Moderna Stock Now Priced Attractively For Long-Term Investors (NASDAQ:MRNA)

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Moderna (NASDAQ:MRNA) had a great day on Wednesday, October 12, 2022, rising $10.02 per share to $130.74, or 8.30%. Ostensibly this was due to news that the FDA approved its updated COVID booster for young children and Merck (MRK) exercised a collaboration option. I believe that, rather, it marks the end of a falling knives phase for Moderna stock. It is coming off a 52-week low of $115.03. It had declined from a 52-week high of $376.65. Well before the pandemic I wrote about Moderna, explaining the potential of mRNA therapy to make it into a major pharmaceutical company this decade. The waving of the normal FDA rules to allow it to sell its quickly-invented COVID vaccine, and the profits that followed, sent the stock soaring. This is an illustration of the importance of price: a great company can have a stock price that has risen to be out of touch with reality. In the article I will review some of Moderna’s history to put my current analysis in context. I will also evaluate the long-term potential of Moderna’s COVID vaccine program and the rest of its pipeline to arrive at a price estimate for the stock. I believe the stock price should rise from here, but not quickly.

MRNA Price Chart
Data by YCharts

Moderna Stock Price Boom and Bust

In 2019 Moderna was an obscure stock. The stock was near $22 per share when I wrote Moderna mRNA Therapy Potential Worth Accumulating on March 14, 2019. I did not think the stock, at that price, was cheap, given how far away from commercial revenue the company seemed to be. The pandemic, the race to create vaccines, and government support for that race changed things for Moderna. In 2020 it reached $156 per share. That kind of short-term gain gets noticed. In 2021 projections for Moderna revenue and profit from its approved COVID vaccine went through the roof, and the stock price did too, to over $484 per share. To me that stock price made no sense because it assumed revenues would be repeated annually. I thought it unlikely that the government would pay for a shot or two every year once the disease rate was brought under control. But anyone can argue about future revenue, and some people will buy the dream.

Since the peak on August 6, 2021, we have seen a general decline in the price, with rallies at times. It is possible that following an 8% rise in one day we will see another significant rally. If I were trying to convince you to buy the stock, I might point to the PE ratio of 4.6, which would seem to say the market is undervaluing Moderna’s earnings. I believe both past results and analyst projected earnings in this case are not good indicators of future profits. Feedback from everywhere is telling us that people, in America and elsewhere, have not been that interested in booster shots, and are not that interested in the improved, Omicron targeting booster either. I discussed this at more length in Moderna After the COVID Vaccine Bolus. However, there is plenty of room for argument about what the down slope will be. Another COVID scare this fall or winter, for instance, could renew interest in boosters. The other part of future earnings, which should affect the current stock price, is from pipeline mRNA vaccines and therapies other than COVID. I will address that issue below.

Approval of Children’s Vaccine v. Uptake Issue

It is certainly good news that the FDA authorized Moderna’s updated, bivalent version of its COVID vaccine for children as young as 6 years old. I recommend everyone take the vaccines given the low downside risk, the protection against the high downside risks of COVID infections for individuals, and the public good from keeping the spread of the virus to a minimum. Despite that, I do not expect much uptake of the COVID booster this fall at any age level. Even those most at risk, people over 70, seem to have booster fatigue. Most urban areas have high coverage rates for the original shots required for full vaccination. According to the New York Times article Covid Boosters, these days people under 50 rarely die or are even hospitalized if they catch COVID. Severe illness is mainly a problem for people with preexisting medical problems. Only about half of adults have received a booster shot.

MRK collaboration

The other recent news is the Merck (MRK) cancer vaccine option exercise announced October 12, 2022. This goes back to the original 2016 option agreement for Moderna’s mRNA-4157/V940, which is being tested in combination with Keytruda in a Phase 2 melanoma trial conducted by Moderna. Merck is paying $250 million in cash to exercise its option on the vaccine. If Moderna had not made so much money these past two years on COVID, and needed cash to operate, the $250 million might seem like a bigger deal. Presumably, Merck is happy with the data so far from the Phase 2 trial, but presumably a Phase 3 trial will be necessary to get regulatory approval. The deal is for 50/50 sharing of costs and potential profits. Phase 2 data should be revealed to the public before the end of 2022. In terms of future revenue and profits, this shows the versatility of the mRNA therapeutic approach.

Future of mRNA and the Moderna Pipeline

The Moderna mRNA pipeline is already very broad. The most advanced, Phase 3, candidates are a flu vaccine, an RSV (respiratory syncytial virus) vaccine, and a CMV (cytomegalovirus) vaccine. Given their respiratory nature and the success of mRNA COVID vaccines, I would guess that the Phase 3 trials will be successful. So Moderna could be looking at significant revenues if these vaccines gain commercial acceptance. However, flu vaccines already exist, and sometimes being novel is not enough to gain a significant market share.

After the Phase 3 programs are considered, there are some Phase 2 programs, but mostly Phase 1 programs. A full analysis of Moderna might include an analysis of each program, estimating the number of potential patients, the price that might be charged, and the % chance that the program will pass all trials and gain approval from the FDA and other national regulators. Most approved therapies generate far less revenue than the COVID vaccine did in 2021, but then most do not have the world’s entire population as potential patients. I believe that as we get into the second half of this decade successful trials and regulatory approvals will stack up, so revenue may be able to keep up to or even exceed 2021 revenue of $18 billion. Note 2021 net income was $12.2 billion.

Conclusion

Moderna’s revenue per quarter peaked in Q4 2021 and I expect the downward trend to continue for Q3 2022 and then Q4 2022. Q3 results will likely be released on November 2, 2022, so that will be a reality check. The key to the stock price, however, is estimates of future revenue and earnings. Given the likelihood that COVID vaccine revenue will continue, at lower levels, at least into 2023, and that new vaccines could be approved in 2023 and 2024, I am reasonably optimistic. I also note that Moderna has plenty of cash, $18 billion at the end of Q2 2022. I think that accumulating Moderna at the present price will be likely to look very smart by 2030. Downside risks include Phase 3 trials producing unacceptable results and potential lack of uptake of vaccines that do get regulatory approval. I do not think those risks are high. At the closing price of $130.72 per share on October 12, 2022, I like Moderna. There is some higher price that would give me pause, say $160 per share, at least until we get some certainty on future revenue.

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