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Monday, August 10, 2020

Is it too late to buy Moderna shares?

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It seems that almost everyone is talking Modern (NASDAQ: MRNA). The rapid advances in biotechnology in advancing its COVID-19 vaccine in clinical studies have been impressive. The same goes for the performance of its shares: Moderna shares have more than tripled in value so far this year.

After such a massive gain, some investors may be reluctant to pick up Moderna shares now. But is it really too late to buy the biotechnology actions? I do not think so.

Hourglass and protective mask on top of silver

Image source: Getty Images.

Crunch the numbers

Moderna’s market capitalization is now around $ 23 billion, a staggering level for a company with no approved product to sell. You are not going to find a commonly used measurement that will tell you that action is a good choice. However, these assessment measures should be thrown out the window with a biotechnology like Moderna anyway.

Instead, we need to assess the potential of the business. In particular, we should examine the prospects for Moderna’s COVID-19 messenger RNA vaccine candidate. Some consider Moderna to be the leader in the race to develop a COVID-19 vaccine. I wouldn’t go that far, but biotechnology is undoubtedly one of the leaders.

Suppose Moderna’s COVID-19 vaccine is effective and wins regulatory approvals in the United States and other major markets. If the company were able to price its coronavirus vaccine in the same way as the flu vaccines currently on the market, its list price would likely be around $ 40. If we also assume that at least 2 billion doses of vaccine are administered per year, Moderna could consider annual revenues of $ 80 billion.

This type of income projection makes Moderna’s current market capitalization really cheap. However, these assumptions are also probably too rosy. Johnson & Johnson suggested that he could sell his COVID-19 vaccine for $ 10 per dose if approved. And there is a good chance that several vaccines will succeed, fragmenting the market.

It is better to be more conservative in our calculation of the figures. However, if we use the $ 10 price of J&J and 1 billion doses per year in our calculations (which seems feasible given that the world population is close to 8 billion), this would still represent $ 10 billion in annual revenue. potential for Moderna for its COVID. -19 vaccine.

The average price / sales ratio of biotechnology stocks in the first quarter of 2020 was 5.9. If we apply this 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 huge assumption

Of course, we assume that nothing will go wrong with Moderna’s COVID-19 vaccination program. The vaccine is currently in phase 2 testing. Based on historical data compiled by the biopharmaceutical industry trade group BIO, the chances of a vaccine in phase 2 clinical studies being eventually approved by the FDA are less than 1 in 4.

Keep in mind, however, that Moderna has already received FDA clearance to start a phase 3 clinical trial of its COVID-19 vaccine in July. A major safety concern or disappointing efficacy results in the company’s phase 2 study could derail plans to start advanced testing next month. But, for now, it’s all steam. Going to phase 3 is a major step: the chances of winning FDA approval increase to almost 3 in 4 for vaccines in advanced clinical studies.

There is also another huge implication of our assumption that Moderna’s COVID-19 will succeed. MRNA therapies are not proven at this time. If Moderna demonstrates that its mRNA vaccine for immunization against the new coronavirus is safe and effective, it is likely that the evaluation by investors of the other 14 candidates for biotechnology mRNA in clinical trials will increase considerably.

Better late than never?

Moderna’s COVID-19 vaccine candidate may still trip over. But every day that goes by without serious problems in clinical trials improves the chances of that not happening.

Of course, expectations of huge sales growth are built into Moderna’s share price. However, I don’t think the current assessment of biotechnology fully reflects the real potential of its COVID-19 vaccine – even if several other vaccines are successful. As long as there are no showstoppers with his coronavirus vaccine, I don’t think it’s too late to buy Moderna stock.

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