Moderna (MRNA) DD – Why a 60B Company is Still Undervalued

by LiftUni

*This will be my first DD post so let me know if you would like to hear about anything I didn’t touch on, or if you disagree on any particular points. Hopefully you find it useful!

Overview

This is going to be a long post, so I’m not going to waste your time by explaining who Moderna is. They’ve been in the news for the last year and everyone and their mother knows what they’ve accomplished. They (along with Pfizer/BioNTech) are the big dogs when it comes to COVID-19 vaccination in the U.S., and their dominance in the market will likely continue.

But Moderna isn’t just a COVID-19 vaccine company, as their CEO repeatedly stressed in their most recent earnings call. Moderna is a true pharmaceutical giant in the making. They are currently developing 24 different products ranging from viral vaccines, to treatments for autoimmune disease, to cancer and heart disease therapeutics.¹ The vast majority of these modalities are using mRNA technology to attempt to accomplish the desired effect. Not so coincidentally sharing the same name as Moderna’s ticker, mRNA technology is a relatively new modality that is just beginning to take hold as a game-changer in the biotech/pharma space. Let’s talk a little more about it so we can understand why it has the potential to create a major-shake up in the pharmaceutical industry.

History of mRNA Technology

mRNA was discovered in the 60’s in mice, but it wasn’t seriously considered for a possible therapeutic target until the 90’s. Various studies in vitro and in mice since this period have been done, demonstrating potential for the treatment of HIV, cancer, degenerative disease, autoimmune disease… I could go on. As we know, pharmaceuticals move slowly, and serious development of these products didn’t really take off until the 2010’s.²

Prior to December 2020, there were only two medications utilizing mRNA technology that have received FDA approval. Inotersan and Patisiran were both developed and FDA approved in 2018 to treat a rare hereditary condition called hATTR which involves pathologic deposition of amyloid into the tissues of those affected. Without going into too much detail, this condition has a mean survival time of 15 years after diagnosis and leads to significant patient morbidity and suffering in the interim. Inotersan is the more successful of the two drugs and looks to be potentially curative for some patients with a disease which used to be a death sentence. Routine imaging since the phase III trials for Inotersan shows little to no progression of the disease in most patients, laying out the possibility that these patients may live a normal life moving forward.³

With two more successful examples of mRNA technology being used in the COVID-19 vaccines, I expect that interest in the technology will skyrocket and subsequently so will funding and development.

First Mover’s Advantage

This will be a short section; Moderna is THE biggest player in developing mRNA therapeutics. There are other companies like BioNTech, CureVac, Gradalis, and Ionis, and of these only BioNTech (BNTX) can compete in sheer breadth of product development as well as having a history of success. For the sake of time I won’t address the other companies, but a key advantage that Moderna has over BioNTech is that they have moved more quickly through their clinical trials than BNTX has. Outside of COVID-19, Moderna currently has 4 products in Phase II trials (with their CMV vaccine moving to Phase III very soon), while BNTX only has 1.⁴ Long term I believe both of these companies will be highly successful, but Moderna is a more mature company that will be seeing the fruits of their labors more quickly than their competitor(s).

The Future of COVID-19 Vaccination, and Vaccination in General

Moderna currently has about 60% market share, distributing 40M of the 70M total doses the U.S. has received. I expect that number to drop slightly, but I would expect that Moderna ends up vaccinating approximately 40% of all Americans when it’s all said and done, with Pfizer vaccinating a large chunk of the rest. After that, Moderna will likely shift distribution to other countries and deliver on their agreements abroad.

“But what about NovaVax, J&J, and AstraZenica?” you might ask.

Without undercutting these companies and their potential, they are simply too late to the game in the U.S. to grab meaningful market share from Moderna and Pfizer.^5,6 Johnson and Johnson was just recommended for authorization yesterday (2/26/2021) and will likely begin distribution in the coming weeks, however they are only expected to deliver 100M vaccines by the end of June. Moderna will deliver 300M by July⁷, on top of the approximately 40M they have already delivered. The U.S. has agreed to purchase more than 1.2B doses of the vaccine from a number of companies, but much of that will go overseas after American citizens have received their 2 doses.

Moderna is establishing relationships and trust globally with the successful development and distribution of their COVID-19 vaccine, but why is this important? Let’s think back to what the CEO said in their recent earnings call – Moderna is NOT a COVID-19 company. Digging into their therapeutics pipeline, we can see mRNA candidates targeting Influenza, Cytomegalovirus, Nipah Virus, Respiratory Syncytial Virus, Epstein-Barr, Zika, Chikungunya… Relationships established during this pandemic will serve them well in the development and distribution of future vaccine candidates like those listed above.

