With a significant portion of the world still in lockdown due to the COVID-19 pandemic, many investors are anxious about how soon a vaccine can be developed to combat the coronavirus. Currently, one of the most promising candidates for this challenge is Moderna's (NASDAQ:MRNA) mRNA-1273 vaccine.
Although there's a high degree of optimism surrounding the stock, there is no easy path to victory in the battle against this deadly pandemic. Today, let's take a look at some of the challenges the company has to face in its clinical investigation, and whether it's likely to overcome them.
What are the risks?
The first hurdle in the path to mRNA-1273's approval is whether the vaccine is actually effective. There are three specific therapeutic concerns to be addressed:
- At a minimum, the vaccine must be able to produce neutralizing antibodies against the novel coronavirus.
- Next, the neutralizing antibodies must grant patients actual immunity against the coronavirus.
- Finally, the immunity-granting antibodies must be evident in a significant portion of people who are given the vaccine.
Each clinical goal here adds another layer of risk. In Moderna's interim phase 1 data release, at least eight out of 45 healthy volunteers who were administered mRNA-1273 developed neutralizing antibodies; this has generated controversy about its potential effectiveness.
In addition, skeptics claim that the SARS-CoV-2 virus may be finding ways to circumvent neutralizing antibodies, and may instead require a cocktail of therapies to effectively control it. This makes it more difficult for a company to prove its vaccine can attain its investigational goals.
The second hurdle facing mRNA-1273 is the competition. At the beginning of May, there were more than 100 experimental vaccines in development around the world, with eight candidates already being tested in clinical trials. Fortunately, Moderna is currently leading the race, as the U.S. Food and Drug Administration (FDA) just greenlit mRNA-1273's phase 2 clinical trial -- to be run concurrently with its phase 1 trial -- and Moderna plans to wrap up its investigation by next year.
The third hurdle Moderna's vaccine must clear is pricing. The company is estimating that the entire manufacturing, research and development, and administrative process of bringing mRNA-1273 to market may well cost billions of dollars. Even with government support -- in April, about $483 million of taxpayers' money went to funding mRNA-1273 -- the company is still far from the cash it needs to cover future expenses.
Unfortunately, this will mean at least some of the research and development costs incurred by Moderna will be passed on to vaccine recipients. Hence, the vaccine may present issues of affordability for much of the developing world, constraining its potential market and making the goal of global herd immunity less attainable.
Moreover, the company can and will further dilute shareholders with equity financing rounds, as with its recent $1.3 billion stock offering. Luckily, the vaccine is about to hit late-stage clinical trials, and the company's financing rounds have been small compared to its overall market cap.
Note that developing vaccines is by no means an all-or-nothing endeavor. Let's assume, for the sake of argument, that Moderna's experimental vaccine produces neutralizing antibodies that grant immunity to COVID-19 in 50% of recipients in later clinical trials. Well, a 50% response is still better than no response, and it would mean the vaccine could still save lives, especially if given to seniors and the immunocompromised.
Meanwhile, many investors are definitely optimistic about Moderna's potential: The company is now valued at more than $26 billion, despite operating at a huge loss with its research and development efforts.
In my opinion, the crowd's disregard for valuation does have a point when placed in context. Recently, a study from the University of Cambridge found that the global economic toll of the COVID-19 pandemic may amount to $82 trillion over five years. If Moderna proves it can prevent a worldwide economic catastrophe via its vaccine, and save countless lives from future outbreaks, then it would make sense for the company to take a cut of the profits, given the economic damage it could prevent. For biotech investors who are not afraid of buying high and selling even higher, there could be ample money to be made by investing in Moderna.