High-flying coronavirus stock Moderna (MRNA -3.52%) has delivered a stunning 1,870% return since the pandemic started in January of last year. At this rate of growth, many investors are wondering if Moderna will soon become a trillion-dollar company. Don't worry -- at today's market cap of $160.97 billion, it's already 16.10% of the way there.
But there are reasons to think that the biotech is becoming overhyped and far detached from its value proposition. Let's look at why now's the time to take profits or avoid the stock in its entirety.
Why the skepticism?
Earlier this month, Bank of America analysts projected that Moderna would need to sell between 1 billion and 1.5 billion doses of its coronavirus vaccine every year from 2022 to 2038 to partly justify a valuation of $200 billion.
This year, Moderna has signed purchase agreements for $20 billion worth of its vaccine. Next year, the company projects that number will fall to $8 billion. It has just started signing deals for 2023 shipments. One can clearly see the pattern here; as COVID-19 becomes endemic, Moderna's sales will decline drastically. It's not simply not realistic to bet that the company can replicate its success from the early stages of the vaccination efforts.
But that's not all. BoA analysts also posted a critique of how investors are betting on the complete success of Moderna's pipeline candidates. Notable mentions include its experimental flu, Zika, cytomegalovirus, and cancer vaccines, all of which are in early phase 2/3 trials. The latter is the most promising, as the mRNA vaccine technology behind its coronavirus vaccine could contribute strongly toward training the body's immune system to recognize cancer mutagens.
However, it is important to understand that biologic treatments, and vaccines in particular, have a very low rate of success. For example, between 2011 and 2020, only 9.1% of biologics and 9.7% of vaccines made it from phase 1 to market approval. That's pretty far from the 100% success that BoA analysts claim investors are pricing in. In addition, even if the products do succeed, they might not be as commercially viable as predicted and could end up never achieving the sales target required to justify the stock's valuation.
Paying 8 times revenue for a company that's about to see its sales fall off the cliff is a lot to ask. What's more, I'd expect Moderna to lose its first-mover advantage quickly as more coronavirus vaccines enter the market -- similar to how branded medications see their sales rapidly evaporate as generic entrants roll in. There are many coronavirus vaccines already available, including Pfizer's, AstraZeneca's, and Johnson & Johnson's, as well as Russia's Sputnik V, Cuba's Abdala, and China's Sinopharm and Sinovac.
The latter duo deserves a special mention. The Chinese Communist Party has pledged to donate or sell 2 billion doses of its domestically manufactured vaccines to the world this year. So far, it's already manufactured 2.3 billion doses and exported 589 million doses. Such initiatives could seriously dilute the need for vaccines like Moderna's. Overall, I'm just not convinced that the company can live up to its hype. It's best to wait for a significant pullback before opening a stake. This business is definitely not heading to trillion-dollar status anytime soon.