Is Moderna Stock Overvalued?

Is Moderna Stock Overvalued? The race for a COVID-19 vaccine is on, and companies around the world are competing to produce a safe, effective solution by the end of 2020. More than 165 distinct vaccine candidates are in various stages of the development process, with 32 in the human trial phase.

Biotech analysts believe that the first to the finish line will generate almost limitless revenue.  But getting a vaccine to market is usually a lengthy process, requiring between ten and fifteen years from start to finish.

Before COVID-19 caused unprecedented economic damage, the fastest a vaccine had been produced was four years. That example dates back to the 1960s, when scientists were in search of a reliable preventative measure against the mumps. 

That puts COVID-19 vaccine development into context, as any vaccine that is ready for market by the end of 2020 or the beginning of 2021 would be far and away the fastest of all time.

When COVID-19 was first identified, disease experts said an effective vaccine before 18 months was simply not possible, but it appears that several biotechs intend to prove those experts wrong. 

Moderna has one of the most promising vaccine candidates, and it appears the product could be ready for widespread distribution by early next year. If successful, it is likely that sales will be exceptional, which means profit for the company and its shareholders. 

That potential for profit is reflected in Moderna’s current stock price, but some investors and analysts are questioning whether now is the time to buy. Is Moderna stock overvalued, or does it have more room to grow if or when it releases a COVID-19 vaccine to the national or international market?

How Does Moderna’s Vaccine Work? 

Moderna’s vaccine, currently referred to as mRNA-1273, is being developed in partnership with the National Institutes of Health. It uses an advanced technology to inject bits of the virus’s mRNA into human cells.

The method prevents disease, because the bits of genetic material teach the patient’s immune system to recognize and fight the virus. No mRNA vaccine has ever been approved for human use, so Moderna would be pioneering the practical application of this technology. 

At the end of July, Moderna announced that it was launching Phase III trials of the vaccine. While under normal circumstances, Phase III wouldn’t begin until Phase II trials were complete, given the urgency of the situation, the timeline has been compressed.

With that said, the Phase I and Phase II results that have been collected so far appear quite promising. Healthy patients treated with the vaccine are producing the antibodies and T-cell responses that researchers are seeking. 

Phase III will include 30,000 US test subjects, which offers the wider view of safety and effectiveness necessary for FDA approval. If all goes well, Moderna said that it has brought on the right partners to ensure production of 500 million doses per year.  

Why is Moderna Stock So High?

Prior to 2020, Moderna’s stock price history wasn’t particularly exciting. The company was founded in 2010, and held its IPO in December 2018.

On the first day of trading, shares closed at $18.60, and aside from some minor peaks and valleys in 2019, it stayed fairly steady. In fact, as of February 21, 2020, shares were valued at just $18.23. 

All of that changed when Moderna joined its peers in seeking a vaccine for the novel coronavirus. It saw some early success in the development process, which drove prices up quickly. In early April, shares topped $34 each, and by the end of May, they were trading at $69. The positive announcement around the company’s progress towards a vaccine pushed shares over $95 in late July.

The $95 high didn’t last long, and within a week, share prices dropped to around $74. However, investors saw the sorts of increases that might be coming if Moderna announces it is ready to begin large-scale production and distribution of a vaccine. That has many wondering – is Moderna stock a buy?

Risks of Buying Moderna Stock

There is a reason why biotechs aren’t typically considered a smart choice for conservative investors. Their revenues depend on successfully developing new solutions to deeply complex problems.

It’s common for drug candidates to fail – even in late-stage trials. Many biotechs have had devastating defeats during the last step of the process. It is discovered that the product doesn’t work as expected, or worse, that it causes serious side effects in patients. 

Though Moderna’s COVID-19 vaccine looks promising, it is not immune to this risk. Even after production starts, it’s not out of the question that dangers will be discovered and the drug discontinued, given the speed at which it was developed. Investors take on the risk of catastrophic failure when buying Moderna stock, so caution is warranted for those who can’t afford a substantial loss.

Moderna Competition Is Steep

A second risk that Moderna investors should be highly attuned to is the possibility that one of Moderna’s competitors will get to the finish line first.

This wouldn’t necessarily change the course of Moderna’s production plans, depending on the cost and quality of the computing product, but it is likely to diminish the potential value that a successful Moderna vaccine would deliver to investors. 

The most important competitor to watch is Pfizer, which is partnering with BioNTech. The Pfizer vaccine is using technology similar to Moderna’s, and it has a big advantage over its rival. Pfizer has already signed a $2 billion contract with the US government to deliver 100 million doses of vaccine by December 2020. Of course, the product isn’t ready yet, but if Pfizer can deliver, it will leave Moderna far behind.

Is Moderna Stock Overvalued?

The third – and perhaps most practical – risk that Moderna investors face is the fact that a successful vaccine might not generate impressive profits after all.

Keep in mind that the US government made large financial contributions towards the development of these vaccines, which means when the time comes to buy finished product back for public use, the price can’t be unreasonable. 

Analysts estimate that Moderna’s vaccine will be priced around $15 per dose. If each patient gets two doses, that’s a total of $30 per person. Other companies are offering estimates of $20 – $42 per person.

At that price, some industry experts predict that a COVID-19 vaccine would add no more than $5 per year to Moderna’s EPS in the next 24 months. Given those figures, Moderna shares were most certainly overvalued in late July, and they may still be overvalued today. 

The Bottom Line: Is Moderna Stock a Buy?

With the amount of risk involved in a Moderna investment, this stock isn’t right for every portfolio. Investors prepared to take on risk in exchange for potentially substantial rewards might want to buy in now.

Those who are unable or unwilling to see the value of their portfolio drop would be better served by diversifying.

This can be accomplished by purchasing shares of several companies in the late stages of COVID-19 development. Alternatively, cautious investors can buy ETFs or other funds that include biotechs in the mix. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.