Shares of Moderna (MRNA 1.69%) recently did some bouncing around. The company posted results on the morning of Nov. 2, and the stock lost more than 10% when the market opened. Luckily, positive economic data pushed up biotech stocks in general and wiped away the previous day's losses.
This isn't the first time falling sales of its COVID-19 vaccine, Spikevax, led shares of Moderna lower. The stock is down about 84% from the high-water mark it set over two years ago. While this has been upsetting to long-term shareholders, it could also mean the stock has been beaten down too far.
By the end of 2024, there's a good chance Spikevax won't be Moderna's only source of recurring revenue. Does a pipeline poised to deliver new vaccines make this a good stock to buy right now? Let's weigh reasons to avoid the biotech against reasons to buy it and find out.
Reasons to avoid Moderna now
In the third quarter, product sales collapsed 44% year over year to $1.8 billion. Instead of the strong profit investors have become accustomed to, Moderna's operations lost about $2 billion during the three-month period.
Moderna expects Spikevax sales to slide much further than they already have. It's forecasting $4 billion in total sales next year both from Spikevax and a respiratory syncytial virus (RSV) vaccine candidate that hasn't earned approval from the U.S. Food and Drug Administration (FDA) yet.
Moderna expects an approval decision regarding its RSV vaccine candidate in April of 2024, but by then, it will have to deal with some entrenched competition. The first RSV vaccine to hit the market was Arexvy from GlaxoSmithKline, which earned approval to treat adults over 60 years old this May.
The approval was supported by clinical trial results that show it lowered participants' risk of developing lower respiratory tract disease caused by RSV by 82.6% overall. Just a few weeks after the FDA approved GSK's RSV vaccine, it also greenlighted another from Pfizer called Abrysvo.
Moderna's RSV vaccine candidate, tentatively named mRNA-1354, reduced patients' risk of developing two or more RSV symptoms by 83.7% compared to a placebo. Moderna can argue that results for its candidate are best in class but not by much. With vaccines from two of the world's largest pharmaceutical companies to compete with, investors expecting a successful launch could be disappointed.
Developing new drugs becomes exponentially more expensive as candidates approach the goal line. Moderna's late-stage pipeline includes six programs in phase 3 clinical trials, which management estimates will raise research and development (R&D) expenses to $4.8 billion in 2023. Remember, the company is predicting just $4 billion in total sales next year.
Image source: Getty Images.
Reasons to buy Moderna now
In addition to vaccine candidates for influenza, RSV, and cytomegalovirus (CMV), Moderna could have a blockbuster cancer therapy in late-stage development.
Earlier this year, we saw results from a phase 2 combination study with Keytruda, a successful immunotherapy from Merck (MRK 0.37%), and mRNA-4157, a personalized cancer therapy candidate from Moderna that encodes dozens of patient-specific neoantigens. Adding mRNA-4157 to Keytruda reduced melanoma patients' risk of disease recurrence or death by 44% compared to patients treated with Keytruda alone.
This summer, Merck renamed Moderna's cancer vaccine candidate V940 and began a phase 3 trial intended to enroll over 1,000 melanoma patients. Repeating the success observed in the phase 2 trial could push the stock way up when it reads out top-line results about six years from now.
A buy for some but not all
Spikevax has been injected into the arms of over a billion people, with relatively few safety issues. With a proven ability to produce a blockbuster vaccine, Moderna's RNA platform is probably as valuable as the stock's $29.5 billion market cap at recent prices suggests.
Unfortunately, the next several years could be nerve-wracking for Moderna's CFO and its shareholders. R&D expenses are expected to exceed top-line revenue from Spikevax next year, and the next vaccine it's likely to launch could have a hard time gaining market share among entrenched competition.
With a limited product portfolio at the moment, advancing a robust pipeline will lead to heavy losses for at least a few years. Management expects to break even in 2026, but that expectation includes successfully launching its RSV vaccine. Unless you have a sky-high tolerance for risk, it's probably best to keep this stock on a watchlist and not in your portfolio.
