Toward the end of next month, the coronavirus vaccine magnate Moderna (MRNA +4.25%) will report its fourth-quarter earnings, and it's bound to have implications for the company's stock price. The earnings update might well be a reason for shareholders to breathe a sigh of relief, provided that it puts a stop to the stock's downward slide of more than 47% over the last three months.
On the other hand, there might not be much good news to come by, given that vaccine sales are unlikely to deliver any surprises. Plus, the company gave an update on its operations and its recent pipeline progress on Jan. 10, thereby leaving little to the imagination in terms of what's on the horizon. Could this quarter be another headache for Moderna investors, or will there be a silver lining to the storm clouds?
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2022 will be bigger for vaccine sales than 2021, but maybe not by much
The first consideration for shareholders is that Moderna expects to report around $17.5 billion in sales of its Spikevax jab for 2021. In terms of its already-signed advance purchase agreements for 2022, it has $18.5 billion in doses queued for delivery, with an additional $3.5 billion potentially in play in the form of optional expansions to the preorders.
It'll be hard to expand on these figures this year, as manufacturing output likely remains somewhat constrained relative to demand.
Other vaccine stocks, like Pfizer, might have the same issue, though it has the advantage of being able to get share price appreciation from reports of sales of other medicines at the same time as its vaccine. If Moderna faces new manufacturing constraints, it'll harm the stock more than it would one of its more diversified competitors.
But there's still the chance that the company will be able to pioneer and deploy a specific jab for the omicron variant faster than expected. Right now, the omicron-specific project is scheduled to enter clinical trials early this year.
The "X" factor is whether the updated vaccine will be ready in time to actually be useful, or whether the variant will recede as quickly as it arrived. If omicron looks to have staying power, it'll be a boon for Moderna -- though there's no guarantee the stock will recover its recent losses anytime soon.
Valuation might be a problem
Independently of Moderna's sales prospects, its stock may be suffering from a confrontation between its valuation and what the market is willing to pay for.
At the moment, Moderna's trailing price-to-sales (P/S) ratio is 5.7. That's just a bit higher than the biotechnology industry's average P/S of 5.3, but it's a far cry from the stock's P/S ratio of 411.4 on June 30, 2020. In short, Moderna's valuation has been converging downward alongside its price over the last six months, especially.
The trouble is that Moderna doesn't have too many avenues with which it could justify higher valuations.
Demand for Spikevax is unlikely to remain as high as it is now in perpetuity. At the same time, its non-coronavirus pipeline projects aren't anywhere close to yielding revenue, even if they do show promise. Announcing ambitious new programs might be favorable for the company's long-term health, but they'd suffer from the same problem of being too immature to impact the stock's price by much today.
The exception might be Moderna's pan-respiratory vaccine program, which aims to vaccinate against the coronavirus, influenza, and respiratory syncytial virus. Though the project may be blocked until the biotech's influenza and RSV jabs are commercialized independently, management has indicated that the pan-respiratory inoculation could be deployed piecewise. That'd mean it could start off by combining Spikevax with whichever respiratory jabs see success in the clinic first, then update the formulation later to protect against other pathogens as soon as possible.
Still, the hopes of rapid advancement of a project that's currently only on paper are probably not enough to convince new investors to buy shares. So, while there might be some relief for shareholders coming eventually, investors should buckle up for a bumpy ride. Between a limited ability to beat the market's sales expectations and a slightly above-average valuation, Moderna's stock looks to be in for some more trouble over the near term.
