Moderna (MRNA 0.42%) made some big waves in late 2018, with its initial public offering (IPO) becoming the biggest ever for a biotech. The wave grew even larger this year as Moderna quickly emerged as a leader in the race to develop a coronavirus vaccine. 

With the biotech stock gaining more than 250% so far this year, some investors might think that it's too late to jump aboard the Moderna bandwagon. But is Moderna still a smart stock to buy?

Yellow sticky note with a coronavirus molecule drawn on it on top of a chalk drawing of a dollar sign.

Image source: Getty Images.

All the reasons to avoid Moderna

We can probably sum up all of the reasons to avoid Moderna in one four-letter word: R-I-S-K. There's no getting around the fact that Moderna is a very risky stock right now.

The most obvious risk is that its pipeline candidates could stumble in clinical testing. Sure, previous clinical trials of Moderna's programs, notably including its COVID-19 vaccine candidate mRNA-1273, have gone well. However, that doesn't guarantee that there won't be problems. One serious safety issue could quickly dash Moderna's hopes.

Another easy-to-identify risk relates to Moderna's valuation. The company's market cap stands at close to $28 billion, yet Moderna doesn't have one product on the market yet. Clearly, investors are banking on tremendous success for the biotech. Even if mRNA-1273 proves successful, though, that might not be enough to justify its steep valuation.

Moderna also faces the threat of competition. The biotech isn't the only drugmaker with a COVID-19 vaccine in late-stage U.S. clinical studies; there are three other contenders. Moderna isn't even the only company with a messenger RNA (mRNA) coronavirus vaccine in late-stage testing. The BioNTech and Pfizer partnership is arguably a little ahead of Moderna with mRNA vaccine candidate BNT162b2.

There's also the potential for intellectual property risk. In July, Moderna lost a patent dispute with Arbutus Biopharma related to technology used to deliver mRNA to cells in a person. 

One compelling reason to buy the stock

Investors should definitely consider all of these risks, but there's still one compelling reason why Moderna could still be a great stock to buy: If the company's mRNA technology works for one disease, it could work for many diseases. 

This could make the valuation and competitive risks for Moderna basically moot issues. Let's suppose that mRNA-1273 doesn't make the company enough money to justify its current valuation, and the competition is intense. These variables won't matter all that much if Moderna's mRNA platform proves to be both safe and highly effective in immunizing against the novel coronavirus. Why? Because Moderna will likely to be able to apply the same approach to many other contagious diseases.

That's exactly what the company is already doing, by the way. Moderna's pipeline includes six other mRNA vaccine candidates targeting viruses other than SARS-CoV-2.

And the potential for mRNA isn't just limited to immunizing against viruses. Moderna teamed up with Merck to develop mRNA-based personalized cancer vaccines. It's working with AstraZeneca to use mRNA in fighting coronary artery disease. Moderna and Vertex Pharmaceuticals joined forces to explore how mRNA could be used in treating rare genetic disease cystic fibrosis.

Granted, these tremendous opportunities don't reduce Moderna's clinical and intellectual property risks. However, with mRNA-1273 in late-stage testing, it's fair to say that the company's chances for success with its mRNA approach are better than ever. As for the patent battle with Arbutus, Moderna says that it has improved its own mRNA delivery technology. The company maintains that it's "not aware of any significant intellectual property impediments for any products we intend to commercialize, including mRNA-1273." 

Risk versus reward

Each investor will have to decide for themselves whether or not the risks for Moderna outweigh the potential returns the stock could deliver or vice versa. My view is that the risks are significant enough that you shouldn't bet the farm on Moderna.

At the same time, though, I think the potential rewards if the company's mRNA technology is successful are enormous. My take is that this opportunity is so great that it makes Moderna worth taking a risk by investing a small portion of an investment portfolio. If I'm wrong, a small stake would only result in a small loss. But if I'm right, a small position could become much larger over time.