Biotechnology company Moderna (MRNA 0.48%) came to market in 2018 with a market cap of about $7.5 billion. Today, the company is worth more than $150 billion. With its work as a leader in developing a vaccination for COVID-19, its revenue has ballooned, and the stock is up 500% in just the past 12 months. Now Moderna is a household name. Let's discuss whether it can continue to climb or if the stock is running out of runway.
Moderna's vaccine is big business
Moderna received approval from the U.S. Food and Drug Administration (FDA) for its vaccine on an "emergency use" basis in December 2020. The vaccine uses mRNA technology, which instructs the body to produce copies of a protein found on the COVID-19 virus to prepare antibodies without the individual actually contracting the virus itself.
This is different from traditional vaccines, which often introduce a piece of the actual virus to stimulate the body's immune system to begin protecting against it. Both Moderna and biotech giant Pfizer have developed COVID-19 vaccines using mRNA technology. They have also been the primary producers of the vaccine, accounting for roughly 95% of doses in the U.S., with competitors such as Johnson & Johnson paling in comparison.
The vaccine is Moderna's first commercialized product, so it's obviously a huge business for the company. Vaccine revenue accounted for virtually all of its $4.4 billion in revenue during its 2021 second quarter.
Just how big is the vaccine business? The company went public with a market cap of $7.5 billion in 2018 and is poised to sell $20 billion worth of COVID-19 vaccines in 2021 alone. This explosion of revenue growth is a major factor in the stock's dramatic run over the past year.
But it will be difficult to predict moving forward
A major drawback of the vaccine business is that it's nearly impossible to predict over the long term. Moderna currently has $12 billion booked in vaccination sales in 2022 and another $8 billion in options. Still, as the virus mutates and changes, it's virtually impossible to know whether COVID-19 will be a threat to global health for years to come or if vaccines will eradicate it in the next couple of years.
Without another commercial product, a disruption to COVID-19 vaccine demand could potentially dry up Moderna's revenue quickly. This is a possibility that investors should at least keep in mind before investing in vaccine stocks like Moderna.
The company does have a pipeline of more than a dozen products, although most of them are in phase 1, meaning they are early on in testing and won't be coming to market for a while. Moderna's products closest to approval are its CMV, RSV, and flu vaccinations in phases 2/3.
These developing products aren't a guarantee until they receive formal approval, but they do mean Moderna could see some new products generate revenue over the next few years. In the meantime, the COVID-19 vaccine gives the company a good amount of money to provide liquidity. As of the end of June, Moderna has $12.2 billion in cash and short-term investments and is a generating strong 63% net profit margin that will continue to build up the balance sheet.
The valuation doesn't offer a margin of safety
The stock's strong run has grown the company's market cap to more than $150 billion, making Moderna one of the largest pharmaceutical companies in the world on the back of one product.
While Pfizer, the other significant mRNA vaccine player, sports an even bigger market cap at $270 billion, it's a more diversified company that sells a long list of products outside of its COVID-19 vaccine.
Moderna is expected to generate earnings per share of $29.54 for all of 2021, putting the stock at a price-to-earnings ratio of 13.2 versus Pfizer's 11.7. But in 2022, analysts are expecting a drop in Moderna's earnings to $23.46, which would make the stock more expensive based on its P/E ratio going forward.
The unpredictable nature of Moderna's COVID-19 vaccine business might make the stock a bit riskier because of the possibility that revenue from COVID-19 vaccines could fall short of expectations in the future.
Here's the bottom line
Moderna is an exciting company, and its work during the pandemic has brought the company's mRNA technology to the main stage in its industry. Future products could work to replace the revenue coming in from the COVID-19 vaccine. Still, investors should be aware of the possibility of that revenue drying up if demand for vaccines declines.