It's been a wild ride for investors this year as the coronavirus pandemic has battered businesses that have been around for a century, while creating a path for innovative biotech companies to realize the promise of long-investigated gene-based approaches.
Moderna (MRNA -0.76%) certainly falls into the second category. Founded a decade ago, the company creates synthetic messenger RNA (mRNA) to use the body's own cells to fight disease. The company has been a frontrunner in the race to develop a vaccine for COVID-19 and recently announced incredibly positive results from its phase 3 trial. With the vaccine results seemingly assured, and the stock up massively this year, is it too late to buy shares of Moderna?
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How did Moderna get here?
Until recently, Moderna had been a poster child for unfulfilled scientific promise. A cynic might have claimed the company was a perfect example of how Wall Street hype can help a biotech company with a little bit of cash and a great story to achieve billions of dollars in funding and a rich valuation. The company, which was founded in 2010, went public as the largest private biotech to ever IPO, and has yet to have a product approved for sale. Until recently, the company was better known for its tough culture, promotional CEO, and secrecy around its research than for any accomplishments. COVID-19 has changed all that.
Once the genome of the novel coronavirus was shared by China on Jan. 11, the company sprang to action. Two days later, working with the National Institutes of Health (NIH) and the Biomedical Advanced Research and Development Authority (BARDA), Moderna had a potential vaccine candidate it was ready to test. Six weeks after that, the first batch of vaccine candidate doses was starting phase 1 trials. The pandemic created an unprecedented funding environment. The company initially received funding from the Coalition for Epidemic Preparedness Innovations (CEPI), then $1 billion from Operation Warp Speed (OWS), and finally $1.3 billion from a secondary offering of shares to investors. By mid-November, the company had met the primary efficacy endpoint of its phase 3 study. In response to this record-breaking development timeline, shares of the company are up about 670% this year.
Where is Moderna right now?
In November, the company shared the data from its 30,000-person phase 3 trial. Its vaccine candidate, mRNA-1273, demonstrated 94.5% efficacy with no severe cases of COVID-19 in the group receiving the drug. Not only was this fantastic news for society, the results led to favorable comparisons with the vaccine from Pfizer (PFE 1.56%) and BioNTech (BNTX 0.87%) that had reported similar efficacy only a week before. In comparison, the Moderna vaccine can be stored at a warmer temperature, nearly the efficacy of the Pfizer candidate (95%), and has the potential to eliminate severe outcomes as opposed to just reducing them. (On Nov. 30, a final data release showed that mRNA-1273's efficacy had decreased slightly to 94.1%.)
After the science, manufacturing and logistics will become the hurdles to clear. In May, the company signed a 10-year agreement with Lonza Group (LZAGY -1.03%) to produce the vaccine. While initial production will happen in the U.S., the agreement allows for production of as many as 1 billion doses per year at Lonza's facilities across the globe. Since the Moderna vaccine requires negative 4 degrees Fahrenheit temperatures for long-term storage, cold chain logistics are less of a concern than the Pfizer candidate, which requires a negative 94 degrees environment.
How bright is the future?
With the company now sporting a $60 billion market cap, and a vaccine candidate close to approval and distribution, it's natural to ask if all of the positivity is already priced into shares. In addition to the COVID-19 vaccine, the company has 20 other drugs in the pipeline ranging from other vaccines to drugs targeting cancer and heart failure. However, with no other candidates in phase 3 trials, the next year or two is likely all about the economics of the company's COVID-19 vaccine.
The doses are projected to cost between $32 and $37 each, significantly more than the other COVID-19 vaccines. While the cost will vary depending on a country's economic status, that price tag would make the economics attractive. However, the company's deal with the U.S. government calls for an initial 100 million doses at a cost of $1.5 billion -- about $15 per dose. Keep in mind that each patient will need two doses of the vaccine to develop immunity. It's possible that the lower pricing is a discount because of the early support from NIH and BARDA. Whatever the price, the next year is likely to be a geyser of cash for the company. Moderna plans to have 15 million doses available this year and between 500 million and 1 billion doses next year.
How long the good times will last may depend on the dozens of other potential vaccines on the horizon and whether management can translate the success of mRNA-1273 into other drug development programs. One large investor is voting with its feet. Merck (MRK 0.30%), which took a $50 million stake in the company in 2015, recently announced it is selling the shares. Whether this is savvy timing or a repeat of eBay selling PayPal and MercadoLibre before the growth of those businesses skyrocketed is anyone's guess.
For my investment dollars, I'm looking for any of the companies using mRNA to demonstrate success in an area outside of COVID-19 as a validation of the company's capability. Two things we know for certain are that Moderna could not commercialize a drug prior to the coronavirus pandemic and that with an avalanche of resources and support, the company was able to figure it out. If you believe the mRNA dam has been broken, and new drugs in the company's pipeline will follow, we may still be early in the Moderna growth story. If you believe the COVID-19 vaccine is the primary driver for Moderna now and in the foreseeable future, I think it's too late to buy shares. I myself will be anxious to see signs of progress in any of the other candidates in the company's pipeline. That would convince me that the success of its COVID-19 vaccine is sustainable.
