Investing in biotech stocks can be exciting, but also risky. For certain companies, a lot can ride on the potential success of new drugs, providing outsize gains or punishing losses for investors depending on the outcome of clinical trials.
For two companies in particular, tailwinds from the pandemic have provided a cash cushion that mitigates some of that risk for investors. Of course, future success will depend on post-pandemic execution, but each business has a plan and is ready for a bull run in 2022.
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Moderna
Moderna's (MRNA 3.01%) 2021 results were staggering. Revenue for the fiscal year was $18.5 billion, compared to $803 million in 2020, good for a 2,200% increase. It's important to remember that prior to Emergency Use Authorization of its COVID-19 vaccine in late 2020, Moderna had no commercially available products, so the revenue growth in 2021 needs to be taken with a large grain of salt.
The influx of revenue has allowed Moderna to become profitable and cash-flow positive. Revenue far outpaced expenses for the year, leading to net income of $12.2 billion. Operating expenses for 2021 were only 28% of revenue, compared to 195% in 2020. The fiscal year ended with nearly $18 billion in cash and investments on the balance sheet.
What's more promising for investors is Moderna's development pipeline of vaccines and therapeutics. It will still be some time before COVID-19 revenue slows, and there will still be a need for vaccines and boosters once the virus becomes endemic. However, Moderna has a plan for bringing new products to market in the coming years. Of its 44 development programs, two are currently in phase 3 of Food and Drug Administration (FDA) trials and another five, including COVID-19 boosters, are in phase 2. Successful completion of these trials would not only boost Moderna's sales, these drugs would also be further proof of the efficacy of the mRNA technology at the heart of Moderna's business.
Moderna is not immune to the risk biotech companies face when it comes to bringing their products to market. It's easy to see the success of the COVID-19 vaccines and assume future results will be similar, but that may not be the case. It seems the market is pricing in some of that risk because Moderna is quite inexpensive. Shares currently trade for a price-to-earnings (P/E) ratio of 4.8 and a price-to-sales (P/S) ratio of 3.6. Both of these multiples are near all-time lows, providing an attractive entry point for investors who believe in Moderna's potential.
Fulgent Genetics
Much like Moderna, Fulgent Genetics (FLGT 0.98%) made a name for itself during the pandemic when it was able to pivot and start selling COVID-19 tests. This resulted in fiscal year 2021 revenue growth of 135% and some quarters with year-over-year growth in the quadruple digits. Fourth-quarter revenue was $252 million, which was down 15% year over year. To be fair, the fourth quarter was an almost impossible comp considering the year-ago quarter featured revenue growth of over 3,400%. More concerning for investors was the outlook for the first quarter, with revenue guidance of only $245 million, which would be a year-over-year and sequential decline.
This slowing of revenue is not a surprise as vaccines eventually lessen the demand for COVID testing. However, for patient investors, Fulgent's core business, its next-generation sequencing (NGS) genetic testing, could be a growth driver for years to come. In Q4, NGS testing revenue growth was 234%, year over year, showing that the core business is growing even as COVID-related revenue trails off.
Fulgent's NGS testing platform includes a menu of customizable genetic tests. In the second quarter, Fulgent acquired and signed some strategic partnerships that gave the company much more exposure to the cancer testing space. Fulgent is targeting the early detection and liquid biopsy space in cancer diagnostics and reproductive health spaces, which management sees as an $18 billion market opportunity.
Risk still remains for Fulgent. The company is guiding for 28% growth in NGS revenue for fiscal year 2022, but is also expecting overall revenue to decline 40% due to decreased COVID-related sales. This risk is reflected in the valuation, with Fulgent currently trading at a P/E of 3.3 and a P/S of 1.7. There's a large market opportunity in front of Fulgent, and it has already had success with COVID testing. The current valuation limits some risk for investors as Fulgent continues to build its core business.
