Should you sell your Moderna stock now?

If you are lucky Modern (NASDAQ: ARNM) shareholder, congratulations. Now that the stock has reached sky-high valuation, you’re probably wondering if it’s time to sell. After all, the American pharmaceutical giant Merck (NYSE: MRK) recently disclosed its sale of a stake in Moderna that it had held since 2015.

Blindly following others in an attempt to time short-term stock price movements is not a winning investment strategy. Still, it’s probably a good time to think about what Moderna’s underlying business needs to accomplish to meet the rising expectations of the stock market.

Image source: Getty Images.

What the market expects from Moderna

Moderna’s market cap has grown to around $ 57 billion at recent prices. To put this in perspective, Regeneron (NASDAQ: REGN) – a commercial-stage biotechnology company with a long history of producing successful new drugs – has a market capitalization of approximately $ 54 billion.

Moderna still doesn’t have any approved products to sell, so the inflated inventory price won’t last unless it’s on its way to producing Regeneron-sized cash flow.

Regeneron’s business has brought in $ 3.1 billion from successful products that generated $ 9.2 billion in sales in the past year. Investors can reasonably expect much more in the foreseeable future.

What investors can expect from Moderna

If Moderna’s coronavirus vaccine candidate, mRNA-1273, is cleared for emergency use, it will likely generate a lot of revenue in 2021. Yet those cash flows are unlikely to last very long. A bottomless pit of government funding for potential coronavirus vaccines means mRNA-1273 will face an unprecedented level of pressure from competing vaccines along the way.

The next candidate in Moderna’s pipeline, mRNA-1647, could become the first widely available vaccine against cytomegalovirus (CMV). There is much less competition in the CMV arena, so a successful launch could potentially lead to annual sales in excess of $ 1 billion. This figure could remain high for some time as competition for this neglected infectious disease slowly catches up.

Unfortunately, Moderna’s programs unrelated to the pandemic are not progressing at the same rate as mRNA-1273. The company does not plan to begin a phase 3 study lasting several years to support an upcoming application for mRNA-1647 until next year.

Without a revenue stream beyond mRNA-1273, Moderna will likely start reporting significant losses again in 2022. The company will likely only experience a brief moment of profitability fueled by temporary sales of coronavirus vaccines.

Image source: Getty Images.

Pipeline limitations

Vaccine production can be a lucrative business, but it is hard work compared to developing drugs to be taken repeatedly for long periods of time. Of the 20 best-selling drugs this year, 19 are for repeat doses. A vaccine against pneumonia Pfizer (NYSE: PFE) called Prevnar 13 was the only single dose medicine on the list.

All drugs developed by Moderna deliver genetic instructions in the form of messenger RNA (mRNA) to produce therapeutic proteins. For example, mRNA-1273 provides instructions for the spike protein found on the surface of the virus responsible for COVID-19.

When Moderna started raising significant capital in 2015, the company intended to produce repeat-use drugs. Still, there is a huge problem with mRNA technology. Immune systems cannot tell the difference between the therapeutic strands of mRNA and RNA that viruses use to hijack cellular processes from early in life.

Moderna and its mRNA peers have made impressive progress allowing for the safe delivery of therapeutic mRNA strands once or twice. Unfortunately, it doesn’t appear that Moderna’s drug development platform is being used beyond vaccines.

It’s time to sell

If Moderna were the only company to develop mRNA vaccines, it might have a chance to produce several top-selling drugs over the next decade. Sadly, increased demand for Moderna’s mRNA vaccines will only boost competition BioNTech, CureVac, Arcturus, Translate Bioand dozens of small biotechs that also depend on mRNA-based discovery platforms.

Without an apparent path to produce the cash flow investors expect, Moderna is going to have a hard time convincing shareholders not to run for the hills. It could happen tomorrow, next month, or next year, but you don’t want to hold the bag when it does.