Not Your Hot-Tip-From-Your-Brother-In-Law Biotech Stock

Over the span of a couple of years, ModernaMRNA
sprang from a relatively obscure biotech company known by relatively few to global fame and fortune, given the spectacular success in the efficacy and distribution of its Covid-19 vaccine.

No doubt, helping save the planet had its rewards. Believe it or not, Moderna saw adjusted EPS soar to $28.29 in 2021, up from losses of $1.55 and $1.96 in 2019 and 2020. Revenue also exploded, jumping from $60 million in 2019 to $803 million in 2020 to $18.5 billion in 2021.

Incredibly, the stock rocketed more than 25-fold from $19 at the end of 2019 to as high as $480 in 2021, thanks to the sensational top- and bottom-line results, but the shares have since beat a hasty retreat, skidding more than 60% from their peak, even as revenue is expected to hit $21.9 billion this year with adjusted EPS eclipsing $26, not too shabby for a stock trading near $170.

Of course, demand for Covid-19 vaccines and booster shots has waned, with the summer typically seeing slower spread of the coronavirus. But the heat-wave much of the country is now experiencing will eventually give way to fall and winter, with folks spending much more time indoors, enabling the easier spread of viruses.

While I am not suggesting that Moderna will continue to reap massive rewards from Covid-19, I think fickle biotech investors are not giving the company enough credit for the science behind its coronavirus vaccine.

Moderna CEO Stephane Bancel recently said, “We have a unique mRNA platform, enabling the generation at unprecedented speed of innovative medicine. We have a strong team of 3,400 mission-driven employees. We have $18 billion of cash on our balance sheet and with a strong commercial momentum. We have no intention of slowing down our growth. We are putting our head down and doing the work. I have never been as excited about the future of Moderna. Now is not the time to slow down, patients are waiting for innovative medicine.”

The $18 billion cash hoard on the books ought to also allay one of biotech investors biggest concerns – dilution. Indeed, management has been a net buyer of shares over the past year (purchasing 9 million shares for $1.3 billion in the second quarter) while the board recently approved an additional buyback program worth another $3 billion.

To be sure, Moderna lacks the size and distribution capabilities possessed by several of its peers. Also, the challenges in producing revolutionary vaccines are numerous, as revenue from the Covid-19 drug is expected to fall dramatically in the coming years, even as sales in the second quarter came in 19% above Wall Street consensus estimates.

Nevertheless, the company has many pots on the stove, including a Monkeypox vaccine in a pre-clinical trial, with momentum in late-stage clinical trials for flu, RSV (Respiratory Syncytial Virus) and CMV (Cytomegalovirus) vaccinations. Goodwill and partnerships garnered throughout the pandemic should also prove valuable, and Covid-19 vaccine sales will not likely dry up overnight as many continue to seek annual boosters, and with efforts to develop combination shots underway.

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Given its unique mRNA platform, one might think of Moderna as equal parts Health Care and Technology. Investors may find success should even a handful of the company’s trials make it through to become marketable disease-fighting systems. And, most importantly, the cash hoard and inexpensive current valuation provide plenty of comfort for those of us with a value-investing bias.