Biotech stocks have become more in demand than usual because of the coronavirus outbreak. With the need for a vaccine growing by the day, this unfortunate situation has given many vaccine developers the chance to make headlines. Moderna (MRNA 0.17%) is one of these companies. A $7.7 billion drug developer that specializes in messenger RNA (mRNA) vaccine treatments, the company caught quite a bit of attention back in late 2018 for being the biggest biotech IPO in history.

While there's plenty of interest surrounding this stock right now, what are its long-term prospects? Let's dive a bit deeper and see whether Moderna is truly worth a spot in your portfolio.

A vaccine vial dose with a syringe.

Image source: Getty Images.

The science behind Moderna's vaccines

While the company lacks any significant late-stage clinical projects, what Moderna does have going for it is a pretty large collection of early-stage candidates, many of them with significant blockbuster potential.

The company has 21 separate drug candidates, most of them in phase 1 or phase 2 trials. Eight candidates are designated as vaccines, including prophylactic vaccines (prophylactic means intended to prevent disease in the first place) such as its influenza and Zika vaccines as well as some cancer vaccines. The remaining candidates are split between a number of medical areas and treat a variety of ailments, such as solid tumors, heart failure, and various autoimmune conditions.

What these drugs have in common is that they're based on mRNA. In short, mRNA is like courier, copying information from the DNA and carrying it to other areas of the cell that produce proteins. What makes mRNA stand out from a biotech perspective is that these types of treatments seem to have a better chance of success than regular DNA-targeting treatments. DNA is stored in the nucleus of the cell, which makes it harder to reach. By comparison, mRNA can be found all across the cell carrying information, which makes it easier for potential drugs to target..

Moderna is one of the leaders of mRNA treatment development, and with no mRNA vaccines available on the market as of yet, the company could easily find itself with little competition and in a dominant position if its drugs successfully complete clinical development.

Major blockbuster opportunities

Some of Moderna's most promising drugs have the potential to become billion-dollar-plus blockbusters should they receive approval. One of these is the company's cytomegalovirus (CMV) vaccine, which has finished its phase 1 trial with solid results and is moving onto phase 2 tests. CMV is a type of herpes virus that's quite common with relatively mild symptoms, but the real danger lies when it comes in contact with people who have compromised immune systems. Most notably, newborns are especially at risk of severe complications and birth defects should they catch the disease.

Considering that anywhere between 1% and 4% of women have CMV during pregnancy, there's a big market for a CMV vaccine for women looking to have children. At the moment, there are no vaccinations available for the virus, so Moderna could realistically be first to market with a treatment. Moderna's CEO Stéphane Bancel stated in an investor call earlier in January that peak sales of the company's CMV vaccine could range between $2 billion and $5 billion.

While a CEO's appraisal is far from an independent, unbiased assessment, even if peak revenues are only in the $1 billion range, it would be a massive win for the company. Considering that Moderna reported just $17 million in revenue for its third quarter, its understandable why many people are excited about the company.

What about the coronavirus?

While it's true that Moderna is working on developing a coronavirus vaccine, it's important not to get too caught up in the excitement. For one, this has quickly become a fiercely competitive area, with many large healthcare giants already making progress in coming up with a treatment. Most notable is Gilead Sciences (GILD -0.21%), which is moving ahead with human trials in China with its drug, remdesivir, a former Ebola candidate.

A person with a mask about to receive a vaccination.

Image source: Getty Images

Moderna is working alongside the U.S. National Institute of Allergy and Infectious Disease to develop a potential coronavirus vaccine, with the institute's director suggesting a vaccine could be ready for an early clinical trial in around three months. While this would be record-setting time for the company, full testing, as well as regulatory approval, will extend the full approval process much longer.

By then, companies like Gilead could quite likely have already developed an effective treatment in a fraction of the time, thanks in no small part to the urgency of the Chinese government. Unlike with its CMV vaccine, Moderna also doesn't have a clear picture of how it would monetize a potential coronavirus treatment should it become a success.

While it's practically a certainty that shares of the company will continue to rise and fall on further coronavirus news, investors shouldn't forget about Moderna's other drug candidates, which is where the company's long-term success lies.

Looking at the financials

Moderna is an early clinical-stage biotech stock, and its financial figures show as much. The company reported only $17 million in revenue, all of which came from collaboration or grant agreements. As to be expected for a company of this stage, operating expenses are high -- a total of $147.9 million for the quarter -- with Moderna reporting a net loss of $123.2 million for Q3 2019.

A corporate financial statement with a calculator and a black pencil.

Image source: Getty Images.

As significant as these losses are, Moderna is very well funded. The company has an impressive $1.34 billion in cash and cash equivalents, enough to last a little over two and a half years assuming current expenditures remain the same.

While it might be tempting for beginner investors to look at Moderna from a valuation metric standpoint, it's not a good idea. Financial ratios, such as price-to-sales (P/S), are good once a company is reporting sales, but Moderna has none (at least none from product sales, that is). 

What about the competition?

The technology behind mRNA is still cutting-edge, and there aren't many competitors in the market. One of the few rival mRNA vaccine developers out there is Translate Bio, a small company with nine drug candidates in the works, and eight of them are still in the discovery phase.

Just one of Translate Bio's treatments is in early clinical testing right now. MRT5005 targets patients with cystic fibrosis, a condition that causes excessive production of mucus, sweat, and digestive fluids in the body, plugging up the tubes and ducts of the lungs and pancreas. However, since Moderna isn't developing a cystic fibrosis drug, the two companies don't have much overlap in terms of competitive potential products at the moment.

Should you buy Moderna?

In the end, the question comes down to whether you're comfortable with investing in an early-stage biotech stock. No matter how promising Moderna seems to be pipeline-wise or how much worse the coronavirus spread gets, investors should recognize that this company has a long way to go before it ever starts making a profit.

However, if you're OK with these types of companies, there's a lot of good going for Moderna, even more so now that the firm is directly involved in producing a coronavirus vaccine at the behest of U.S. health groups. Plenty of cash and a promising drug portfolio means the company could easily make it big if only one of its 21 or so drug candidates becomes a success.

Overall, I'd be comfortable recommending investors take a small position in an otherwise high-risk, high-growth portfolio. If you're not comfortable with a stock like Moderna -- which is still very speculative -- then keep your money elsewhere.