Modern (NASDAQ: MRNA) and the Pfizer/BioNTech partnership may not enjoy a duopoly in the US COVID-19 vaccine market for much longer. Johnson & Johnson (NYSE: JNJ) announced late-stage results for its coronavirus vaccine candidate last week. The healthcare giant now plans to apply for Emergency Use Authorization (EUA) from the Food and Drug Administration.
Is Moderna stock a buy after J & J’s announcement? Or is it wiser to sell the biotech shares? The answer is probably more complicated than you might expect.
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Complex dynamics
First, let’s take a look at Johnson & Johnson’s results. The main story was that the company’s COVID-19 vaccine candidate achieved an overall efficacy of 66%. At first glance, you might think that’s really disappointing. The two coronavirus vaccines that have already won EUA achieved an efficacy of more than 94%.
However, there are some important things to note about J & J’s results. The company’s study included only a single dose compared to two doses for Moderna’s vaccine. Also, J & J’s data includes new variants discovered in the UK and South Africa. The South African variant in particular weighed on the efficacy. And despite its lower overall efficacy, J & J’s experimental vaccine was 85% effective in preventing severe cases of COVID-19.
So what does all this mean for Moderna? There is a complex dynamic at play.
Johnson & Johnson likely to win EUA for its COVID vaccine. An effective single dose immunization should play an important role in controlling the pandemic. Also remember that J&J will sell its vaccine at cost price during the pandemic. This lower cost coupled with a single dose regimen will be a significant competitive advantage. If J & J’s results had been poor, it likely would have opened up more sales opportunities for Moderna in Europe and elsewhere. Those opportunities will likely be more limited now.
However, the Biden government wants to buy an additional 100 million doses of COVID-19 vaccine from Moderna and from Pfizer. This would mean that the total doses secured by the US would be enough to vaccinate every US adult this year. Any short-term financial impact for Moderna from increased competition in the US market will be negligible.
My opinion is that Moderna is not a must-sell just because of J & J’s results. On the other hand, I don’t think these results make Moderna a must-buy in and of themselves.
Analysts’ enthusiasm is declining
But what about the waning enthusiasm of some analysts about Moderna? For example, bank of America analyst Geoff Meacham recently lowered the stock from neutral to underperform (equivalent to a sale). Could J & J’s vaccine results be a factor behind this more pessimistic view? I do not think so.
Meacham’s main concern is appreciation. Shares of Moderna have skyrocketed by more than 670% in the past 12 months and the biotech’s market capitalization is now above $ 60 billion. That has nothing to do with Johnson & Johnson.
Should Investors Sell Moderna Shares Due To Valuation Issues? Not necessary.
The company is likely to earn more than $ 13 billion from its mRNA-1273 vaccine by 2021. That total would make Moderna’s market cap much more palatable. Chances are, the biotech will also see significant recurring revenues from its COVID-19 vaccine.
Think long term
My recommendation is to think of Moderna as a platform game. The messenger RNA (mRNA) technology has worked amazingly well with COVID-19. Chances are that Moderna’s mRNA approach will also be very effective with other vaccines and therapeutic candidates. And biotech can develop new programs very quickly thanks to the inherent benefits of its technology.
It’s Moderna’s long-term outlook that leads me to believe the stock is still a buy. Of course, there probably won’t be many massive catalysts in the short term. But I fully expect it to be a whole different story in the next decade and beyond as Moderna applies its mRNA approach to a wide variety of diseases.