We are still in the midst of the COVID-19 pandemic. And with the delta variant spreading like wildfire, particularly in areas with low vaccination rates, governments worldwide are increasingly looking to drive up the number of people inoculated against the disease. But many also wonder whether those who are fully vaccinated are safe from this more contagious strain -- and whether they may need a booster shot (or a third dose) of one of the two leading vaccines on the market.
A few weeks ago, the U.S. Food and Drug Administration and the Centers for Disease Control and Prevention issued a joint statement agreeing that booster shots were not yet needed for those already inoculated. That may be the case for most people right now, but there are good reasons to think we'll eventually need booster shots. Moderna's (MRNA +4.29%) president, Stephen Hoge, made a strong case for this claim during the company's second-quarter earnings conference call.
Let's look into what Hoge said, and what it could mean for Moderna and its shareholders.
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Waning efficacy...and more
Moderna's COVID-19 vaccine, mRNA-1273, has been shown to remain 93.2% effective four to six months after the second dose. The company's original data pegged mRNA-1273's efficacy at 94.1%. These results are impressive, but they hardly tell the whole story. There are several dynamics at play that will eventually create a need for booster shots -- or so the argument goes.
It is worth quoting Hoge's reasoning at length: "We believe today that the increased force of infection that's resulting from the delta variant, fatigue with nonpharmaceutical interventions, and the seasonal effects of moving indoors will eventually lead to an increase in breakthrough infections in vaccinated individuals. In fact, there have been reports of that already."
Furthermore, Hoge believes that mRNA-1273's efficacy will eventually decline. He concludes: "Given this intersection between a rising force of infection and waning immunity, we believe a dose three of a booster will likely be necessary to keep us as safe as possible through the winter season in [the] Northern Hemisphere."
Hoge could hardly have been more clear. Let's decipher the financial implications of his statements -- assuming that he's correct.
More advance purchase agreements on the way?
During the second quarter, which ended June 30, Moderna racked up $4.2 billion in sales from mRNA-1273. The company expects a total of $20 billion this year from its crown jewel, including the revenue it generated during the first half of the year, which amounted to $5.9 billion. Management claims the company is capacity-constrained, and it won't take additional advance purchase agreements (APAs) to be delivered in 2021.
But what about next year? Moderna has already signed $12 billion worth of APAs for 2022, along with $8 billion in options. Given the increasingly likely need for booster shots, I expect these $8 billion in options to be activated. And considering the company is still discussing potential APAs with various governments -- not to mention working to improve manufacturing capacity -- sales of its coronavirus vaccine in 2022 have a real chance of exceeding the $20 billion it will generate this year. Moderna has even signed APAs for 2023, indicating that mRNA-1273 will continue to contribute meaningfully to the biotech's top line until then.
What does this mean for investors?
Moderna has already benefited tremendously from its coronavirus-related work. The company's stock is up by 2,390% since January 2020, and it currently boasts a market cap of $195.42 billion. Right now, few biotechs are worth more than Moderna. Even a reputable and established company such as Gilead Sciences is valued at less than half of Moderna's market cap.
How much upside does the vaccine maker have left? With the increasing danger posed by the delta variant, the (probable) need for booster shots, and the opportunity to market mRNA-1273 for adolescents between the ages of 12 and 17, Moderna's stock likely hasn't peaked yet, even when you consider only its coronavirus-related opportunities. Naturally, this tailwind will eventually come to an end, and I don't expect Moderna's stock to maintain the pace it's had for the past year and a half indefinitely -- not even close.
With that said, the company's mRNA platform carries serious potential. Moderna is already moving ahead with several other programs in its pipeline. These include potential vaccines preventing Zika, influenza, and cytomegalovirus infections. Moderna won't be strapped for cash anytime soon, which will allow it to support its research and development activities without resorting to dilutive forms of financing.
Once the pandemic subsides, Moderna's shares will probably see some darker days. But in the long run, I fully expect this biotech stock to continue beating the market. Moreover, the pandemic's current trajectory (many governments are reintroducing mask mandates and other restrictions due to the delta variant) is likely to benefit vaccine makers.
A better entry point for this stock might or might not come soon. I think now is as good a time as any to purchase Moderna shares.
