Moderna (MRNA +6.23%) is living the dream that most biotechs aspire to achieve. In late 2018, the company pulled off what was at the time the biggest initial public offering (IPO) in biotech history. Its messenger RNA technology captured the imaginations -- and pocketbooks -- of investors.
This year, Moderna has emerged as a highly celebrated leader in the race to develop a COVID-19 vaccine. It was even named by the White House as one of five drugmakers to receive major federal support, alongside several much larger pharmaceutical companies.
But a significant risk remains that Moderna's dream could turn into a nightmare. There are two potential nightmare scenarios for the biotech. And one of them could very well become a reality.
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Moderna's worst nightmare
It's easy to figure out what Moderna's worst nightmare is. If the company's COVID-19 vaccine candidate proves to be ineffective at preventing infection by the novel coronavirus or, even worse, unsafe, the big gains delivered by the biotech stock in 2020 would evaporate.
So far, however, there's no reason to expect this worst-case scenario will happen. Moderna's phase 1 clinical study evaluating COVID-19 vaccine candidate mRNA-1273 went well. The biotech reported encouraging production of binding antibodies and neutralizing antibodies. While there were a few adverse events, they were quickly resolved.
The company's phase 2 study of mRNA-1273 is currently in progress. Moderna dosed the first participants in this study in late May. Preliminary results aren't available yet, but that's not slowing the biotech down. Moderna received a green light from the FDA earlier this month to begin a phase 3 study in July if there aren't any red flags with the phase 2 data.
Of course, it's still possible that serious problems could arise for Moderna's COVID-19 vaccine candidate. The company's approach is different than traditional vaccine development, potentially increasing the risk of issues. But there's reason to be cautiously optimistic that Moderna will be able to avoid its worst nightmare.
A second-worst nightmare
It could be a different story for the biotech's second-worst nightmare. What is this other negative scenario for Moderna? The company could achieve success with its COVID-19 vaccine, but so could several other big rivals.
You might wonder why this would be problematic for Moderna. After all, with most of the 8 billion people in the world likely to need vaccination against the novel coronavirus, the market should be large enough to support multiple COVID-19 vaccines.
The issue boils down to pricing. If Moderna is the only drugmaker to successfully launch a COVID-19 vaccine, it will be able to basically name its price. However, if other companies are also successful, the pricing dynamics will change dramatically.
Johnson & Johnson (JNJ +0.91%) has already hinted that it could price its COVID-19 vaccine at $10 per dose if all goes well. By comparison, the price per dose for flu vaccines can be four or five times that level.
Moderna isn't the only company focused on developing a mRNA coronavirus vaccine. Pfizer (PFE 0.92%) teamed up with BioNTech (BNTX +0.65%) in March on developing BNT162. Pfizer Chief Business Officer John Young recently stated that "there is no thought being given to ROI [return on investment] in our COVID-19 work." He said, "Frankly, the world needs a safe and effective vaccine" and that Pfizer's priority is to "play our part in bringing forward vaccines and treatments that the world needs right now."
Young's comments could simply reflect that Pfizer hasn't fully thought through the potential pricing for the COVID-19 vaccine that it's developing with BioNTech. However, reading between the lines, it seems that both Pfizer and J&J want to avoid pricing their COVID-19 vaccines at high prices that would generate a lot of controversy.
The bottom line is that if J&J and Pfizer are able to market COVID-19 vaccines, it could potentially mean that Moderna stands to make tens of billions of dollars less than it could make if the big pharma companies aren't successful. Moderna's valuation hinges on achieving tremendous commercial success with mRNA-1273.
Reality check
Could Moderna's second-worst nightmare become a reality? Absolutely. Pfizer and BioNTech aren't too far behind Moderna in their clinical testing of BNT162. J&J plans to advance its COVID-19 vaccine into clinical testing in late July.
However, this nightmare scenario probably isn't as scary as it might seem at first glance. Let's assume that Moderna launches its COVID-19 vaccine and has to price it at $10 per dose to be competitive. If the company can sell 1 billion doses per year, that's $10 billion in annual revenue -- more than enough to justify Moderna's current market cap of around $25 billion.
The main issue is that these levels don't give Moderna nearly as big of a growth runway as it would have if the pricing of its COVID-19 vaccine were higher -- or if it could grab a greater market share with fewer rivals competing. But if mRNA-1273 proves to be both safe and effective, Moderna's shares will undoubtedly jump much higher regardless of what happens with the other drugmakers' candidates. We should know over the next few months if the biotech's dream will live on.
