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Here's Why Moderna Stock Rose as Much as 10.8% Today

By Maxx Chatsko - Jan 22, 2020 at 11:59AM

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The company is working on a vaccine to protect against the latest coronavirus spreading from China, but investors are getting a little ahead of themselves.

What happened

Shares of Moderna (MRNA -3.21%) rose nearly 11% today after the company confirmed to CNBC that it's developing a vaccine for the coronavirus emanating from China. Public health officials in China have reported hundreds of cases and at least nine deaths, while other countries, including the United States, have confirmed at least one case in the last week. 

According to an SEC filing describing its disclosure to CNBC, Moderna is working with American health institutions including the National Institute of Health (NIH) to develop the vaccine. As of 11:23 a.m. EST, the pharma stock had settled to a 5.8% gain.

A scientist looking through a microscope.

Image source: Getty Images.

So what

To be blunt, today's stock movement is being driven by the news cycle rather than tangible business outcomes. There's no guarantee that Moderna will successfully develop a vaccine, or do so before the coronavirus outbreak fizzles out, or that successfully developing a vaccine will move the needle for the business or its shareholders.

Investors might see some striking parallels to the African ebola outbreaks in recent years. Many pharmaceutical companies threw their hats into the ring and announced they were working on vaccines and treatments. Many enjoyed a short-term boost to their stock prices. In the end, Merck developed a successful vaccine, called Ervebo, that was distributed by the World Health Organization (WHO) to help stop the spread of the virus in the Democratic Republic of Congo. The vaccine's success had little impact on the business.

By contrast, there's no evidence that the coronavirus in question is nearly as deadly as ebola. 

Now what

The fact that Moderna is working with American health agencies likely means that some (if not all) of the research is being funded by federal grants. That suggests there's little financial risk for the company and shareholders other than diverting bandwidth away from other projects. However, investors might be disappointed by the eventual impact on the business, which is likely to be next to zero.

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