Moderna (NASDAQ:MRNA) has arguably priced in the medium-term proceeds from its vaccine for the novel coronavirus. But Moderna stock does not yet appear to reflect the potential of its other vaccines under development, the promising drugs it can acquire in the future, or its own status as a potential takeover target.
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Of course Moderna’s vaccine, MRNA-1273, recently won emergency-use approval (EUA) from the FDA. Moreover, Moderna’s vaccine generated excellent efficacy and safety data in its Phase 3 trial, and, along with the vaccine produced by Pfizer (NYSE:PFE) and Germany’s BioNTech (NASDAQ:BNTX), is a “first-mover” in the race to develop a vaccine for the coronavirus.
Assessing Valuation in the Medium-Term
Writing for Seeking Alpha, an analyst credibly estimates that Moderna will generate about $6.3 billion of profits in its fiscal 2021. If we accept that figure and spread those profits over three years, i.e 2021-2023, that’s $2.1 billion per year.
As of Dec. 16, the market capitalization of Moderna stock was $54.2 billion. So, based on my method of distributing next year’s estimated profit over three years, the shares are trading at a price-market capitalization ratio of less than 27. That’s really not very high for a company which has developed a very badly needed product and that, as we’ll see, has several vaccines, based on the same technology, at various stages of development for extremely widespread diseases.
On the other hand, skeptics can argue that, if the company’s revenue and profits wind up dropping tremendously after next year, it’s a high price to pay for the shares. But as I will show, that scenario is unlikely to materialize.
There seems to be some dispute among doctors as to whether vaccines for the coronavirus will be needed every year, like flu vaccines. NBC News medical reporter Dr. John Torres recently predicted that a vaccine would be needed only every “few years.” Conversely, UCHealth, a Colorado-based non-profit which owns multiple hospitals and clinics, reports that the answer to this question “is unknown. But it is possible it will end up becoming a seasonal vaccine similar to the flu shot.”
Let’s roughly split the difference and say that the vaccine winds up being required every two years. And, after the pandemic, we can stipulate that Moderna will raise the price of the vaccine to an average of $40 per person, from the current estimated $31, because, after the pandemic is over, it no longer will be as unseemly for the company to charge a higher amount for the shot. Assuming that there are multiple, competing vaccines are on the market, but Moderna’s first-user status gives it a leg up on much of the competition, I conservatively estimate that 150 million people worldwide will use the vaccine after 2021. So, based on my estimate of the need for a shot every other year, that’s 75 million shots annually for Moderna.
That works out to $3 billion of revenue per year. Let’s say the company’s expenses and taxes come to $1.2 billion per year. That leaves Moderna’s annual profit at $1.8 billion and makes Moderna stock, based on its current market capitalization, valued at 30 times the vaccine’s long-term earnings potential. That could be viewed as a little steep for a company that’s essentially a one-trick pony.
Many Other Ways to Generate Returns for Shareholders
But Moderna has many other ways to generate profits in the future besides its vaccine for the coronavirus. For one thing, it is likely to use its profits from the shot to acquire other, highly promising drug makers and drugs, some of which are likely to start generating strong revenue and profits sometime between 2025 and 2030.
Secondly, it has many other vaccines under development, and it’s important to keep in mind that the success of the company’s vaccine for the coronavirus has validated Moderna’s mRNA technology. Therefore, there’s an excellent chance that at least a few of these vaccines will also prove to be highly successful.
Moderna’s CEO, Stéphane Bancel, estimated on the company’s third-quarter conference call that its vaccine candidate for CMV, which is due to enter a Phase 3 trial in 2021 and utilizes mRNA , could potentially generate $2 billion to $5 billion of annual revenue.
Further, Moderna has many other vaccines in its pipeline, including two mRNA-based cancer vaccines on which it’s partnering with Merck (NYSE:MRK). One of those vaccines appears to have entered a Phase 2 trial. It’s certainly a good sign that a huge pharmaceutical company like Merck was willing to partner with Moderna on these shots which could potentially be very lucrative.
Moderna is also developing two mRNA-based treatments for solid tumors, as well as a vaccine for the Epstein-Barr virus.
Finally, as I indicated earlier, the company can easily become a takeover target. I’m sure that multiple, large pharmaceutical firms would like to have a subsidiary that has a high amount of recurring revenue and many promising vaccines in the pipeline.
The Bottom Line on Moderna Stock
Given Moderna’s many ways to create additional value for its shareholders going forward, I recommend that investors buy the shares.
On the date of publication, Larry Ramer held a long position in Moderna.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.