Moderna : Collapse by 25%
(Sun, 26 July 2020). After hitting a market cap of more than $30 billion, Moderna’s share price has come crumbling back to earth. Growing competition, patent issues, and significant overvaluation concerns make Moderna a risky investment.
Moderna’s stratospheric rise made it the largest biotech firm without an approved product. The stock is now in freefall after a spate of developments likely to affect the company negatively. Moderna is one of the first firms to have entered the development of a Covid-19 vaccine. Moderna (NASDAQ:MRNA) was one of the earliest biotech firms to begin the search for a Covid-19 vaccine. Investors rewarded it handsomely, sending the market capitalization of a company with no approved product to over $30 billion.
Over the past week, though, the stock has plummeted. After hitting a high of $94.85 on July 17, Moderna’s stock has now fallen by about 25%. Here are three reasons why Moderna’s stock is coming down to earth.
1. Several competitors cut Moderna’s front-runner status
The search for a vaccine to contain the pandemic has grown competitive over time, wiping out Moderna’s front-runner status. Currently, there are more than 165 vaccines in development, with at least three undergoing Phase III trials. This week’s press coverage on the search for a pandemic vaccine was slanted towards Big Pharma’s efforts, demonstrating the competitive pressures against smaller companies.
A vaccine being developed by AstraZeneca (NYSE:AZN) and Oxford University demonstrated promising results. This coincided with the U.S. government inking a deal with Pfizer (NYSE:PFE) and BioNTech to buy a vaccine for the pandemic. Washington has a similar agreement with Johnson & Johnson (NYSE:JNJ).
Compared to Moderna, the established pharmaceutical giants have a manufacturing and distribution edge. Additionally, the deals AstraZeneca, Johnson & Johnson, and Pfizer signed will see them provide the vaccines at no profit. This will place Moderna in an uncompetitive position.
Despite taking nearly $500 million from the U.S. government for research and development under the Operation Warp Speed program, Moderna is developing a vaccine with profit in mind. With more prominent firms offering it at cost, Moderna’s pricing power will be severely limited.
2. Vaccine efforts suffer blow in court
On Thursday, an obstacle emerged in Moderna’s efforts to develop a next-generation vaccine for the pandemic.
This was after a U.S. Patent and Trademark Office administrative court declined to invalidate a patent held by Arbutus Biopharma. The patent relates to lipid nanoparticle technology, which allows the human body to develop therapeutic proteins. This technology is critical to Moderna’s vaccine development efforts, including the Covid-19 vaccine. The court ruling could now force the biopharmaceutical firm to pay Arbutus for a license to use the technology.
3. Wall Street has turned against MRNA
Earlier this week, JPMorgan downgraded Moderna’s stock on valuation concerns. The bank argued that Moderna’s stock was overpriced, and the fundamentals couldn’t justify it. At the time, MRNA was trading at a forward price-to-earnings ratio of 115, a ridiculously high number.
On Thursday, healthcare-focused investment bank SVB Leerink added to the stock’s woes. SVB Leerink analyst Mani Foroohar gave a pessimistic view of the stock, saying it offers “unattractive risk/reward to investors.”
Moderna may yet succeed in finding a vaccine for the pandemic. But with Wall Street now injecting investors with a dose of reality, the stock is unlikely to return to its record high any time soon.
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