<p>You have read the headlines. Warehouses around the world are hammering out concerns that the rapidly spreading coronavirus outbreak could cause a bigger hit in the global economy than previously expected. But not all stocks fall off a cliff. Instead, some “coronavirus stocks” actually accumulate as the virus spreads. Modern (NASDAQ: MRNA) is one such name.
Moderna is a clinical biotechnology company that uses messenger RNA (or mRNA) to develop treatments and vaccines.
The company is developing an mRNA-based vaccine for coronavirus. In just 42 days, Modern created mRNA-1273, a potential coronavirus vaccine. The vaccine has since been sent to US government researchers at the National Institute for Allergy and Infectious Diseases. Clinical trials of the vaccine will begin in April.
All this good news has led to a huge rally of MRNA stocks in recent weeks. So far this year, shares have increased by more than 43%.
In the long term, equities may increase further, but they will not jump in the short term.
Moderna is a fantastic company
Modern has great potential and is well positioned to do very well in the long run.
Modern is trying to harness the power of mRNA sequencing to develop a new class of drugs. That’s a good idea. By utilizing mRNA sequencing, the company can potentially develop robust, valuable drugs and vaccines. And Modern is the best thing in the world to do. See how fast it developed its potential coronavirus vaccine.
But that vaccine is really just a sideshow at this point. The long-term growth prospects for Moderna are less about coronavirus and more about the enormous potential of the mRNA-based vaccines that the company is developing for other conditions such as congenital cytomegalovirus (CMV).
CMV is a common infection and a leading cause of birth defects in the United States Approximately 0.65% of American newborns, or about 25,000 newborns per year, are infected with CMV. About 20% of newborns with CMV infection have a permanent disability. Between 10% and 30% of children with severe CMV disease will die during their first year of life.
It is obvious that CMV is a big problem. And there is currently no solution to the problem.
But Moderna has developed a potential CMV vaccine that has shown promising results and is in clinical development in late phase. The biggest sales of that vaccine, if approved, could amount to about $ 3.5 billion, with 50% before tax, according to the company.
That’s $ 1.75 billion in profit before tax. The company will not have to pay much tax as it will be able to deduct its operating losses from previous years. So it will have a net profit of $ 1.5 billion plus. Based on this gain and a multiple of the price trend of 12, which is the average for biotechnological stocks, Modern’s market value would be $ 18 billion if only one of its mRNA vaccines proves to be effective.
Its market value today is $ 10.3 billion.
Beware of Hype
In the short term, Moderna’s population looks beyond extension due to hype about its potential coronavirus vaccine.
The MRNA population has increased enormously almost exclusively due to its coronavirus vaccine. Before the company sent the first batch of its coronavirus vaccine to US health services, the Moderna share traded around $ 18. Just days after the company sent the first batch, the Moderna share plunged to $ 30.
It is obvious that hype about the vaccine drives the latest strength of the stock.
The problem is that this hype may not be sustainable. No one really knows if mRNA-1273 will protect humans against coronavirus. Even if it does, there is no guarantee that Modern will make a dime of it or that it will be used everywhere. This is mainly because it is unclear how companies will receive revenue from coronavirus vaccines, while many other biotechnology companies are also competing to find a vaccine.
Overall, the recent gains from the Moderna share seem to be exaggerated. Soon, hype about it is likely to drop. If it does, the stock looks susceptible to a significant withdrawal.
Conclusion on MRNA layer
Moderna is a fantastic company and MRNA shares will be a winner in the long run. But in the short term, its recent gains on the hype of its corona vaccine make the stock uninteresting now.
That hype will soon fade. When it does, the Moderna share will fall, which creates a good buying opportunity.
Luke Lango is a market analyst for InvestorPlace. He has professionally analyzed equities for several years, previously worked in various hedge funds and currently runs his own investment fund in San Diego. Luke is a Caltech graduate and has consistently received one of the world’s best stock pickers from various other analysts and platforms and has developed a reputation for using his technical background to identify growth stocks that provide outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based Internet company. At the time of writing, Luke Lango had no position in any of the above securities.