For much of 2020, Moderna (MRNA 3.28%) has been a superb growth stock. At one point recently, Moderna was a ten-bagger before falling by more than 35%. But even after that slide, it has delivered a spectacular 483% return over the past 12 months. However, many investors now wonder if it can regain its momentum.
In many cases with emerging biotechs, institutional investors will purchase stakes after a positive late-stage clinical data release, then sell en masse after the therapeutic candidate's approval. The idea behind that strategy is that once a drug goes into commercialization, it could underperform its sales expectations. This is simply not the case for Moderna's new product, however.
In my view, now is the right time to add shares of Moderna to your portfolio for 2021. Here's why.
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Its signature coronavirus vaccine
Moderna's mRNA-1273 is arguably the top coronavirus vaccine on the market right now after late-stage clinical trial data showed it to be 94% effective at preventing COVID-19 infections, and 100% effective at preventing severe cases of the disease. In addition, the vaccine is stable at temperatures that can be maintained by standard refrigerators, making it easier to transport and store than Pfizer and BioNTech's rival vaccine.
Mass vaccination efforts are now beginning. On Dec. 28, the U.S. Department of Defense exercised its options to purchase 100 million additional doses of mRNA-1273, bringing total U.S. orders to over 270 million doses. The company has vaccine supply agreements with governments worldwide for at least 557.5 million doses thus far.
At prices in the range of $10 to $50 per dose, Moderna could already have revenue of between $5.6 billion and $27.9 billion in the bag. It also does not have any profit-sharing agreements with other entities. For these reasons, the company's net margins will likely be superb as it anticipates spending only $1 billion in operating cash flow for 2020.
What's more, Moderna is on an extraordinarily solid financial footing, with over $4 billion in cash and investments and $1.2 billion in vaccine deposits in Q3 2020. Its capital is more than sufficient to allow it to continue the mass distribution of mRNA-1273 and fund the R&D of its other clinical programs. The company projects it will be able to produce between 500 million to one billion doses of its coronavirus vaccine in 2021.
A promising pipeline
Moderna's pipeline includes five other mRNA vaccines in clinical trials, as well as five immuno-oncology candidates, four rare disease treatments, and two therapeutics targeting autoimmune diseases. Its most promising candidate is mRNA-1647, a vaccine targeting the cytomegalovirus (CMV). CMV is an extremely common virus, and while most cases are relatively mild or even asymptomatic, when a pregnant woman is infected, it can cause serious congenital disabilities in her unborn child. Congenital CMV affects up to 25,000 infants in the U.S. each year. Up to 15% of them are severely ill at birth. There is currently no vaccine for CMV on the market, and Moderna expects its candidate will be the first to earn approval.
According to an interim data release from Moderna's phase 2 study of mRNA-1647, patients inoculated with it developed substantial (but not perfect) neutralizing antibodies against CMV with no serious side effects. Based on those results, Moderna's management team is optimistic about its prospects, and forecast that (if approved) the vaccine candidate could generate between $2 to $5 billion in peak annual sales. Phase 3 trials of mRNA-1647 are likely to commence this year.
The success of its COVID-19 vaccine did more than give Moderna a marketable product -- it validated the company's novel messenger RNA platform, proving that the technology its whole pipeline is based on works as hoped. That was likely a key reason for the stock's surge to its all-time high. Right now, its market cap of $44 billion doesn't seem excessive, considering its capacity to generate tens of billions of dollars in sales in the near future. If you missed out on the stock's marvelous rally last year, I think that buying on the dip now is a smart move.
