Moderna (MRNA -0.18%) has had a banner year in 2020. Thanks to the biotech's COVID-19 vaccine candidate mRNA-1273, the company's shares have gapped up by an eye-catching 400% this year.
The biotech's red-hot growth streak, though, may be nearing an end. BMO Capital analyst George Farmer, for instance, said earlier this week that he believes mRNA-1273's commercial potential is already priced into the company's valuation at this point.
Has this all-star biotech growth stock hit a top? Let's take a deeper dive into Moderna's core value proposition to find out.
Moderna's COVID-19 opportunity
For a multitude of reasons, Moderna is arguably in the catbird seat when it comes to the COVID-19 vaccine space. First and foremost, the biotech's COVID-19 vaccine appears well on its way toward garnering multiple accelerated approvals in the U.S., the EU, and numerous other countries. The vaccine, after all, posted an outstanding 94.5% efficacy rate in a large late-stage trial. That's essentially an unheard of level of effectiveness for a vaccine designed to provide immunity against an infectious disease.
Second, Moderna's mRNA-1273 can be shipped and stored at far more reasonable temperatures than Pfizer (PFE -0.61%) and BioNTech's (BNTX -3.18%) rival mRNA vaccine (negative 20 degrees Celsius for Moderna compared to negative 70 degrees Celsius for Pfizer and BioNTech). That's key because Pfizer and BioNTech are expected to file for Emergency Use Authorization with the U.S. Food and Drug Administration within a matter of days. This head start, however, probably won't be enough of an advantage to overcome the major hassle involved in shipping and subsequently distributing a vaccine that needs to be stored under Antarctica-like conditions.
Third, Moderna expects to roll out 500 million to 1 billion doses of the vaccine for worldwide distribution over the course of 2021. So, by the time competitors like AstraZeneca, Johnson & Johnson, and Novavax get their vaccines approved (assuming positive late-stage trial results), Moderna may already have an effective stranglehold on the most valuable territories. In effect, Astra's, J&J's, and Novavax's vaccine candidates might be relegated to mop-up duty in areas where Moderna didn't provide distribution initially for strategic reasons, or for small sub-populations of patients not suitable for mRNA-1273.
What this all boils down to is that Moderna could rake in anywhere from $6 billion to $24 billion in COVID-19 vaccine sales in 2021. The wide range of this revenue forecast reflects the uncertainty surrounding Moderna's pricing agreements with different governments around the world, the impact of additional vaccines coming to market, and the real-world demand for a COVID-19 vaccine in key commercial geographies like the U.S.
Moderna's risk and longer-term outlook
The big unknown for all of these vaccine candidates is the durability of their protection against infection from the novel coronavirus. Moderna hasn't touched on the subject matter much in its recent press releases or public statements. But long-lasting immunity -- through T cell responses -- will be key in determining how this market ultimately shapes up.
If one or more of these early vaccines do indeed confer long-lasting immunity, the COVID-19 vaccine space should quickly evaporate in a manner akin to the hepatitis C drug market following the introduction of effective cures from AbbVie and Gilead Sciences.
What this means for Moderna is that the company would likely see peak revenue from its COVID-19 vaccine next year, followed by sharp declines in 2022 and 2023. By 2024, the vaccine may subsequently morph into a niche product, generating less than $100 million in sales annually. Fortunately, that's the worst-case scenario Moderna's shareholders are likely to face. A far different commercial trajectory would obviously unfold if COVID-19 requires annual vaccinations.
The good news is that Moderna isn't a one-trick pony and its long-term outlook isn't entirely dependent on the ever-evolving dynamics of the COVID-19 vaccine market. In fact, the biotech has a whopping 21 clinical candidates under development at the moment.
Another important issue to consider is that mRNA-1273's sales should allow the company to build a cash position in excess of $20 billion by 2024 (assuming Moderna doesn't go bonkers with share buybacks, a dividend, or business development deals in the interim). A massive cash position is always a major plus in the world of biopharma.
Is Moderna still a buy?
In the short term, Moderna's stock may indeed have a hard time printing new highs. The biotech's shares are more than likely fairly valued at current levels -- that is, barring an unexpected event such as a close competitor falling off the map or COVID-19 being utterly resistant to immunological memory (long-lasting immunity).
That doesn't mean that Moderna's stock should be shorted or ignored by growth investors, however. The biotech's vast pipeline of mRNA vaccines and therapeutics should be able to pick up the slack over the long term. Moreover, Moderna is poised to have a rock-solid balance sheet by the end of 2023 -- a feature that could be used toward value-creating acquisitions or external licensing deals.
Bottom line: Moderna's stock is arguably best-suited for long-term oriented investors right now. This innovative biotech has the clinical assets in place, and projected financial flexibility, to create enormous value for shareholders over the next two to perhaps three decades. The ride over the next year or so, though, promises to be a volatile one for shareholders due to the inherently chaotic nature of the COVID-19 vaccine space.