On Dec. 14, Moderna (MRNA 1.69%) and Merck (MRK 0.37%) jointly reported some great news for patients as well as investors: A powerful new cancer therapy is in the works, and the freshly published mid-stage clinical trial data look favorable. Now, the biotech's shares are up by 21% over the last 30 days, and they likely have much further to run over the long term.
But the coronavirus vaccine developer's stock actually lost a similar proportion of its value over the last three years, and its revenue is dramatically lower than during its heyday. Is Moderna's stock still a buy, or is the collaboration with Merck much ado about more of the same?
Its work with Merck could be a key pillar
Moderna is intent on proving that its vaccines can be helpful in treating serious diseases rather than merely helping to prevent them.
It's collaborating with Merck to develop a combination medicine featuring Merck's anti-cancer antibody known as Keytruda and Moderna's cancer vaccine candidate called mRNA-4157. Keytruda is a star oncology drug, and it's no surprise why. It's indicated to treat illnesses like melanoma, Hodgkin's lymphoma, head and neck cancer, liver cancer, colorectal cancer, certain types of breast cancer, cervical cancer, non-small cell lung cancer (NSCLC), as well as a handful of others. In 2022, Keytruda brought in $20.9 billion for Merck.
In contrast, mRNA-4157 is an investigational individualized neoantigen therapy (INT), which means that it's intended to be a personalized cancer vaccine (PCV). In short, it's a therapy designed to cater to the specific characteristics of each patient's tumors so as to flag them for destruction by the immune system. Such an approach is highly desirable as it would likely be compatible and potentially even synergistic with targeted biologic therapies like Keytruda as well as chemotherapies, surgeries, and radiation.
Per the latest results from the phase 2b study update in December, after roughly three years post-treatment with the combination candidate tested by the two collaborators, high-risk patients with stage III/IV melanoma experienced a 49% lower risk of cancer recurrence or death, and a 62% lower risk of distant metastasis or death.
At the same time, the combination candidate did not seem to generate a dramatically higher frequency of severe side effects than Keytruda alone. There's no way around it; these are some excellent data. The companies are already moving forward with a phase 3 trial, and they plan to test the combination to see if it's effective at treating other cancers.
Its shares won't be cheap forever
For reference, in 2020, there were around 325,000 cases of malignant melanoma diagnosed, so if the pair can get their candidate commercialized after regulatory review, they'll have a huge market to penetrate. If the collaboration program demonstrates in its final clinical trials to be even better for some of the above conditions than Keytruda alone, it could set up both companies for billions and billions in revenue.
And that'd be a major bullish driver for Moderna stock, but it isn't the only one in play right now. At the moment, Moderna's shares are valued quite inexpensively, which changes the calculation about how much risk investors take on if they buy shares. Its price-to-earnings (P/E) ratio is 7. For reference, the market's average P/E is 26. This stock is probably a bit riskier than investing in an index fund, but the market is likely underestimating its future growth potential.
It is probably the case that the company's top and bottom lines will continue to shrink over the next year as its windfall from coronavirus shots will not return. But that should change in the long term thanks to programs like its collaboration with Merck as well as other projects in the pipeline.
Management is anticipating that the business will next break even sometime in 2026 after returning to growth in 2025. By 2028, it could have 15 more medicines on the market than it does today, including programs that could become major revenue drivers, like its next-generation combination shot for influenza, coronavirus, and respiratory syncytial virus (RSV).
Furthermore, leaders are expecting that Moderna's cash and equivalents of nearly $7.6 billion will be enough to hold it over until it's profitable again without the need to issue new stock and dilute its shareholders. As its trailing-12-month cash losses were only $754 million, that money should indeed be enough.
So should you buy the stock on the basis of this new information? It isn't a bad idea at all, but it's only an actionable good idea if you can stomach the high chance of taking some losses for the next couple of years as the company repositions itself to chase revenue from new products rather than its coronavirus jabs.
