Biotechnology stocks have the potential to deliver outstanding returns for investors. Indeed, some of the best-performing stocks in the past two decades have emerged from the biotech industry.
However, this group of stocks also comes with a high degree of risk and volatility. The fiercely competitive nature of the industry and the limited lifespan of branded medications can cause significant fluctuations in the stock prices of biotech companies.
Moderna (MRNA 1.69%), a leader in the field of messenger RNA (mRNA)-based vaccines and therapeutics, is a prime example. The company's stock price skyrocketed in 2021, thanks to the strong sales of its COVID-19 vaccine, SpikeVax. However, the stock has since plunged by more than 77% from its peak, as the demand for COVID-19 vaccines has declined.
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Moderna probably won't go down in history as a one-hit wonder, however. The biotech has a rich and diverse pipeline of candidates that could fuel a recovery in its stock performance.
Is this the right time to invest in this innovative mRNA company? Let's take a closer look to find out.
What's on tap?
Like all biotechs, Moderna's future hinges on the success (or failure) of its pipeline. The biotech presently sports a whopping 45 development candidates, 47 development programs, and 39 ongoing clinical studies. It also has a handful of major late-stage programs making headway in the clinic.
Highlights from its late-stage pipeline and broader clinical program include:
- mRNA-1345: A vaccine for respiratory syncytial virus in patients aged 60 or older, a common and potentially serious respiratory infection that affects older adults and young children. Moderna has submitted regulatory applications for the vaccine in multiple geographies for the experimental vaccine, ahead of a possible launch in 2024.
- mRNA-4157: A personalized cancer vaccine collaboration with Merck. The most advanced candidate from this collaboration, mRNA-4157, is being tested in combination with Merck's blockbuster immunotherapy, Keytruda, in a late-stage trial for melanoma. The duo also plans on exploring other solid tumor types, such as non-small cell lung cancer.
- mRNA-1010: A vaccine for seasonal flu designed to provide broader and more durable protection than current flu shots. The vaccine could be ready for launch in 2024.
- mRNA-1647: A vaccine for cytomegalovirus (CMV), which is a common viral infection that can cause serious complications in pregnant women and immunocompromised patients. mRNA-1647 is in a pivotal phase 3 trial and could be the first CMV vaccine to reach the market.
- VX-522: An inhaled mRNA therapy for cystic fibrosis, a rare genetic disease that affects the lungs and other organs. The early-stage therapy is being developed in partnership with Vertex Pharmaceuticals.
Fundamentals, risks, and valuation
Moderna's pipeline is impressive but comes with significant risks and costs. The company reported a net loss of $1.4 billion in the second quarter of 2023, compared to a net income of $2.2 billion in the same period last year.
This marked trend reversal stemmed from a combination of falling SpikeVax sales and elevated research and development costs during the three-month period. Unfortunately, Wall Street expects this declining revenue trend to persist in the short term, with annual sales forecast to dip by 65% in 2023 and by another 13% in 2024.
Fortunately, Moderna's cash position remains strong, with $8.4 billion in cash and investments as of June 30, 2023. However, the company faces uncertainty about its future revenue streams.
Moderna appears close to bringing other major revenue sources online, but clinical and regulatory setbacks are the norm in biopharma. In other words, Moderna is unlikely to hit on all of its late-stage programs.
Despite this high degree of uncertainty, Moderna's shares still trade at about 7.2x 2024 projected sales. This is a hefty valuation for a large-cap biotech stock, reflecting Wall Street's optimism about the potential of mRNA-based vaccines and therapeutics in the broad sense.
Verdict
Moderna is not a stock for the faint of heart. Nonetheless, this large-cap biotech stock might be worth considering for investors with a healthy appetite for risk. After all, Wall Street analysts think the stock is undervalued by a noteworthy 51% (relative to its consensus price target), thanks to the company's broad and diverse pipeline.
Prospective shareholders, though, should bear in mind that Moderna's share-price performance will be dependent on its clinical and commercial success. Neither of these all-important operating goals is a sure thing, despite SpikeVax's well-documented success. As a result, investors may want to keep any position on the small side until the company has built a stronger commercial-stage portfolio.
