It seems almost everyone is talking Modern (NASDAQ: MRNA). The rapid progress of biotechnology in advancing its COVID-19 vaccine in clinical studies has been impressive. So has the performance of its shares: Moderna’s shares have more than tripled so far this year.
After such a massive gain, some investors might be wary of getting Moderna stock now. But is it really too late to buy biotech stocks? I do not think so.
Crunching the numbers
Moderna’s market capitalization is now around $ 23 billion, a staggering level for a company with no approved product for sale. You won’t find a commonly used valuation metric that tells you that stocks are a good choice. However, those valuation metrics should be thrown out the window with a biotech like Modern anyway.
Instead, we need to assess the potential of the company. In particular, we must analyze the prospects for the Moderna candidate for the COVID-19 messenger RNA (mRNA) vaccine. Some see Moderna as the leader in the race to develop a COVID-19 vaccine. It wouldn’t go that far, but biotechnology is indisputably one of the leaders.
Suppose Moderna’s COVID-19 vaccine is successful and gets regulatory approvals in the US and other major markets. If the company could price its coronavirus vaccine similarly to the flu vaccines currently on the market, its list price would likely be at the stage of at least $ 40. If we also assume that they would be administered at least With 2 billion doses of the vaccine per year, Moderna could be seeking annual revenue of $ 80 billion.
That kind of revenue projection makes Moderna’s current market capitalization seem downright cheap. However, those assumptions are also probably overly optimistic. Johnson and Johnson He has hinted that he could sell his COVID-19 vaccine for $ 10 per dose if it is approved. And there is a good chance that multiple vaccines will succeed, fragmenting the market.
It is better to be more conservative in our calculation of numbers. However, if we use J & J’s $ 10 price and a billion doses per year in our calculations (which seems possible considering the world population is close to 8 billion), that would total $ 10 billion in Potential annual income for Moderna for its COVID -19 vaccine.
The average price / sales ratio for biotech stocks in the first quarter of 2020 was 5.9. If we apply that ratio to Moderna’s potential sales of $ 10 billion, the stock could actually be worth almost $ 60 billion, almost three times the size of its current market capitalization.
A great guess
Of course, we are assuming that nothing will go wrong for Moderna’s COVID-19 vaccine program. The vaccine is currently in phase 2 testing. According to historical data compiled by the biopharmaceutical industry trade group BIO, the odds that a vaccine in phase 2 clinical trials will eventually be approved by the FDA are less than 1 in 4.
Keep in mind, however, that Moderna already received clearance from the FDA to start a phase 3 clinical trial of its COVID-19 vaccine in July. A significant safety issue or disappointingly low efficacy results in the company’s phase 2 study could derail its plans to start testing late-stage next month. But, for now, it is at full steam ahead. Advancing to phase 3 is an important step: the chances of obtaining FDA approval increase to almost 3 in 4 for vaccines in advanced stage clinical studies.
There is also another major implication of our assumption that Moderna’s COVID-19 will succeed. The mRNA therapies are not tested at this time. If Moderna shows that its mRNA vaccine to immunize against the new coronavirus is safe and effective, investor ratings of the other 14 biotech mRNA candidates in clinical trials are likely to increase significantly.
Better late than never?
Moderna’s COVID-19 vaccine candidate may still stumble. But each day that passes without serious problems in clinical trials improves the chances that you will not.
Sure, expectations for tremendous sales growth are incorporated into Moderna’s share price. However, I don’t think the current biotechnology assessment fully reflects the real potential of your COVID-19 vaccine, even if other vaccines are successful. As long as there is no high yield with your coronavirus vaccine, my opinion is that it is by no means too late to buy shares of Moderna.