INVESTMENT THESIS
Moderna Inc. (NYSE: MRNA) following the announcement of continued progress on its COVID-19 vaccine candidate. The company is a clinical stage biotech company that develops therapeutics and vaccines based on messenger RNA for the treatment of infectious and cardiovascular diseases, rare diseases, immunological conditions, and cancer. Moderna is one of five firms selected to develop a COVID-19 vaccine under the U.S. government’s ‘Operation Warp Speed’ program. Its coronavirus vaccine candidate is currently in a Phase 3 clinical trial analyzing its ability to prevent infection, with more than two months of follow-up data recently showing 94.1% effectiveness against the virus and 100% effectiveness in preventing severe COVID-19. Given this recent data, Moderna now plans to request a EUA from the FDA, with the FDA planning to hold an advisory committee meeting for mRNA-1273 on December 17, 2020. The company has also reached agreements with multiple governments across the globe to provide initial doses of mRNA-1273 upon its regulatory approval, including 100 million doses for the U.S., 80 million for the European Union, 50 million for Japan, 20 million for Canada, and 7 million for the UK, among others. Though we don’t expect profits this year, we see potential EPS of $3.80 in 2021.
RECENT DEVELOPMENTS
Moderna began trading as a public company on December 6, 2018 at $23 per share. Since the IPO, the shares have climbed 580%.
While data continues to be collected, the data supporting the recent announcement is based on more than two months of median follow-up post vaccination, exceeding the requirements set by the FDA for an Emergency Use Authorization (EUA). The mRNA-1273 vaccine is a finalist in the government’s ‘Operation arp Speed’ program to bring a vaccine to market. Upon its availability, mRNA-1273 will be made available to Americans at no cost, although healthcare professionals may charge for administering the vaccine.
– Moderna has also announced regulatory developments for mRNA-1273. Along with the company’s November 30 announcement regarding the effectiveness of its vaccine candidate, Moderna also announced that it plans to request a EUA from the FDA and apply for a conditional marketing authorization with the European Medicines Agency. The FDA has told the company to expect an advisory committee meeting for mRNA-1273 on December 17, 2020. Earlier in the month, on November 17, the European Medicines Agency started a rolling review process for mRNA-1273, allowing the agency to begin an independent assessment of the vaccine candidate. Given the rolling nature of the review, EMA will continue to accept new evidence as it becomes available, reducing the potential time to authorization. The EMA announcement follows the announcements of rolling reviews in Switzerland (on November 13), in the UK (October 27), and in Canada (October 13), which all cited positive results from Moderna’s preclinical viral challenge study and positive interim analysis of its Phase 1 study published in the New England Journal of Medicine.
– Moderna has reached supply agreements with multiple nations to provide its coronavirus vaccine candidate (mRNA-1273) upon regulatory approval. The agreements include an initial order of 7 million doses of the vaccine for the UK (announced November 29), 80 million doses for Europe (announced November 25), 50 million doses for Japan (announced October 29), 20 million doses for Canada (announced September 22), and an order of 100 million doses for the U.S. (announced August 11). The European Commission, U.S. Government, and Canadian contracts also provide the option for the governments to purchase additional doses of the vaccine candidate, specifically an additional 80 million, 400 million, and 36 million doses, respectively. Moderna has also reached a supply agreement for mRNA-1273 with Qatar, on October 26, although it did not specify how many doses would be delivered. In order to ensure the availability of its vaccine candidate, Moderna is working with strategic manufacturing partners Lonza and ROVI for manufacturing and fill-finish outside the U.S.
– Outside of its work on COVID-19, Moderna is developing vaccines for other unmet medical needs. The company is also conducting a Phase 2 study for a Cytomegalovirus vaccine (mRNA-1647), for which it expects to launch a Phase 3 trial in 2021. It has also completed enrollment for a Phase I study for a Zika virus vaccine (mRNA-1893) and is currently preparing for the Phase II trial of the vaccine.
