Merck (NYSE:MRK) had been an investor in Moderna (NASDAQ:MRNA) since before the biotech had its initial public offering. But the big pharma recently disclosed that it sold its stake in Moderna for a substantial gain. In this video from Motley Fool Live recorded on Dec. 7, Corinne Cardina, bureau chief of healthcare and cannabis, and Fool.com contributor Brian Orelli discuss why Merck might have decided to sell its stake.
Corinne Cardina: Last week, Merck sold its stake in Moderna, with Moderna's shares up nearly 700% year to date. It may be tempting to take those profits off the table, which is what it looks like Merck did here. Is this a sign that Moderna shares are overvalued? Should investors read into this?
Brian Orelli: I mean, all you should really read into it is that Merck has a better use for that cash. It invested $50 million in 2015 and $125 million in 2018. Moderna was so private, so we don't know exactly how much they made, but they noted in the FTC document that it was a substantial gain. Take that for what it's worth. But certainly, it's a lot. It's in the hundreds of millions of dollars range.
Pharmas aren't investors. They take stakes in companies to help their partners. In this case, Moderna has a partnership with Merck for it's cancer vaccine. That's the reason why Merck took the financial stakes in the company, basically to give them cash to work while they were still a private company. But now Merck wants to recycle that money into new investments, and I think that's completely reasonable.