It's been a couple of week now since SVB Leerink analyst Mani Foroohar cited worries about increased competition in the CVOID-19 vaccine race (200 vaccines in process, dozens in clinical trials), and mRNA-1273 lost "lead in clinical development" in deciding to downgrade Moderna (MRNA) stock to "underperform." A couple of weeks later... he's still not optimistic.
Foroohar explains that mRNA-1273 still appears like it will prove to be an effective vaccine against coronavirus. The FDA is looking for vaccines to prove 50% "vaccine efficacy" at a minimum before approving them for Emergency Use Authorization (EUA). mRNA-1273 looks likely to clear that bar easily, with efficacy percentages trending to exceed 60%, and perhaps rise as high as 75% or better "in a best case scenario."
How soon will we know for sure that mRNA-1273 makes the cut? Trial suspensions such as the one AstraZeneca suffered earlier this month when a patient in one of its Phase 3 trials suffered an adverse event could delay the process. But if all goes well, an initial "data readout" on the vaccine's efficacy could still arrive as early as November, assuming Moderna follows FDA recommendations to track patient outcomes for at least two months after receiving their second inoculation.
Of course, in addition to efficacy, there's also "durability" to consider. Foroohar notes that it is currently unknown whether immunity to the novel coronavirus, conferred by mRNA-1273, will be permanent or require periodic booster shots. In Moderna's opinion, notes the analyst, "there is reason to believe that ... COVID-19 reinfection may happen somewhat frequently." Recurrences may come with lower levels of intensity than in an initial infection, but even so, Moderna is anticipating that certain patients -- "healthcare workers, elderly patients, those with respiratory issues or immune compromised, etc" -- will require booster shots after initial inoculation "in the out years."
For patients hoping for a solution to coronavirus, this is certainly disappointing news, but for Moderna, the prospect of recurring booster shot revenues -- perhaps years-worth of such revenues -- to pay back its initial investment in developing mRNA-1273, would be a boon for the stock.
Even if this is the way things play out, however, Foroohar still doesn't think the stock is a "buy."
Why not? Although Foroohar gives mRNA-1273 a "high probability" of being eventually approved, the analyst's worries about competing vaccines -- Pfizer's and Johnson & Johnson's in particular -- intruding upon Moderna's market share continue to nag.
On average, analysts following Moderna predict the company will do as much as $4.7 billion in sales next year, and perhaps $6.6 billion in 2022 -- mostly from sales of mRNA-1273. At today's prices, that works out to a 5.6 times forward sales valuation on Moderna stock (a 17% premium to Johnson & Johnson stock, for example, and a 37% premium to Pfizer). For the stock to rise much higher, Moderna would probably need to produce more sales. But "[we] don't see a clear path to above-consensus sales in the first quarters of launch," warns Foroohar.
For that matter, even assuming a huge revenue windfall once the vaccine is approved, followed by recurring revenues thereafter, Foroohar says he can't even see a clear path to Moderna even reaching, much less exceeding, consensus estimates "in the medium or long term even with rosy assumptions," given the competition mRNA-1273 is likely to face.
Simply put, therefore, as bright as Moderna's prospects appear, they're still not bright enough to justify the valuation -- and so Foroohar is forced to conclude that this stock is a sell. The analyst maintained his bearish stance on MRNA with a $41 price target, which implies a 40% downside from current levels. (To watch Foroohar's track record, click here)
Other analysts might have to seriously disagree with Foroohar. The Street considers MRNA a Moderate Buy. According to TipRanks analytics, out of 14 analysts who cover the stock, 11 are bullish, 2 remain neutral, and only Foroohar is bearish. Meanwhile, the consensus price target stands at $91.86, showing a 32% upside from the current cost of a share. (See MRNA stock analysis on TipRanks)
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