– The company is also developing vaccines against respiratory and viral infections.
– In separate partnerships with Merck and AstraZeneca, Moderna is studying vaccines and treatments for several forms of cancer.
– Moderna has also announced collaborations to treat cystic fibrosis and pulmonary arterial hypertension (PAH) with Vertex and Chiesi Farmaceutici S.p.A., respectively.
EARNINGS & GROWTH ANALYSIS
As discussed in our last report, Moderna reported 3Q20 results that beat the market’s expectations on revenue, but misses on earnings. On October 29, the company reported that third-quarter revenue rose 826% to $158 million, beating the consensus estimate of $75 million. Conversely, the net loss expanded to $0.59 per share from $0.37 a year earlier, missing the consensus call for a net loss of $0.37 per share. R&D expense rose 188% to $344 million, while G&A expense rose 72% to $49 million. For the first three quarters of the year, total revenue rose 404% to $233 million, the net loss expanded 6% to $1.26 per share, R&D expense rose 62% to $611 million, and G&A expense rose 30% to $109 million.
The updated guidance includes $1.2 billion of customer deposits received as of September 30, 2020 for the potential supply of mRNA-1273. M oderna’s near-term earnings potential depends primarily on its ability to bring a COVID-19 vaccine to market. Here’s the timeline:
– Moderna began working with the U.S. National Institutes of Health on the development of a vaccine in January 2020 and produced the first batch of the mRNA-1273 vaccine on February 7. The FDA accepted the company’s IND application for mRNA-1273, and the NIH announced that the first participant had received the vaccine in a Phase 1 clinical study in mid-March. In late March, Moderna said that it would scale up its production capacity to manufacture millions of vaccine doses every month. In late April, Moderna submitted another IND to the FDA to launch Phase 2 trials; the FDA approved this IND as well. On November 16, it announced that interim analysis showed that the vaccine offered 94.5% effectiveness against COVID-19.
We expect the company to turn profitable in 2021, as it begins to sell mRNA-1273 and are raising our 2021 estimate to $3.80 from $3.00.
FINANCIAL STRENGTH & DIVIDEND
It has lots of cash ($4.0 billion including investments) and a minimal debt position ($212 million for a total debt/capital ratio of 7%). But the company is not yet profitable.
MANAGEMENT & RISKS
Stephane Bancel has been the company’s CEO since 2011. He joined Moderna after serving for five years as CEO of the French diagnostics company bioMerieux SA. MRNA investors face risks. For one thing, there is no guarantee that the mRNA-1273 vaccine will make it through FDA trials and into the marketplace. Development of the company’s vaccine has occurred in record time, much faster than for the typical vaccine, which takes years to develop and test before reaching the market. For another, Moderna is one of five firms competing in the ‘Operation Warp Speed’ vaccine development program, and other deep-pocketed firms are also pursuing similar products.
MRNA has yet to produce a profitable year in its more than two years as a public company.
VALUATION
On a fundamental basis, since the company is currently unprofitable, we look ahead to potential sales of its coronavirus vaccine, CMV vaccine, and cancer vaccines to value the stock. With a $50 billion market cap, products in development, and prospects for substantially higher sales and profits by 2024, Moderna falls into the ‘high-growth pharma’ category that includes Incyte Corp., Silk Road Medical, Emergent BioSolutions Inc., Illumina Inc., and Bio-Techne Corp. High-growth pharma contrasts with the big pharma group (primarily larger companies with high-yielding stocks) and with the small-cap biotech category (smaller startup firms that typically have no products on the market). Looking ahead, we are raising our target price to $200 per share from $88. We caution, however, that any unexpected negative developments for the coronavirus vaccine or other pipeline products could result in a sharp selloff. As such, we view MRNA as appropriate only for risk-tolerant investors as part of a diversified portfolio.
On November 30, BUY-rated MRNA closed at $152.74, up $25.71.
Source: Argus
