Shoulda, woulda, coulda. That's likely what some investors are thinking with respect to Moderna (MRNA 0.15%). The company's initial public offering in 2018 was the biggest in biotech history. A year earlier, Moderna had been named to CNBC's list of the 50 top disruptors among private companies. There have been some pretty good signs that the biotech could be a big winner.
And winning is exactly what Moderna has done this year. It's become one of the most talked-about companies thanks to its progress in developing a COVID-19 vaccine candidate. The biotech stock has more than quadrupled.
Despite this huge gain, though, it might not be too late to buy Moderna. In fact, right now could be a great time to buy the stock for one key reason.
A pivotal study now in progress
On Monday, a pivotal phase 3 clinical study evaluating Moderna's COVID-19 vaccine candidate mRNA-1273 began dosing the first participants. The study will ultimately include around 30,000 participants across nearly 100 sites in the U.S.
This late-stage clinical trial is much bigger than just one biotech. Moderna is collaborating with the National Institute of Allergy and Infectious Diseases and the Biomedical Advanced Research and Development Authority. The study is being conducted with the support of Operation Warp Speed, the federal initiative to accelerate the development of COVID-19 vaccines.
Moderna also partnered with PPD to help with the phase 3 study. PPD ranks as one of the top contract research organizations and supported Moderna's phase 2 clinical trial of mRNA-1273 as well.
As the study shifts into full gear and more participants receive 100-microgram doses of Moderna's COVID-19 vaccine candidate, it will then basically become a waiting game. The primary endpoint of the study is the prevention of symptomatic COVID-19. The only way to know if mRNA-1273 can achieve this endpoint is to monitor participants for months to see how many begin to show symptoms of COVID-19.
Why is Moderna's initiation of a phase 3 study a reason to buy the stock? The odds are now more in favor of success for mRNA-1273 than ever before.
When Moderna's COVID-19 vaccine candidate was only in phase 1 testing, its chances of eventually winning FDA approval were very low based on the history of experimental vaccines. Biotechnology industry trade group BIO found that between 2006 and 2015 only around 16% of vaccine candidates in phase 1 testing went on to obtain FDA approval.
The chances improved a little for vaccine candidates that made it to phase 2 studies. Around 24% of those experimental vaccines ultimately won FDA approval.
But if a vaccine candidate can make it to phase 3 test (as Moderna's mRNA-1273 just did), it's an entirely different story. Over 74% of experimental vaccines between 2006 and 2015 that entered phase 3 clinical testing secured FDA approval.
A more recent analysis conducted by researchers at the Massachusetts Institute of Technology provides even more reason to be optimistic about the prospects for mRNA-1273. The MIT study analyzed data from Jan. 1, 2000, to Oct. 31, 2015. More than 85% of vaccine candidates during this period that were evaluated in phase 3 studies later won FDA approval.
One potential catch
If history is any guide, Moderna is now much more likely to go all the way with mRNA-1273 as a result of the start of its phase 3 study this week. That would certainly seem to indicate that right now is a better time to buy the stock than before, when the probability of success for the vaccine candidate was significantly lower.
However, there's one potential catch: Moderna's valuation already assumed a high likelihood of success prior to the initiation of the phase 3 study of mRNA-1273. The biotech entered this week with a market cap of around $27 billion. Since Moderna currently has no product sales, investors were clearly betting that its COVID-19 vaccine candidate would make it to market.
But I'd argue that the stock still has plenty of room to run if all goes well for mRNA-1273. Moderna expects to be able to produce 500 million doses of the vaccine per year. If we assume that the biotech wins approval for mRNA-1273 and will be able to sell all those doses at $20 per dose, that's $10 billion in sales annually. And if Moderna makes $10 billion in sales, it's going to be worth a lot more than its current market cap of around $30 billion.
Sure, FDA approval for mRNA-1273 isn't a slam dunk. There's a distinct possibility that the experimental vaccine will fail and Moderna's shares will crash. However, the chances of success for the COVID-19 vaccine candidate are better than they've ever been. I think that makes right now the best chance investors who missed out on earlier opportunities will get to buy Moderna stock.