Moderna (NASDAQ:MRNA) and the Pfizer/BioNTech partnership might not enjoy a duopoly in the U.S. 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 seek Emergency Use Authorization (EUA) from the Food and Drug Administration.
Is Moderna stock a buy after J&J’s announcement? Or is the more prudent move to sell the biotech stock? The answer is probably more complicated than you’d expect.
Complex dynamics
Let’s first look at Johnson & Johnson’s results. The headline story was that the company’s COVID-19 vaccine candidate achieved overall efficacy of 66%. At first glance, you might think that’s really disappointing. The two coronavirus vaccines that have already won EUA achieved efficacy of more than 94%.
However, there are several key 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 included new variants discovered in the U.K. and South Africa. The South Africa variant especially weighed on efficacy. And despite the lower overall efficacy, J&J’s experimental vaccine was 85% effective in preventing severe cases of COVID-19.
So what does all of this mean for Moderna? There are some complex dynamics at play.
Johnson & Johnson is likely to win EUA for its COVID vaccine. An effective single-dose immunization should play an important role in curbing the pandemic. Remember, too, that J&J will sell its vaccine at cost during the pandemic. This lower cost combined with a single-dose regimen will be a major competitive advantage. Had J&J’s results been bad, it would’ve probably opened up more sales opportunities for Moderna in Europe and elsewhere. Those opportunities will likely be more limited now.
However, the Biden administration is seeking to buy another 100 million doses of COVID-19 vaccine from Moderna and from Pfizer. This would mean the total doses secured by the U.S. are enough to vaccinate every American adult this year. Any near-term financial impact for Moderna from increased competition in the U.S. market will be negligible.
My view is that Moderna isn’t a must-sell just because of J&J’s results. On the other hand, I don’t think those results make Moderna a must-buy on their own, either.
Analysts’ enthusiasm is waning
But what about some analysts’ waning enthusiasm about Moderna? For example, Bank of America analyst Geoff Meacham recently downgraded the stock to underperform (equivalent to a sell) from neutral. Could J&J’s vaccine results be a factor behind this more pessimistic view? I don’t think so.
Meacham’s primary concern is valuation. Moderna’s shares have skyrocketed more than 670% over the last 12 months, and the biotech’s market cap now stands above $60 billion. That doesn’t have anything to do with Johnson & Johnson.
So should investors sell Moderna stock because of valuation concerns? Not necessarily.
The company is likely to make over $13 billion in 2021 from its mRNA-1273 vaccine. That total would make Moderna’s market cap much more palatable. There’s a pretty good chance that the biotech will also see significant recurring revenue from its COVID-19 vaccine.
Think long term
My recommendation is to view Moderna as a platform play. Its messenger RNA (mRNA) technology has worked amazingly well with COVID-19. There’s a good chance that Moderna’s mRNA approach will also be highly effective in other vaccines and therapeutic candidates. And the biotech can develop new programs very rapidly due to the inherent advantages of its technology.
It’s Moderna’s long-term prospects that lead me to believe the stock is still a buy. Sure, there probably won’t be many massive catalysts in the near term. But I fully expect it’ll be a much different story over the next decade and beyond as Moderna applies its mRNA approach to a wide range of diseases.
