<p>Due to the new coronavirus pandemic, it is not surprising that many pharmaceutical companies have not only been able to survive but thrive during this black swan event. However, a large proportion of these so-called “coronavirus stocks” are speculative. Modern (NASDAQ: MRNA), however, is among the few that have significant credibility. As a result, the MRNA share increased by more than 68% during the year.
On closer inspection of the underlying company’s foundations, it is difficult not to get excited. First, Moderna uses a new technology that can promote the development of an effective vaccine against Covid-19. According to a report from MIT Sloan:
“Modern uses messenger RNA, which carries genetic information from DNA to ribosomes to produce proteins. Modern hijackers mRNA and use it to carry a copy of the virus’ genetic sequence, which calls for the production of antibodies to that virus. ”
Furthermore, MIT states that Moderna’s technology is also cost-effective. Of course, this is music to the ears of holders and potential buyers of MRNA shares.
If that was not enough, Moderna, together with pharmaceutical and healthcare giant Johnson & Johnson (NYSE: JNJ), signed an agreement with the US government in preparation for mass production of coronavirus vaccine. Obviously, with Covid-19 constantly in the news, the MRNA stock can jump higher if only for emotional reasons.
But is this enough evidence to consider Modern as an investment? I will discuss two advantages and two disadvantages, first with the skeptical side.
Con: Demand may fade, bringing MRNA layers to earth
As convincing as a Covid-19 vaccine sounds today, tomorrow, it may be a much less important issue. As time goes on, cases of coronavirus naturally decrease in growth. And when it fades completely, what’s the point of a vaccine?
Typically, skeptical analysts have warned of speculative drug companies tapping into creating a vaccine to deal with this virus. Of course, MRNA stocks are not what you would call a fly-by-night investment. Still, the question remains the same: will the virus still care about MRNA stocks, since the virus is no longer a crisis?
Also, when you consider the bigger picture, Covid-19 does not really justify a huge sense of urgency. Do not get me wrong – this is a very serious problem. But at the time of writing, we have almost two million cases worldwide. That is about 0.03% of the world’s population.
One of the messages that healthcare professionals emphasized early on is that most cases of Covid-19 involve mild symptoms. That has been true throughout this pandemic. Thus, the coronavirus share of MRNA stock is not contextually and economically pressing.
Con: Scale Is a Tricky Beast
For the sake of argument, let’s assume that the coronavirus mutates and becomes a much more powerful disease. Millions upon millions die, with the film Contagion becoming an all-too-real story. Would it move the needle for MRNA layers.
In this scenario, I would assume a significant increase in the immediate sentiment. However, scaling up a viable vaccine has always been a problem, even without the pressure of a health-related apocalypse. According to a Reuters report, Johnson & Johnson has a manufacturing facility in the Netherlands that could theoretically pump out 300 million doses of a possible coronavirus vaccine.
But the company’s Chief Scientific Officer Dr. Paul Stoffels stated that this capacity “will definitely not be enough for the world.” Therefore, Dr Stoffels is focusing on an early time frame in 2021 for the production of mass vaccines.
While Moderna claims that they can scale very quickly, investors should make clearly biased statements with a grain of salt. It is difficult for companies like 3M (NYSE: MMM) to make sufficient amounts of N95 face masks.
I guess vaccine production is a little more complicated.
Pro: Covid-19 remains an annoying problem
One of the recurring themes in this pandemic is that many governments failed to take this crisis seriously. For example, when cases of infection in China got out of control, all nations should have closed their borders.
Yes I understand it. That is not politically correct. But we could have saved many lives with such measures.
Anyway, we are where we are – no point in crying over spilled milk. But partly due to the delayed reactions in the international community, we have time-delayed cases of coronavirus.
China, Western Europe and the United States are now beginning to flatten their infection curves. But other countries, such as the BRICS countries – Brazil, Russia, India, (China) and South Africa, still suffer from noticeable increases in infections.
(A brief note – the figures in South Africa are probably incorrect.)
To me, this signals that the BRICS and other developing countries will still need help after Western countries have overcome the worst of their cases. Therefore, MRNA shares may have a longer demand.
Pro: Modern technology is what matters
Although bearish analysts have the right to criticize any pharmaceutical company’s focus on Covid-19, for MRNA stocks, the emphasis is certainly not on coronavirus. Instead, it is the underlying technology.
In many years, we may be hit by a new pandemic. As Moderna continues to develop its mRNA innovation, it can potentially respond more quickly. This is particularly important because economies around the world have already set a precedent: they will be shut down when needed to save lives.
In addition, China, where the coronavirus originates, is experiencing an increase in cases. Worryingly, the growth rate in daily cases after the threshold of 81,000 cases has steadily increased since the beginning of April.
Now it is too early to say for sure whether Covid-19 will hit China for a second big wave. But it shows that you can never be too careful.
Josh Enomoto, a former senior business analyst at Sony Electronics, has helped broker larger contracts with Fortune Global 500 companies. In recent years, he has delivered unique, critical insights for the investment markets, as well as for various other industries, including law, construction management and healthcare. At the time of writing, he had no position in any of the above-mentioned securities.