Moderna's (MRNA -0.58%) business isn't in as horrible shape as bearish investors may think. The company, which has made a name for itself for its COVID-19 vaccine, has products in its pipeline that could generate significant revenue in the future beyond just COVID.
One of the most promising is a vaccine candidate for respiratory syncytial virus (RSV). Moderna recently released encouraging results from a trial that could drive some bullishness on the stock. Is now the time to buy shares of Moderna before they potentially climb higher?
The trial results were impressive
On Jan. 17, Moderna announced that its RSV vaccine was highly effective in phase 3 trials in preventing the risk of lower respiratory disease (where there were at least two symptoms) in people aged 60 and over. The rate of efficacy was 83.7%. That's slightly higher than the 82.6% efficacy that GSK reported from its vaccine in October, and well above the 66.7% that rival Pfizer achieved when it announced its trial results a few months earlier in August.
Superior numbers don't necessarily mean that Moderna's vaccine will generate more in revenue than others -- and the trials aren't identical either -- but it's a great sign that Moderna's vaccine should be able to obtain approval. The company plans to submit data for the RSV vaccine candidate, mRNA-1345, to regulators for approval before the end of the first half of this year.
The RSV market is an attractive one
RSV is a deadly infection, particularly for older adults, with 14,000 seniors dying from it in the U.S. each year. And although children normally survive an RSV infection, it still kills about roughly 500 American kids every year as well. Currently, there isn't an approved RSV vaccine for use in the U.S., but Pfizer's may be the first as regulators plan to make a decision on the company's vaccine by May.
The RSV market is an attractive one. Morgan Stanley analysts project that it could be worth between $7 billion and $10 billion. With many big names vying for a potential vaccine, the pot will be shared, but the good news is that given its strong results, Moderna could still generate a couple billion dollars in annual revenue from the vaccine.
Overall, this is an encouraging development for Moderna; having a successful RSV vaccine could help diversify its business outside of COVID-19, and make it a safer buy in the long run.
The stock is picking up steam
Positive news from the trial helped boost Moderna's stock last week; at around $194, it's not far from its 52-week high of $217.25. At a forward price-to-earnings multiple of 32 (based on analyst expectations), its valuation is a bit rich given that the average healthcare stock trades at 16 times its future profits.
Should you invest in Moderna's stock?
Moderna's business is showing promise, with both an RSV vaccine and the personalized cancer vaccine that the healthcare company has been working on with drugmaker Merck.
The problem right now, however, is its valuation. Moderna expects to bring in around $19 billion in sales from its COVID vaccine in 2022, though making up for what's likely to be a significant shortfall this year is going to be a challenge. The RSV vaccine may not generate any revenue until next year, and even then it won't bring in the kind of sales Moderna will need to soften the blow of lessened demand for the COVID vaccine.
At $75 billion in size, this is no longer a small biotech stock with a huge upside (it's already trading around its consensus analyst price target). Moderna's high market capitalization could put the stock in a tough position this year, and that's why I would steer clear of it for now. There's still too much risk here to make this a tenable option for most investors.