WAIT there’s more: back in January, Moderna announced plans to create a combination Influenza/COVID-19 vaccine, with the possibility of adding more candidates to the mix if they were to receive approval. With the number of viruses that they are targeting, Moderna has the potential to become the leader in vaccination globally, period. Their ability to create combination vaccines targeting a host of common viruses could be the new standard in vaccination. Certain candidates like RSV, CMV, and EBV are likely to become standard vaccinations given in childhood like other vaccines we are familiar with such as MMR and Varicella.

The potential of this company in the vaccination industry is endless, and right now they are just scratching the surface.

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Future Revenue Projections – $18 Billion –> ???

During their most recent earnings call, Moderna reported that they have orders for their vaccine totaling $18 billion⁸, and they are expecting more orders throughout the year. The COVID vaccine market is likely to cool off a little after that, but experts currently predict that COVID-19 boosters will become a routine part of care in the future, likely needing a new dose every 2-3 years.⁹ Now this would likely represent a major hit to revenue if Moderna was just a COVID-19 vaccine company but once again, they are not.

Lets briefly talk about a virus you may have never heard of before – cytomegalovirus. Cytomegalovirus (CMV) is something you’ve likely had in the past and didn’t know it, so why is it a problem? Oddly enough, this seemingly benign little virus causes about 25,000 birth defects per year in the U.S. Globally, it is estimated that 1 in 1000 babies will be born with a birth defect due to CMV.

Currently there is no vaccine, but do you know who has the most promising candidate that is already enrolling participants for phase III trials? You guessed it – Moderna. The addressable market for this vaccine is conservatively estimated at $2-5 billion/year.¹⁰ I expect that if it is approved by the FDA that it will likely see global adoption and that revenue number is likely to be much higher.

Repeat the above for RSV, EBV, Zika, etc. and it is not hard to envision a company that is bringing in $30-50 billion a year in annual vaccination income alone. If they were to succeed in any of their more lofty quests to develop an HIV vaccine, or therapeutics for autoimmune hepatitis, or personalized cancer vaccines… the sky is the limit.

Justifying Current Valuation, and Then Some

Moderna’s current market cap is 62.16B. Their orders for 2021 currently exceed $18B with room to grow. The average revenue multiple for a biotech company is between 6-8x, and Moderna is trading at less than 4x. If you consider Moderna a pharmaceutical company, than the average multiple would be about 5x, still under.¹¹

I know we are looking at unrealized revenue with Moderna at this point, as that $18B will be earned throughout the year, so I understand that technically speaking they are still trading at an obscene P/S ratio compared to other more mature companies. However, I think it’s safe to say that demand for their product isn’t going away anytime this year and they have proven that they are able to execute and even exceed expectations when it comes to manufacturing and distributing their product.

Looking at their most recent earnings report for Q420 which was released on 2/25/21, their balance sheet is stellar. They are holding around $3B in cash from recent deposits, and they have almost no debt to speak of.

Simply put, they are undervalued at their current price. Without even factoring in the potential of everything else in their pipeline, they should be worth more as just a COVID-19 company with stellar financials and a relatively palatable multiple going into the later part of this year.

My personal price target: $220/share. With 396M outstanding shares, a $220 share price would place Moderna at $87B, which I believe to be a fair valuation through this year. This would represent a 4.8x multiple to their projected revenue in 2021. This represents a 41% increase in price from where Moderna is trading at currently which is ~$155/share.

Closing

Understand that this company has enormous potential for growth, but also potential to fail. Most pharmaceutical products fail in clinical trials before ever reaching market, and the same could be true for most if not all of Moderna’s pipeline. I personally believe that mRNA products have a higher chance of success than traditional therapeutics, but I’m not going to go into my reasoning for that in this post.

Every trade carries risk, and the risk with buying Moderna is that the market for COVID-19 vaccines shrinks as the world gradually develops herd immunity, the rest of their products fail in clinical trials, and they die a slow death without ever bringing another product to market. Nonetheless, I am confident and hopeful that this will not happen, and Moderna will become the next company to join the ranks of Merck, Novartis, Pfizer, and company as a true juggernaut of the biotech/pharma sector.

Disclosures: I own shares in Moderna, and I am considering buying leaps at some point next week. I am not a financial advisor, always do your own due diligence before investing in the market.

References

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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