The COVID-19 pandemic has presented massive new challenges for societies across the globe. So far this year, the viral disease has killed nearly 744,000 people worldwide, including more than 167,000 Americans. In addition to the loss of life, the Congressional Budget Office estimates the coronavirus's long-term economic damage will amount to $16 trillion over the next 10 years.
With lives and livelihoods on the line, biotech companies are scrambling to develop a vaccine that can immunize people. So far, 28 of the 166 vaccines in development have entered clinical trials, which means that they are being tested on humans. Large-cap biotech Moderna (MRNA +15.99%) has been working on a serious contender in that bunch. In response, the company's stock has experienced an unprecedented rally of more than 250% since the beginning of the year and the vaccine candidate has earned the backing of multiple nonprofits. Savvy investors will be interested in all the driving forces of the stock, so let's take a closer look at three green flags for Moderna's future.
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1. A promising COVID-19 vaccine candidate
Moderna's leading candidate is mRNA-1273, a messenger RNA therapy that seeks to evoke an immune system response against the novel coronavirus. In phase 1 clinical trials, all participants who were inoculated developed antibodies that defend against the disease.
The vaccine candidate has entered phase 3 clinical testing with results expected in the fall. However, government buyers are already somewhat sold on the vaccine's prospects, placing their orders now should the vaccine come to market and be in high demand.
The Canadian government secured 75 million doses of mRNA-1273 last week, anticipating that its nearly 39 million citizens may need more than one dose to fight the virus. Additionally, on August 11, the company entered a $1.5 billion agreement with the U.S. Department of Health and Human Services and Department of Defense to manufacture and deliver 100 million doses of the vaccine, with the option to acquire 400 million more doses. Before this agreement, Moderna already had over $400 million worth of cash deposits for future orders of mRNA-1273.
The company expects each vaccine to be priced between $32 to $37 and may reduce the price to $30 when it sells the treatment in bulk. Even though that seems cheap, the potential gains are huge due to the sheer number of orders on the table. Multiplying $30 by the company's base plan to manufacture 500 million doses in 2021 yields $15 billion in potential annual revenue. That might not be all, as the company is actively trying to raise its production capacity to 1 billion doses per year.
2. Strong balance sheet
Since the beginning of its COVID-19 vaccine development program, Moderna has witnessed a steady influx of capital to fund its research efforts. On May 18, the company raised $1.3 billion in a stock offering. In April, Moderna was awarded $483 million by the U.S. Biomedical Advanced Research and Development Authority (BARDA) and an additional $472 million to fund an increase in enrollment to 30,000 participants in phase 3 of the clinical trial.
The company now has a staggering $3.1 billion in cash and investments on its balance sheet, representing a significant increase from the $1.72 billion it had in the first quarter. Its financial situation is expected to improve as more countries build their stockpiles.
Moderna plans to spend between $650 million to $850 million on operating and capital expenditures before the end of the year. That is good news for investors because it shows the company has more than enough capital to fund vaccine development into the fall. As Moderna pursues its vaccine objectives, it should not need to sell more stock to investors in order to raise cash.
3. Finding the cure for CMV
Moderna also possesses global commercial rights to its CMV vaccine candidate, mRNA-1647, which is now in clinical trials. CMV is a severe infection caused by cytomegalovirus that affects people who are severely immunocompromised, including those living with HIV. Currently, there is no vaccine for CMV, and standard of care treatments are not totally effective at preventing and treating the disease.
In phase 1, participants who received the vaccine developed significant antibody responses six months after dosage. The vaccine is currently in phase 2, with interim results pending this fall. If the overall clinical process is successful, Moderna expects the vaccine to generate between $2 billion and $5 billion per year in sales during its peak, reaching blockbuster status.
What should investors think?
With a promising COVID-19 vaccine candidate, a strong balance sheet, and an innovative pipeline, Moderna's $27 billion market capitalization looks small compared to its potential. Even though the stock has returned more than 250% year to date, future profits could be missed by those who refuse to buy high and sell even higher. Biotech investors will definitely not want to miss out on this coronavirus stock if they are looking for companies with solid growth opportunities ahead.
