Modern (NASDAQ:MRNA) shares are down from $ 385 to $ 309 since Merck (NYSE:MRK) announced a pill that cuts the risk of hospitalization from COVID-19 in half.
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To be fair, even before the announcement, mRNA stocks had fallen off a cliff. It was trading at $ 456 on September 23. How is this possible?
Without the COVID-19 vaccine, Moderna is a small pharmaceutical company. Sales were $ 6.3 billion for the first six months of 2021. They were $ 803 million for all of 2020. They were $ 60 million for 2019.
But if you are selling stocks today based on this news, you are making a mistake.
I have been recommending MRNA stocks since late 2018, when it went public at $ 23.
As I wrote then, Moderna is less a pharmaceutical company than a system for drug discovery. Messenger RNA had already given Moderna an impressive portfolio of potential drugs in 2018. Today it includes dozens of compounds, including cancer vaccines, artificial hormones, and a treatment for heart disease.
It’s the potential of these drugs that made me call Moderna the “action of the decade” late last year. Success with its COVID-19 vaccine has given Moderna the money and capital to pursue all of these drugs. Before COVID, I needed the support of Merck and AstraZeneca (NYSE:AZN) to do this work, at the cost of some future rights.
As I wrote in May, most of Moderna’s product portfolio today consists of vaccines. These include flu shots, an Epstein-Barr disease vaccine, and even an HIV vaccine.
At the end of June, Moderna had nearly $ 8 billion in cash and short-term investments to get this work done.
Why the mRNA stock collapsed
Bears have their reasons. In the short term, these are good reasons.
Merck’s drug could reduce demand for Moderna’s COVID-19 vaccine. It is an oral medicine, a pill that you can take at the first sign of infection. If you have what is called a “mild” or “moderate” case, you will continue to suffer, but you will do it at home. If you get the vaccine, of course, you may not get COVID at all.
Moderna CEO Stephane Bancel has suggested the pandemic could end in 2022, but that means people continue to get vaccinated and boosted. That doesn’t mean that Moderna’s sales are falling off a cliff. It could mean that revenue slows from its current pace of roughly $ 20 billion per year.
Assuming the estimates are correct, Moderna’s current market capitalization of $ 134 billion is almost 7 times sales. Merck sells for just over 4 times sales and expects single-digit growth in 2022.
Then there is the fact that Moderna is no longer alone in the MRNA space.
BionTech (NASDAQ:BNTX), who developed what is known as the Pfizer (NYSE:PFE) vaccine, is now worth $ 60 billion. There are other startups. Most now have the support of larger companies such as Galaad (NASDAQ:BROWN), Glaxo SmithKline (NYSE:GSK), and Sanofi (NYSE:SNE).
The next time there is a race to develop something with Messenger RNA, Moderna will be just one player among many.
The bottom line
While I am bullish on Moderna and own stocks, I think the recent downdraft in stocks is justified. Based solely on the fundamentals, Moderna today is fully valued.
If you were a trader, you should have sold a month ago and launch plans to nibble again in a week or two.
But I am an investor. I don’t like to beat my possessions. I like to be in companies for several years. This is why I bought Moderna at $ 135 / share, because I believed in the long-term future of MRNA technology.
It is not about COVID. It is about DNA becoming a programming language and Moderna being at the forefront of that trend.
At the time of publication, Dana Blankenhorn was long at MRNA. The opinions expressed in this article are those of the author and are subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future, available on Amazon’s Kindle store. Write to [email protected] or tweet @danablankenhorn. Write a Substack newsletter, Facing the Future, covering technology, markets, and politics.