase III clinical trial. Each participant gets the first shot on their first day of the trial and a second booster shot 28 days later. To date, 10,025 participants have received both shots, so the end game is getting near.
In a statement, Moderna CEO Stephane Bancel said “The pipeline has matured with our Covid-19 vaccine in a Phase III study and four candidates in Phase II studies. We are actively preparing for a potential commercial launch of mRNA-1273, our Covid-19 vaccine, and we continue to expand the breadth of Moderna’s platform.”
From where I sit, it seems almost a certainty that Moderna’s candidate could be the vaccine I eventually receive some time in 2021. It’s said to come from Lonza (OTCMKTS:LZAGY), its manufacturing partner in Europe, with fill-finish services provided by ROVI, which is based in Spain.
In my article, I felt Moderna’s share price had come a long way in 2020 — on May 7, it was up 172% year to date — and that the next leg up would be much more challenging. Indeed, it has been — gaining 29% over four months.
Don’t get me wrong; I’d take a four-month return of 29% in a heartbeat; it’s just that Moderna was on fire entering the summer, so it seems almost anti-climactic in hindsight.
Where to Now?
In May, it had a market capitalization of just under $19 billion. As I write this, it’s sitting at $27 billion with a price-to-sales ratio of 231. That’s beyond nosebleed.
But when you factor in the fact that it’s on the verge of vaccine success, it’s easy to see why its share price has snuck higher in recent days after falling into the low $50s earlier in September.
InvestorPlace contributor Mark Hake recently labeled Moderna a stock to buy, suggesting that if it delivers on 1 billion doses, the company could generate $35 billion in revenue. If you could flick a switch and make that happen, Moderna’s P/S ratio magically drops to less than one.
I’m sorry, the stampede to buy its stock under such a valuation would likely bring the Nasdaq to a grinding halt. Of course, we live in the real world, so its market cap would be adjusted higher.
Hake goes on to provide a catch to the good news story that is Moderna.
“In effect, all signs look good, but everything depends on producing good results. The FDA says the vaccine needs to demonstrate a minimum of 50% efficacy for approval. This is a baseline to judge how much better than that a vaccine performs,” Hake wrote on Sep. 22. “So, if Moderna’s results are 80% and Pfizer’s are lower than that, watch out. The stock could then take on a second leg upward.”
Aggressive Investors Have No Excuse
Pfizer (NYSE:PFE), for a frame of reference, currently trades at 4.2 times sales. For the sake of comparison, let’s assume that a reasonable P/S ratio for Moderna — based on being greenlighted to provide some if not all of the estimated 1 billion doses — is double Pfizers. At 500 million doses, we’re talking about $17.5 billion in revenue and a market cap of $140 billion, or five times its current worth.
As my colleague states, Moderna’s vaccine efficacy may turn out to be much worse than Pfizer’s, or Johnson & Johnson’s (NYSE:JNJ), or one of the other leading candidates.
If that turns out to be the case, you can bet its valuation won’t be anywhere near $140 billion. That said, barring complete failure, I can still see its share price moving higher.
How much higher is the million-dollar question. In May, I stated that “I could not buy this stock in the high $50s and be able to sleep at night.”
Now, trading in the high $60s, I believe if you’re an aggressive investor (I’m not), I don’t see how you’re not buying at this point in the game. It’s akin to a golfer shooting the round of his life and calling it quits after the 17th hole.
In four months, a lot’s changed for Moderna. All of it is good.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
