Most drug companies create drugs. Only a few — like Moderna (NASDAQ:MRNA) — have systems for creating drugs. In my opinion, those are the companies you should invest in. And that’s just one more reason why MRNA stock is a buy.
In the past, I have praised Regeneron (NASDAQ:REGN) for its Velocisuite platform, which has been proven to speed new drugs into the treatment pipeline. These include REGN-COVD2, the medication used to treat President Donald Trump.
Now, the novel coronavirus has also proven Moderna’s mRNA platform as a viable way to create vaccines. So, while this stock’s price is high at a market capitalization of $45.4 billion, its system’s promise makes it worth buying.
MRNA Stock and the mRNA Platform
Moderna — founded about a decade ago — went public back in December of 2018 with an IPO price of $23 per share. However, it opened on Jan. 7 of this year at about $120.
The run-up was based mostly on mRNA-1273, the company’s Covid-19 vaccine, which went from design to approval in less than a year. This promise sent the shares as high as $178 in early December, before falling after the news. By the end of 2020, the stock was trading below $105.
However, the stock has since bounced back as investors began to recognize something I wrote about near that bottom. The vaccine is only the start of the MRNA stock story — not its end. The mRNA-1273 vaccine is just a proof of concept for the company’s larger platform, which it describes as an “operating system” for drug discovery.
The idea is that DNA stores instructions for building organisms, from viruses like the novel coronavirus, for example. Then the messenger RNA (mRNA) acts as a set of instructions for making proteins. The proteins, in turn, are applications for fixing or mitigating the impacts of DNA. In other words, mRNA-1273 is just one app built from the mRNA operating system, which is still in what you might call its MS-DOS phase of development.
In its third quarter report, Moderna said it had gotten $1.1 billion in customer deposits for the vaccine. That’s deferred revenue. Actual revenue came to just $157.9 million and Moderna posted a $233.6 million loss. But the company will book that revenue and more as the vaccines are delivered.
The Way Forward
Moderna ended the quarter with $3.97 billion in cash. But that money isn’t going to be splashed out to shareholders, as Gilead (NASDAQ:GILD) did after its success with hepatitis-C. Instead, that cash is going into the pipeline, which includes drugs against cancer, heart disease and rarer ailments.
The money also puts Moderna in a different position when it negotiates with other drug companies. For instance, instead of seeking cash from Merck (NYSE:MRK) to advance its mRNA-4157 as a treatment for melanoma alongside Merck’s Keytruda, the company can now fund the work itself. This means more profits down the road. MRNA can also license its system to companies developing riskier drugs as well as to universities in exchange for intellectual property.
The idea — much like what happened with Microsoft (NASDAQ:MSFT) — is that the Moderna platform can grow its own applications and benefit from applications made by others. That spells some rich rewards for MRNA stock in the future.
Bottom Line
The December low in MRNA stock may be retested. Plus, some of the money going into the company now may be speculators seeking short-term profits.
But Moderna’s proven “operating system” gives it a long runway of real growth. The ride will be bumpy. Take Regeneron for example, which is down by over 25% since its summer high. However, the direction is clear.
That’s what I think you should invest in — systems rather than treatments. If you’re looking for something more speculative, take a peek at Crispr Therapeutics (NASDAQ:CRSP), whose first drugs are still going through clinical trials. Once its system of “gene editing” is proven to work, it will also be worth a long-term investment. That’s where MRNA stock is now.
On the date of publication, Dana Blankenthorn held positions in MRNA and MSFT.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
