Is Modernas leap with mRNA jabs really worth $100 billion?
Just 18 months ago, Moderna Inc was an early-stage biotech firm working on a new way of making vaccines worth $6.5 billion. Today, having developed and delivered one of the fastest-arriving and most effective covid shots, its market value is approaching $100 billion. Some of the stocks 1,000% gain is clearly warranted. Wall Street analysts expect its vaccine, which uses new messenger-RNA technology, to net a historic $17.6 billion in revenue this year. But its valuation is now in the same league as drugmakers that, unlike Moderna with its one vaccine, have multiple marketed medicines. Holding the stock at this level requires particular assumptions about the pandemics future and a heroic tolerance for risk concentration. The big question for Moderna investors is how long covid vaccine sales will last. The market for first and second doses is shrinking each day and is starting to concentrate around developing nations, where prices are lower. The companys prospects rely heavily on booster shots aimed at providing extra protection should immunity from the initial round of vaccinations fade, as many expect. While mRNA vaccines will likely be the boosters of choice because of their efficacy and safety, its unclear how many people will get a Moderna top-up. Pfizer and BioNTech also make a highly effective mRNA vaccine. That helps explain why Wall Street estimates for Modernas 2021 sales range widely, from $13 billionwhich would represent a decline from this years consensus forecastto $22.2 billion. One can make a case for the higher range. Countries that use AstraZenecas vaccine or others that offer less protection may offer boosters just to be safe. The potentially dangerous combination of waning vaccine immunity and variant spread could lead to even broader uptake. Booster demand will be concentrated in wealthier nations, letting Moderna charge more and compensate for declining volume. And there would be an additional upside if variant-specific shots are required because Modernas adaptable technology and established manufacturing should give it an advantage in rolling out second-generation vaccines. But, at least for now, two mRNA doses appear to hold up against bad outcomes from the highly infectious delta variant first identified in India. So does Johnson & Johnsons single-shot vaccine, according to recently released data. Delta is driving a wave of infections in the heavily-vaccinated UK but relatively few hospitalizations so far, even with significant use of AstraZenecas shot. In addition, a recently published study suggests that mRNA vaccines generate a broad immune response that may last for years. So boosters could very well be delayed or limited to people who have weaker immune systems. A longer interval will allow potential competitors such as Novavax, Sanofi and GlaxoSmithKline to catch up. Given all this, the lower revenue scenario is a distinct possibility. Even if Modernas covid vaccine sales do not peak until next year, a decline is inevitable, and it could be steep. The companys lack of other revenue sources will magnify the reaction to any covid disappointment. Expectations for its drug pipeline are justifiably high after the success of its vaccine, but you can only hang so much of a $95 billion valuation on distant and unproven products. Modernas most advanced non-covid project, a cytomegalovirus vaccine (to protect against a virus thats harmless to most but can cause birth defects if passed from a mother to her unborn child), will only begin a final-stage trial this year. Recent pharma history shows what can happen to rich valuations when a golden goose runs out of eggs. Here, Gilead Sciences Inc offers an instructive example. The company launched a path-breaking hepatitis C drug in late 2013. Sales spiked to an astonishing $19.1 billion in 2015, but then plunged as competitors arrived. Gileads value followed suit, dropping as much as $100 billion from its peak of almost $180 billion. Of course, the comparison isnt perfect. Gilead had a reliably growing multibillion-dollar HIV drug franchise to provide a floor. In Modernas case, a key unknown is how well mRNA technology will work to prevent other diseases. This new technologys adaptability may be most beneficial in an epidemic or against viruses like influenza that change frequently, and thats not generally a valuable niche. The company hopes to use mRNA to treat cancer and some rare diseases, but those early efforts are particularly uncertain. Either way, while Moderna will retain a first-mover advantage in mRNA and unique expertise, the field will get more crowded as other drugmakers invest heavily in the technology. Ive been wrong about Modernas valuation before, calling it rich after its 2018 initial public offer. But even in the rosiest of scenarios, it seems stretched now. This time, if there is a reckoning, it has a lot further to fall. Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.