A vaccine capable of safely protecting everyone from the new coronavirus would be an invaluable treasure. This simple connection has been picked up by hordes of investors who keep throwing money at companies with SARS-CoV-2 vaccine candidates in their plans.
Quickly moving a new vaccine candidate to an intermediate-stage clinical trial led Modern‘s (NASDAQ: MRNA) 230% higher share price this year. Unfortunately, this means that the stock has a long way to go if the company’s SARS-CoV-2 vaccine candidate, mRNA-1273, does not quickly become a huge success.
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Napkins numbers
Drug manufacturers almost never share pricing plans for new drugs until they have been approved for sale. That said, the price of the vaccine is much more predictable than new therapies targeting limited populations, and it seems likely between $ 10 and $ 40 per dose.
At recent prices, Moderna has an astronomical market capitalization of $ 23.5 billion that could explode quickly if the market loses confidence in the ability of mRNA-1273 to prevent transmission of the new coronavirus. To avoid big losses, investors who buy stocks with this inflated valuation need mRNA-1273 to do more than just succeed.
To justify its valuation, Moderna needs to successfully launch mRNA-1273 and maintain a leading market share. That is a tremendously difficult task when you consider that the Moderna candidate faces more competition than any vaccine in history. More than a dozen different SARS-CoV-2 vaccine candidates are already in clinical trials, and hundreds more are in earlier stages of development.
Biotech stocks are generally trading at multiples of a half digit of annual sales when investors can expect those sales to grow at a rapid rate. There is an external possibility that Moderna may sell one billion doses of its vaccine by the end of 2022. However, continuing with more than one hundred million annually is not reasonable.
Risk adjustment
The results of a phase 1 study with mRNA-1273 show that it was able to convince patients’ bodies to produce antibodies that are likely to inhibit the entry of the virus into host cells. This is a big problem, but it’s important to understand that human biology is so unpredictable that most of the time, antibodies produced in response to new vaccine candidates can’t do the job.
Image source: Getty Images.
Vaccine development is a risky undertaking even when companies use proven and true methods, but Moderna’s messenger RNA (mRNA) technology has yet to be proven. In November 2017, Moderna had already started phase 1 clinical trials with five candidate vaccines, and two of those trials were fully enrolled at the time.
Two and a half years later, Moderna has phase 2 data from a single trial with a vaccine candidate who hadn’t even started her first clinical trial in 2017: 1647 mRNA for the prevention of cytomegalovirus (CMV) infection. The volunteers treated with mRNA-1647 produced more antibodies than those treated with placebo, but Moderna has not yet told us if patients who received mRNA-1647 are less likely to contract CMV.
On average, one in four new drug candidates entering phase 2 testing get FDA approval, and that number gets much worse when adjusted for potential first-class drugs, such as mRNA-1273. After watching Moderna slowly walk its first five vaccine programs, we have to assume that mRNA-1273’s chances of success are much lower than the industry average.
Ultra risky bets
Would you bet on a final home run by a well-paid player in his twenties who hasn’t had a base hit yet? What if this bet is only paid out three to one at best?
If you can answer yes without hesitation, then Moderna’s shares may not be too risky for you to buy right now. If not, however, it’s probably best to watch this story unfold from a safe distance.
