Vaccine maker Moderna (MRNA) has seen its stock rise recently due to the broader market’s rally and stellar quarterly results that came in better than expected. Despite canceled orders from COVAX (COVID-19 Vaccine Global Access), Moderna stands by its original vaccine sales guidance. Vaccine demand could persist as new variants may pose a threat to the public, going forward. Undoubtedly, COVID-19 has been tough, but it’s not gone yet. Even when COVID-19 ends, Moderna could still thrive.
Regarding COVID-19, the rapid rate of mutation and seasonal surges could pave the way for many years worth of vaccine demand. That’s good news for Moderna’s business. However, COVID-19 remains the company’s single source of failure. This begs the question: what happens to Moderna once COVID-19 does end?
Moderna has an extensive non-COVID-related mRNA pipeline. Indeed, there’s a lot of promise in mRNA’s treatment of other diseases, including cancer.
Personalized cancer vaccines could show tremendous promise. However, such vaccines are still in the earlier trials and may be years away from full approval. While I wouldn’t discount the potential blockbusters in the Moderna pipeline, it’s hard to gauge what will hit and will miss.
Indeed, the biotechnology industry is full of hits and misses. In any case, I expect Moderna to continue to put its COVID-19 cash flows to good use while they last. Given so many uncertainties, I remain neutral on the stock.
Moderna Stock: Too Much Post-COVID-19 Risk Baked In?
I have no idea when COVID-19 vaccine demand will plunge to zero. Given the likelihood that this pandemic could persist for some time, there’s a real chance that Moderna’s COVID-19 cash cow may not be so quick to disappear. Currently, the 5.3x trailing earnings multiple suggests Moderna over-earned in the past and could be in a tough spot once COVID-19 vaccine demand gradually falls.
Unlike the more-diversified Pfizer (PFE), Moderna faces considerable downside if the pandemic ends and COVID-19 vaccine demand falls to zero. Moderna’s cash flow stream may be overly dependent on COVID-19. However, the pipeline is diversified and could start yielding intriguing products gradually over the coming years.
Further, like Pfizer, Moderna has been reinvesting heavily in its business to focus on the next big drug or treatment. With such expertise in mRNA technology, Moderna has the capacity to create even more revolutionary products to help combat various diseases. The timeline of when pipeline products will launch remains quite hazy. In an era of rising rates, investor patience for forward-looking growth stocks is at a low point.
In any case, I think COVID-19 boosters can hold up the fort until Moderna pulls the curtain on its next significant innovation. Make no mistake – Moderna is innovating at a rapid pace. It’s hard to gauge the magnitude of future cash flows at this juncture, given the nature of the industry and the fact that many of us haven’t heard of the company in the years leading up to 2020.
With around 29 mRNA clinical study candidates in development, the odds of something major coming from the pipeline over the next 10 years are high. At current valuations, such developments seem discounted by the market, with too much emphasis on the deterioration of the COVID-19 business.
Preparing for an Omicron Variant Surge
Omicron BA.4 and BA.5 variants are spreading and may be the source of a fall-season outbreak. Moderna is ready, with bivalent booster shots that show a superior antibody response against omicron variants. Come fall 2022, demand for such boosters could surge sharply depending on the severity of the next wave.
With new regulations allowing for younger people — Health Canada gave the green light for those between the ages of six and 11 to be vaccinated — to get boosters, the next wave could propel COVID-19 vaccine sales numbers at a higher-than-expected rate.
Indeed, Moderna remains upbeat on COVID-19 vaccine demand, and it may still be conservative by standing by its original full-year sales guidance of $21 billion.
Though more people may be willing to get the jab come fall and winter of 2022, other COVID-19 vaccine makers could begin to take share. Vaccine maker Novavax (NVAX) is an intriguing rival that could surprise to the upside, with the bar now lowered following the firm’s 50% haircut to its original revenue guidance. Further, Pfizer is gearing up for the next seasonal surge of COVID-19, with omicron-adapted deliveries coming in October.
Is MRNA Stock a Good Buy? Analysts Weigh In
Turning to Wall Street, MRNA stock comes in as a Moderate Buy. Out of 10 analyst ratings, there are four Buys, five Holds, and one Sell. The average Moderna price target is $217.89, implying upside potential of 27.3%. Analyst price targets range from a low of $74.00 per share to a high of $506.00 per share.
Conclusion: There’s Value for Long-Term Investors
Moderna stock looks to be stabilizing, with a recent 47% surge off its bottom in June. Though COVID-19 will continue to be a make or break for the stock, I think there’s value for long-term investors in looking to the firm’s innovative mRNA pipeline. It’s full of potential and could kick in well before the COVID-19 business sees sales fall to zero.
Given the nature of this pandemic, I don’t think the COVID-19 business will ever fall to zero. The world may have to live with the disease, with people having to roll up their sleeves every autumn.
