Moderna and the Coronavirus Vaccine Thesis
It’s on the cover of every magazine, on the headline of every newspaper. People can’t stop talking about it, and frankly, we’re getting sick and tired of hearing about it. That’s right, we’re talking, of course, about The Bachelor’s wild finale yesterday, where Peter’s love triangle turned into a messy happily ever after. Absolutely riveting stuff, but enough about Pete being hopelessly in love with two different women. Today, we want to talk about something more relevant to mankind – the “C-word.” Could this possibly explain why Moderna (MRNA) is charging forward in the face of a market that’s presently getting decimated?
Back in 2018, we suggested dollar-cost-averaging into some Moderna stock following their IPO. (As every MBA knows, always remind people about your good calls, and conveniently forget every bad call you’ve ever made.) If you happened to pick up some shares of Moderna back then, you might be wondering what all the hype is about. For example, the Motley Fool published a piece yesterday titled Will Moderna Make a Fortune Off Its Coronavirus Vaccine? which finishes with some hard-hitting advice from the author:
I think Moderna and its COVID-19 vaccine have a pretty good chance of being successful. Even if there ends up being some competition, assuming the COVID-19 outbreak doesn’t completely disappear by next year, there will likely still be plenty of demand for this particular vaccine.
That’s the whole “proceed with cautious optimism” stuff that is anything but actionable. Today, we want to get down to brass tacks – just the facts ma’am.
Moderna is dabbling in an area that’s broadly referred to as “RNA-therapeutics,” and they describe their technology in big terms like “the software of life”. In our last piece on the company, we talked about how their large pipeline and impressive pharma partnerships helped debut the biggest biotech IPO in U.S. history back in 2018. Developing vaccines isn’t something new for Moderna, and they previously stated at the time of their IPO that “our global health portfolio for prophylactic vaccines seeks to leverage our mRNA technology to address epidemic and pandemic diseases.” (Must have been some head-nodding in the Moderna boardroom this afternoon.) At the time of their IPO they had nine vaccine programs, seven of which had entered into clinical trials. In other words, developing vaccines is one of the main things Moderna does.
Moderna and a Coronavirus Vaccine
Whenever you have a topic that’s driven by emotion – fear in this case – you need to seek some ground truth. In the case of Moderna, simply pay attention to what the company is saying. More specifically, pay attention to what Moderna tells the SEC. For example, here’s the last thing they told the SEC on March 4th:
The Company confirmed that the U.S. Food and Drug Administration has completed its review of the Investigational New Drug application for mRNA-1273, the Company’s potential vaccine for SARS-CoV-2, and allowed it to proceed to the clinic (as announced on March 3, 2020 by Health and Human Services Secretary Alex Azar). On February 24, 2020, the first clinical batch of mRNA-1273 was shipped to and received by the NIH for use in the Phase 1 clinical trial.
That right there is the most up to date information that’s been provided. However, we can also look at earlier filings to see what else was said – like their Feb 27th 10-K quarterly filing.
In collaboration with the VRC, we are developing an mRNA-based vaccine designed to express the coronavirus Spike (S) protein based on the genomic sequence of SARS-CoV-2. On January 13, 2020, the NIH and our infectious disease research team finalized the sequence for the SARS-CoV-2 vaccine and we mobilized toward clinical manufacture.
Looks like they’re working with the experts – the Dale and Betty Bumpers Vaccine Research Center (VRC) at the National Institutes of Health (NIH). On January 13, 2020, they finished sequencing the virus, so they know its recipe. They’re developing a vaccine, mRNA-1273, which would provide an immunity to the coronavirus for people in the same way that we get vaccinated for influenza. On page 60 of the 10-K, they talk about having tested the vaccine on rabbits for Middle East Respiratory Syndrome (“MERS”). They vaccinated the rabbits, and then challenged them 42 days later with MERS. Things apparently went well.
We have demonstrated the ability to induce neutralizing antibodies that confer protection against viral challenge with a related coronavirus, MERS.
They’ve also included this nifty chart which we decided to include, mainly because our editor said this graphic makes us appear more like experts, when in fact, we’re anything but.
Now, mRNA-1273 is moving to a Phase 1 clinical trial. And that’s where we’re at today.
Update 3/17/2019 – Here’s a link to the actual study that’s expected to show results by June 2021:
Try to put yourself in Moderna’s shoes. You’d probably be dropping everything to focus on mRNA-1273 given the potential impact it could have on the entire planet. That in itself is a big risk for the company.
Risks and Rewards
Moderna doesn’t need to be overly concerned about being held liable for damages since “a little-known deal protects drug companies in the U.S. from being sued,” something that an article by the Atlantic talked about last year stating:
Vaccines are produced by privately held pharmaceutical companies, but they have a unique arrangement with the U.S. government: When a person reports harm that could feasibly be related to a vaccine, a government program—not a pharmaceutical company—pays compensation.
From a shareholder’s perspective, this means lower risk. However, it doesn’t mean no risk. You can read all about the risks of their mRNA-1273 vaccine not working on page 160 of Moderna’s 10-K which includes the bog-standard: “Our development of the vaccine is in early stages, and we may be unable to produce a vaccine that successfully treats the virus in a timely manner, if at all.” There’s also the opportunity cost associated with dedicating all their resources to mRNA-1273. Even a successful vaccine is a risk, as the company mentions “a variety of U.S. government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program.” In other words, if the vaccine does work, government might step in, and not-so-good things might happen. Let’s also not forget about all the other companies out there developing vaccines.
On the other hand, the rewards could be huge. The aforementioned Motley Fool piece talked about how the CEO of Moderna said the vaccine – if successful – would be priced comparatively. In another article by the same author, he uses the pneumonia treatment, Prevnar 13, as a benchmark citing an average cost of around $240. Sticking with that number, if just one-quarter of U.S. citizens were vaccinated at that price point, Moderna would be raking in about $19.6 billion. Then you’d have to consider all the other people on the planet that might want some of that. If just 5% of the planet’s population received coronavirus vaccinations, you’d be talking just over $90 billion in revenues. (To put that number in perspective, Johnson & Johnson brought in just over $82 billion in 2019.)
To Buy or Not to Buy
Picking up shares in Moderna because of their work on a coronavirus vaccine is pure speculation because so little is known. If you had to make some observations about the stock price using technical analysis, you’d note that volume has increased significantly, yet today’s stock price still sits under the April 2019 high of just over $26 per share. Timing the market is a fool’s game, so you’re better off dollar-cost-averaging into a position that you plan to hold well into the future, regardless of the coronavirus vaccine outcome. Trying to play the short-term game with volatile stocks as a retail investor will not help you sleep well at night. As the famous American philosopher Mike Tyson once said, “everyone has a plan until they get punched in the mouth.” The moment that Moderna’s vaccine shows any sign of failure, the sheep will all run for the exit, and shares of Moderna will likely get slammed. Maybe that’s when you ought to consider really adding to your position. Until then, just proceed with cautious optimism.
When the masses start buying toilet paper like it’s going out of style, you can be sure there is some element of irrationality in the stock market as well. Instead of doing what everyone else does, consider stocks like Ecolab (ECL), a dividend champion we’ve owned for more than half a decade. Sure, their yield is a bit low at 1%, but they’ve managed to not only pay, but increase their dividend for 28 years in a row now. In the past ten years, they’ve increased their dividend by more than 12% per year on average. During 2018, they cleaned 40 billion hands, 800 million hotel rooms, and 6 million hospital rooms. We’re not doctors, but the prognosis for Ecolab in the face of coronavirus seems pretty positive.