Biotech giant Moderna (MRNA -2.66%) hit a few milestones in the past year. For instance, in December 2020, it finally earned its first regulatory nod, 10 years after the company's founding. This victory was, of course, the Emergency Use Authorization granted to Moderna's COVID-19 vaccine, mRNA-1273. Thanks to the monumental achievement, its stock has soared over 400% in the past year.
And yet, the company has detractors. A common complaint among the naysayers is that Moderna's shares are overvalued. And an average price target of $334 by analysts does imply slight downside from its current price of $340. That's also down sharply from the stock's high of nearly $500. Is Moderna a "bad news buy"? Before deciding, let's consider two reasons why it could outperform the market again in the next year.
1. The pandemic is dragging on
Many of us thought that once vaccines against COVID-19 became widely available, the pandemic would slowly but surely recede into the distance. But that isn't exactly what's happening. According to the U.S. Centers for Disease Control and Prevention, 77.8% of people 12 years or older have received at least one dose of a vaccine.
Yet weekly cases of the disease still number in the thousands, and many patients are still hospitalized. As the outbreak lasts longer than anticipated, vaccine makers will continue to rack up dazzling sales for their products. Moderna has already secured $12 billion in advance purchase agreements (APAs) for 2022.
And while the company said it would not take any more APAs for 2021 because of production constraints, it is planning to increase its manufacturing capacity. Next year, Moderna could generate more than the $20 billion in sales it expects this year from mRNA-1273. The company already has options for roughly $8 billion in APAs for next year.
If the biotech signs more supply agreements, which seems likely given that booster doses of the vaccines are finally gaining traction among regulators, its financial results could surpass current expectations. That will push Moderna's shares in the right direction.
2. A new blockbuster on the way?
Moderna currently has a rich pipeline of potential vaccines against various infectious illnesses. One of the most advanced is mRNA-1647, a potential cytomegalovirus (CMV) vaccine. On Oct. 26, the company announced that it had dosed the first patient in a phase 3 clinical trial for mRNA-1647. The trial will enroll about 8,000 women between the ages of 16 to 40 to test for safety and efficacy.
The market opportunity here is attractive. CMV is the leading infectious cause of birth defects in the U.S. and affects roughly 25,000 newborns in the country every year. Yet there is no vaccine for CMV approved by the U.S. Food and Drug Administration. Many adults are affected by CMV although in most cases it does not cause any serious health conditions. But pregnant mothers with CMV can pass the virus to their unborn children.
That's why a CMV vaccine could be a major victory, and with a pivotal study for its candidate kicking off, Moderna is ever closer to getting mRNA-1647 on the market. Of course, the potential vaccine could fail to prove effective in this trial. On the other hand, if Moderna releases some early positive results from this study -- which could happen within the next six to nine months -- its shares will get yet another boost.
In it for the long haul
Moderna may be overvalued at the moment -- it is a bit difficult to justify the company's current market cap. But it is also hard to overlook its pipeline, which is full of promising products like mRNA-1647 which target viruses or infectious diseases that have no currently approved vaccines. Given the trajectory of the pandemic, Moderna could end up getting very close to launching another product on the market before it subsides. That would help smooth out the drop in sales it will almost certainly experience once the outbreak ends.
And in the long run, Moderna has some of the tools a biotech needs to be highly successful: lots of cash on hand, a blockbuster product currently on the market, and a full and promising pipeline of potential vaccines against the flu, HIV, and various forms of cancer. Add that to the fact that Moderna is currently 32% down from its 52-week high and its forward price-to-earnings ratio (P/E) of 11.2 seems reasonably valued compared to its peers -- the biotech industry's current forward P/E is 10.4. For these reasons, investors should consider purchasing shares of the company.