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Should Investors Buy Moderna Stock for Its Coronavirus Vaccine?

On the surface, Moderna (NASDAQ: MRNA) looks like a great growth stock backed by its coronavirus vaccine. And the biotech also has potential to use its messenger RNA technology to develop other vaccines in its pipeline.

But in this video from Motley Fool Live recorded on Nov. 23, Corinne Cardina, bureau chief of healthcare and cannabis, and Brian Orelli, Fool.com contributor, point out issues with Moderna's current valuation, especially compared to other biotechs that already have drugs on the market.

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Corinne Cardina: How about Moderna? What else is in Moderna's pipeline that if it can show proof of concept for mRNA vaccines, and it looks like it has, is that promising for some other things in its pipeline?

Brian Orelli: Yeah, definitely. I think it proves out the mRNA concept, that you can design an mRNA to express whatever protein you want, and then get it into cells and have it express those things. They have a CMV vaccine that affects mostly newborns that had positive phase 2 data in September and they're preparing to launch a Phase III clinical trial next year. They also have cancer vaccines that have enrolled their first patients in phase 2 expansion study for ovarian cancer.

Corinne Cardina: Yeah. Moderna's revenue, over the past few years, has mostly come from partnerships. Vertex has been a big partner. It does currently have four billion dollars in cash and investments, but I think investors will want to see that it can actually have recurring revenue once it launches products on the market, so that will be something to watch. What should potential investors know about Moderna as an investment and its overall strategy?

Brian Orelli: I think the big thing that investors should know is that it's really expensive. It's a $38 billion market cap. I pulled out a couple of drugmakers that are popular with Fools. Seattle Genetics, which now goes by Seagen (NASDAQ: SGEN), has three drugs on the market. It's a $31 billion market cap -- that gives it a price-to-sales ratio of 16. BioMarin (NASDAQ: BMRN), they have maybe four or five drugs, but they are smaller drugs. Their market cap is almost 14 billion, I guess a price-to-sales ratio of eight, and Exelixis (NASDAQ: EXEL), which has just two, but it's the same drug. It goes by to trade names and their market cap is only 5.8 billion and they have a price-to-sales ratio of 6.3.

We're going from 16 for Seattle Genetics, Seagen, because they're pegged for future growth. Two of their drugs have just recently been approved and so the investors are pricing in the future sales.

But Moderna has no drugs on the market and investors are already pricing in quite a bit of extra sales. I think, again, going back to my earlier thought, I think that whether Moderna is overpriced or underpriced right now, it depends on whether how long they can sell their coronavirus vaccines and whether it takes them to the next level. If they can sell it forever, then 38 billion is a reasonable [market cap], because if they're doing $5 billion in sales, that's only an 8 price-to-sales ratio. That's completely reasonable. That's in the BioMarin level and that'll give money to go get the next thing. If it's just a one and done, and it's $5 billion in sales and they don't sell anymore, now we're back down to zero. So I don't think that's a reasonable valuation for the company.

Corinne Cardina: Yeah. The stock is up more than 400% year-to-date, so valuation should definitely factor in to any investment decision for Moderna.

Brian Orelli, PhD and Corinne Cardina have no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Seagen. The Motley Fool recommends BioMarin Pharmaceutical and Exelixis. The Motley Fool has a disclosure policy.


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