On Dec 7, 2018, the biotech sector saw its largest ever IPO when Moderna, Inc. (MRNA – Research Report) debuted on the NASDAQ index. The company researches mRNA technology as a base for new medications. Its initial offering was successful by any measure; over 26 million shares of common stock were issued at $23 and brought in more than $600 million in new capital. We’ll dig into the TipRanks database to track the stock performance, and then see what the analysts think of MRNA.
The impressive opening was followed by some mixed messages. First, while MRNA stock opened at $23 per share, on Dec 26, it reached bottom at $13.52. As the market bounced back, so has MRNA, and it is now trading at slightly more than $16.
Next, on Jan 2, market analysts began coverage of the company. Their reviews saw both bearish and bullish indicators, and the price targets ranged from $20 to $29.
Is Moderna Overvalued?
On the bear end, Cory Kasimov (Track Record & Ratings), from JPMorgan, wrote, “The company’s unprecedented valuation has been a sticking point.”
So why the overvaluation? That question is not so easy to answer. While laying out the case for the bulls, Needham’s Alan Carr (Track Record & Ratings), touched on an important factor: “Moderna is leveraging an mRNA drug/ drug delivery platform to generate an extensive pipeline across oncology, infectious diseases, cardiology, and rare diseases. The company and collaborators have generated preclinical and clinical proof of concept of the technology and we expect the first Moderna mRNA drug to reach the market around 2024.”
A Closer Look at Moderna’s Valuation
A look at both analysts’ logic will give some insight into MRNA’s high valuation.
First, Kasimov is at least partly right in his belief that Moderna is overvalued. The company’s total valuation after the IPO was near $7.4 billion. Most of Moderna’s research pipeline is still at a very early stage. While the company has 20 programs in preclinical development or Phase 1 testing, only one has reached the Phase 2 stage. Most pharmaceutical companies at such an early stage of development are valued in the range of $1.1 to $1.3 billion. Taking the stock’s performance to date into account, Moderna’s market cap comes in around $5.5 billion – or about three and a half times the ‘expected’ value.
A Research Pipeline with Promise
At the same time, Moderna does have over 20 research programs in the pipeline. As Oppenheimer’s Leah Rush Cann (Track Record & Ratings) pointed out, this is “an unprecedented number during this time frame for any biotech company previously.”
Not only does Moderna have a huge pipeline, but the company’s research approach is both novel and promising: Moderna aims to tailor specific mRNA molecules (the genetic ‘messenger’ material that translates DNA instruction into complete proteins) to instruct the patient’s body to create therapeutic proteins that will treat specific medical conditions. If successful, this approach would treat disease at the cellular level – by using the affected cells’ own internal mechanisms to manufacture medicine.
mRNA research promises treatment for a wide variety of conditions, and Moderna’s research pipeline includes channels aimed at creating vaccines, cancer medications, auto-immune conditions, and cardiovascular diseases. While Moderna is not the only company working on mRNA’s pharmaceutical applications, it has made the greatest progress is the shortest time.
An Early-Stage Research Program
At this point, remember that Moderna’s work with mRNA is still in an early stage of research and testing. Yes, the company has an impressive number of programs, underlining the wide application potential of mRNA-based drugs, but none of those products have been reviewed or approved by government regulatory agencies, and such approval is not expected for at least another two to three years.
But when that happens, the opportunities are likely to bloom. Oppenheimer’s Leah Rush Cann (referenced above) continued from her previous quote by projecting Moderna’s revenue potential, on the assumption that the company can bring a product to market by 2024 and foresees up to $28 billion in annual profit by 2030. The numbers underscore both the long-term nature of biotech investments and the lucrative potential of a successful pharmaceutical niche.
Evaluating MRNA Shares
So what does all of this mean for Moderna’s stock? MRNA had that great opening last month, slipped with the rest of the markets, and has bounced partway back. Its current share price is $16.27, which taken with Cann’s estimates of potential profits makes this a cheap and attractive long-term position. This was also noted by JPMorgan’s Kasimov (referenced above), when he said, “While we acknowledge this is a long-term story, we believe weakness post-IPO presents a more enticing opportunity.” Kasimov gave MRNA a $22 price target, suggesting a 35% upside potential to the stock.
From Barclay’s, Geoff Meacham (Track Record & Ratings) agrees, also setting a $20 price target and saying, “It gives investors a chance to get in now before more data from clinical trials read out.”
Leah Rush Cann, who sees multi-billion dollar possibilities in the research pipeline, set a $27 target, with her ‘buy’ rating, giving the stock a 66% upside. MRNA’s highest price target, of $29, comes from Matthew Harrison (Track Record & Ratings) of Morgan Stanley.
MRNA’s average price target is $24.38, giving the stock a 49% upside. The analyst consensus of ‘Strong Buy’ reflects the general conviction that MRNA is a low-cost stock with the promise of lucrative future returns – a true long-term investment.
See MRNA Price Target and Analyst Ratings Detail
Update!
Moderna announced a series of new developments, in the hours since we published this post. Stay tuned to our blog – we’ll cover their announcements and the stock’s reaction.
Enjoy the Research Report on the Stock in this Article:
Moderna, Inc. (MRNA) Research Report
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