Has The Market Overpriced Moderna’s Vaccine?

by Trefis Team
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Moderna stock has jumped by about 4x this year adding over $20 billion in market value, as investors bet that a successful Covid-19 vaccine could generate windfall profits for the clinical-stage biotech company. Is this jump in valuation warranted? We don’t think it is, considering the relatively low price expectations for current vaccine candidates, thin margins in the vaccine space, and a potentially short time frame to peak sales, given the competition and urgency to end the pandemic. For perspective, we estimate that the vaccine will add less than $5 per share to Moderna’s EPS over 2021 and 2022, after which its contribution is likely to be negligible, assuming the vaccine doesn’t require multiple courses.

Our interactive dashboard analysis How Will The Covid-19 Vaccine Impact Moderna’s EPS? estimates the contribution of Moderna’s vaccine to its revenue and EPS over the next two years and ties it to the company’s current valuation. Parts of the analysis are summarized below.

What’s The Revenue Potential For Moderna’s Vaccine?

  • Demand for a Covid-19 vaccine is unlikely to be an issue initially – if a vaccine is approved and has a high level of efficacy, it’s reasonable to assume that the number of doses sold will be purely a function of production capacity.
  • Moderna has indicated that it could produce as much as 1 billion doses of its vaccine per year, with its partner Lonza Group. Per Moderna’s phase 3 trial design, two doses could be required per person.
  • Considering this, we assume that if its vaccine is approved in early 2021, the company could potentially scale up to 800 million doses per year by end of 2021, with the number rising to 825 million doses by 2022 (growing competition could limit growth in 2022)
  • While vaccine prices can vary widely, with vaccines for diseases such as Measles priced below $10 and vaccines for HPV costing closer to $100, we think it’s very likely that a Covid-19 vaccine will be moderately priced, given the scale of the pandemic and the involvement of government funding in vaccine development.
  • While the Financial Times reports that Moderna is considering a price of $25 to $30 per dose in developed markets, we assume that the average price would stand at about $20 per dose considering lower pricing in emerging markets.
  • At 800 million doses in 2021, with an average price of $20 per dose, this would translate into $16 billion in vaccine revenue for 2021.

How Will The Vaccine Impact Moderna’s Profits?

  • We estimate that Moderna’s Operating Margins for the Covid-19 vaccine could stand at about 14.5%, implying Operating profits of about $2.3 billion in 2021.
  • For perspective, the biotech sector had average Operating Margins of about 11% while the pharma sector had margins closer to 25%, so it’s reasonable to expect Moderna to post margins somewhere in between this for the vaccine.
  • Moderna’s profits could also be limited by the fact that it has received government funding toward its vaccine development and the company also might need to share profits with manufacturing partners such as the Lonza group.
  • Considering an effective tax rate of about 17% and 21% respectively in 2021 and 2022 and a share count of 389 million and 400 million over the two years, the EPS contribution of the Covid-19 vaccine would stand at $5 in 2021 and $4.70 in 2022.

Does The Vaccine Justify Moderna’s Valuation?

  • Assuming the vaccine contributes $5 to Moderna’s EPS in 2021 and $4.70 in 2022, and considering Moderna’s current market price of about $80 per share, the stock would be valued at just 16x 2021 earnings and 17x 2022 earnings, excluding the earnings potential of the rest of Moderna’s pipeline.
  • While this makes the stock look very attractive, it’s important to note that sales of the vaccine will be significantly front-loaded.
  • There is a lot of competition in the race for a Covid-19 vaccine, and it’s likely that there will be multiple successful candidates.
  • Once a large % of the global population is vaccinated, possibly by the end of 2022 or early 2023, demand for Moderna’s vaccine could fall considerably, possibly to just tens of millions of units. For perspective, the number of births globally stands at about 140 million each year.
  • This means that Moderna investors will need to look closely at its pipeline beyond the Covid-19 vaccine to justify its current stock price.

Larger pharma companies could offer better downside protection compared to Moderna if you’re looking to gain exposure to a Covid-19 vaccine stock. Should you pick Johnson & Johnson Or Pfizer For Better Returns?

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