It's been a rough 2022 for Moderna (MRNA 3.01%), with the company's shares down by 30% since the beginning of the year. The biotech giant does face some issues, including valuation. Some investors feel that a market cap of $70 billion seems unjustified for a vaccine maker that had never earned regulatory approval or authorization for any of its candidates until less than two years ago (Moderna was founded in 2010).
On the other hand, Moderna's first marketed product, its COVID-19 vaccine Spikevax, has been a monumental success. What does the future hold for Moderna? Let's look at one reason to be optimistic -- and one reason to worry -- about Moderna's prospects.
Green flag: The COVID-19 market
Although we have made tremendous progress and vaccines are now readily available in many parts of the world, the pandemic still isn't over. In fact, the Biden administration warned that a big wave of coronavirus cases could be coming during the fall and winter. No one knows how much longer the global outbreak will last. Perhaps it will extend well into next year and beyond, or maybe it won't. But even if it doesn't, it's essential to note that COVID-19 could become an endemic illness.
Millions of people get vaccinated against the flu on a seasonal basis, and these vaccines protect patients against various strains of the virus. Similarly, if several coronavirus variants remain in circulation, seasonal vaccinations designed to protect patients against the most potent variants could become the norm well beyond the pandemic officially ending. Of course, none of this is good news. All of us would be thrilled if COVID-19 faded out of existence.
But since that doesn't look likely, we will need companies like Moderna. The biotech is developing several other candidates that specifically target potent variants of the coronavirus. Moderna's portfolio in this therapeutic area could get even larger, which will help the company remain a major player in this lucrative market.
Still, even if COVID-19 looks to be here to stay, that does not mean its commercial opportunity will remain constant or increase. Let's not forget that Moderna's COVID-19 vaccine was first granted emergency use authorization during a state of extreme emergency. Vaccine demand could drop after this year, and Moderna will need other products to keep its revenue and earnings afloat.
This brings us to our red flag.
Red flag: Non-coronavirus programs aren't close to approval
Moderna's coronavirus business is performing well. Unfortunately, that is the company's only business at the moment. It does not have products on the market that target other illnesses. Moreover, although Moderna has plenty of non-coronavirus pipeline candidates, none look close to earning approval. Two of the most advanced of the bunch are mRNA-1345, an investigational vaccine against the respiratory syncytial virus (RSV), and mRNA-1647, a potential vaccine against the cytomegalovirus (CMV).
Moderna initiated the phase 3 portion of a phase 2/3 trial for mRNA-1345 in February. Late-stage clinical trials of this sort can take between one and four years, and sometimes longer. And it can take up to 10 months or more for the U.S. Food and Drug Administration (FDA) to approve the vaccine once the company applies for approval. That's assuming there are no safety or efficacy problems with it, which are typical risks that biotech companies face. In other words, in the best-case scenario, mRNA-1345 won't hit the market until early 2024.
Moderna started a phase 3 study for mRNA-1647 in October 2021. Perhaps it could make it to the market before mRNA-1345. But realistically, neither is close to approval. That could be a problem for Moderna if the demand for COVID-19 vaccines drops substantially after this year. The biotech's revenue could follow the same trajectory, thereby dragging its stock price down.
Is Moderna a buy?
In my view, Moderna remains an attractive, long-term option for investors. The company's finances -- and stock price performance -- might struggle in the next couple of years, depending on how things go in the coronavirus market. But Moderna now has plenty of cash on hand to develop new vaccines.
The biotech currently has roughly $13 billion in free cash flow, representing a 14.5% increase from a year ago. Some of Moderna's candidates target viruses for which no approved vaccines exist. That's the case for both mRNA-1345 and mRNA-1647, which target RSV and CMV, respectively. If even one of these products earns approval, it could become highly successful.
Moderna is running more than a dozen non-coronavirus-related clinical studies. We can expect major clinical wins in the next couple of years. And several approvals beyond that point. Those looking to hold onto the company's shares for 10 years should still earn solid returns.
