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Sunday, July 3, 2022

Does This FDA Panel Vote Make Moderna a Buy?

Moderna (MRNA 5.73%) has been a leader in the coronavirus vaccine race from the start. It was the first to begin clinical trials of a vaccine candidate. And its COVID-19 vaccine launched second — just a couple of weeks after the one developed by Pfizer and BioNTech. But there’s one area where Moderna has been lagging behind, relatively speaking — the vaccination of children. The Food and Drug Administration has not yet authorized the Moderna vaccine to be administered to those under 18.

But, here, things are evolving. This week, an FDA advisory panel recommended the authorization of the shots for those 6 through 17, and also for those aged 6 months through 5 years. Moderna shares closed 5.7% higher Wednesday after the news came out late in the afternoon. But does this vote make Moderna a buy?

Billions of dollars in revenue

First, let’s consider where Moderna stood prior to this news. The biotech company has fully vaccinated more than 77 million Americans. That gives it the second-biggest share of the U.S. market after Pfizer. Worldwide, it is generating billions of dollars in revenue and profit every quarter from its coronavirus vaccine.

MRNA Net Income (Quarterly) data by YCharts

Of course, demand may wane as the pandemic evolves into an endemic situation. But there still should be opportunities to bring in significant revenue from the vaccine, and the one that looms largest is the booster market. Moderna is in the lead on that front now because it’s the company closest to commercialization with a potential omicron-specific booster. The company recently announced positive clinical trial data, and aims to bring its candidate — which targets both the omicron variant and the original coronavirus — to market for the fall vaccination campaign. The idea is that Moderna will be able to quickly update its booster every year to combat the most widely circulating variants.

Further down the road, Moderna aims to commercialize a combination shot for both coronavirus and seasonal flu. It’s shepherding that candidate through preclinical studies right now. That could be a good source of recurring revenue as it may prove attractive to a large share of the population that regularly gets an annual flu shot.

And, finally, Moderna isn’t just a coronavirus vaccine company. The biotech has 46 programs in development across many therapeutic areas. Three of those programs are in phase 3 studies — vaccines for cytomegalovirus, respiratory syncytial virus, and the flu. The time when the company has sources of revenue beyond the coronavirus program may not be too far off.

Cash to fund the pipeline

Meanwhile, Moderna’s vaccine sales have helped it pile up $19.3 billion in cash. That gives it the financial wherewithal to bring its programs through the development pipeline — or even acquire candidates or a company to accelerate growth.

So, the outlook for Moderna is bright — even if demand for COVID-19 vaccines drops off from the levels seen earlier in the pandemic.

Now, let’s consider the latest news. The FDA advisory committee has recommended that Moderna’s vaccine be approved for use in children. The FDA doesn’t have to follow an advisory committee’s advice — but it usually does. So, there’s reason to be optimistic. The FDA generally makes its decision soon after the panel votes.

This week’s panel vote is good news for Moderna and its shareholders. Anything that could result in more vaccine sales is positive. But this isn’t a make-it-or-break-it moment for the biotech, because the FDA authorized Pfizer’s vaccine for use in teens 12 to 15 in May 2021, and children 5 to 11 last fall. So, parents who most wanted to get their children vaccinated probably already got them the Pfizer shot.

Sharing the market with Pfizer

Moderna may have a bigger opportunity in vaccinating the youngest children. That’s because regulators haven’t yet authorized a vaccine for that group. Still, it likely will immediately share that market with Pfizer and BioNTech. (The FDA advisory committee this week recommended Pfizer’s vaccine for that age group, too.) 

And vaccine demand may not be huge. Only 18% of parents with a child under 5 say they plan to get them vaccinated for COVID-19 “right away” after the FDA authorizes it, according to a recent Kaiser Family Foundation survey.

So, sure, use in kids will add to Moderna’s revenue — but the gain may not be enormous. So I wouldn’t buy Moderna based on this week’s news. Instead, I would consider Moderna based on its overall picture. The company is adapting its coronavirus program to the evolution of the virus and the market. It’s got a strong pipeline of candidates beyond its COVID-19 program — and the cash to fund their development.

And then there’s its valuation. Moderna is trading at only 4.4 times forward earnings estimates. That’s down from a ratio of more than 16 last year. Of course, its earnings may eventually slip as vaccine demand declines. But if Moderna’s progress on its pipeline programs continues to go smoothly, that potential drop in earnings may not last long. That’s why Moderna looks like a bargain at today’s level.

Moderna’s arrival in the children’s vaccine market will be a plus — but there are plenty of other reasons to buy shares of this biotech company.


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