But demand for Covid-19 vaccines is falling. And so is the Moderna share price. Biotech stocks often trade on future profitability, but Moderna is a slightly unusual case.

It’s currently making billions, but the Covid-19 vaccine is its only commercial product. So investors are weighing up waning demand for Moderna’s lead vaccine and the future commercialisation of products in development.

Having dropped nearly 15% in the last few days, is now the time to buy Moderna stock?

Demand for its Covid-19 vaccine

Moderna’s Spikevax vaccine saw the biotech firm generate $18.4bn of revenue in 2021. The figure represents a massive 2,191% jump from 2020. Moderna is expecting another good year, with $21bn in revenue forecast for 2022.

However, demand for its key vaccine is certainly slowing. There were only $2.5bn of deals between January and March – which equates to around $830m a month. That’s slower than the previous rate of sales.

In fact, some analysts think Spikevax revenue could fall as low as $2bn in 2024. I agree. This is a very expensive vaccine and as governments try to move on beyond Covid, I only foresee a small Western market for this shot.

Moderna pipeline

As I’ve said, Spikevax is Moderna’s only commercial product. And it’s unclear from its pipeline when the next product will come online. It’s important to remember that vaccines can take over a decade to become commercially ready.

But Moderna does have a number of exciting products in development, although it’s by no means guaranteed they will be effective, or pass safety requirements. Vaccines in development include a combined influenza and Covid-19 shot, a personalised cancer vaccine, and an HIV jab.

However, the personalised cancer vaccine and the HIV jab are still some distance from being commercialised. Its only non-Covid vaccine in Phase 3 trials is the CMV shot.

Phase 3 is the last stage of trials before it seeks regulatory approval and commercialises the product. However, even these trials can take years to complete.

Competition

Moderna isn’t the only the only company using the highly-rated mRNA technology. Pharma giant Pfizer has indicated it will develop mRNA vaccines.

One of Moderna’s next commercial products is likely to be its influenza/Covid combo vaccine, while Novavax is also likely to bring its combo vaccine to market soon. Novavax is also using more traditional technology, which some people might prefer.

So should I buy Moderna stock?

I’m concerned about Moderna’s revenue falling in the coming years as demand for its Covid vaccine wanes. And I think it might be some time before Moderna has another commercial product success.

However, mRNA technology has huge potential. And because of that, I’d expect it to trade at a premium to other biotechs.

I still think Moderna stock has further to fall. So I’m not buying yet. But I do think there is long-term potential here.

Is it too late to buy Moderna stock for my portfolio after this sharp two-day rally? Let’s take a look.

Moderna’s business and results

As a quick recap, Moderna is a commercial-stage biotechnology company. It focuses on the research and development of vaccines for infectious diseases, including for Covid. The company was founded in 2010 and came to market via an IPO (initial public offering) in 2018. The share price almost flatlined after the IPO, but since 2020 it has increased by a huge 1,900%. At time of writing, the market value of Moderna is close to $150bn.

Speaking financially, Moderna has been a major winner during the pandemic. The US Food and Drug Administration granted emergency authorisation for Moderna’s Covid vaccine in December 2020. The share price has rallied accordingly to reflect the huge growth in profit from sales of its vaccines.

However, in Moderna’s third-quarter results to September, revenue came in at $5bn and net income was $3.3bn, which was considerably below consensus estimates. Moderna stock fell over 30% in the two days following this update. It says to me that the company’s financial performance, and therefore its share price, is highly linked to the current pandemic. It also makes valuing the company difficult to do as a potential investor.

What’s more, the company lowered its guidance for Covid vaccine sales for the remainder of the year. Moderna is now attempting to ship its Covid vaccines internationally. Previously, the US government had been the biggest purchaser of Moderna’s vaccines. This means there is a large customer concentration risk in the business.

Moderna’s omicron guidance

Moderna was quick to update investors after the news broke about the new strain of Covid, saying it has a strategy in place to address omicron. In fact, Moderna is already testing three Covid vaccine booster candidates. The company was seemingly well aware of the risks of potential virus mutations.

It’s understandable, then, why Moderna stock rallied after the announcement of omicron. It’s clearly thinking ahead and developing vaccines with new Covid strains in mind. The company’s profits will likely surge again if a new batch of vaccines is required to combat omicron (or any other future strains of Covid).

Is Moderna stock a buy?

The financial turnaround in Moderna due to the pandemic is remarkable. In the fiscal year ending December 2020, the company made a net loss of $747m. However, for fiscal year 2021, the net income estimate is a huge $11.2bn.

But this is primarily due to the demand for its Covid vaccines. The third-quarter results highlight just how quickly its profits, and therefore share price, can reverse if vaccine demand wanes. The omicron strain may boost sales in the following months, which would benefit the company financially. Indeed, Moderna’s CEO has said current vaccines will be less effective at tackling omicron. But as an investor, the unpredictability of the company’s earnings means I won’t be buying Moderna stock today.

Unfortunately, it now looks as if the market is cooling on the business. Over the past three months, the stock has dipped by around 40%. Part of these declines can be traced back to the company’s poor third-quarter results. 

Third-quarter results

For the period ending 30 September, the group reported earnings per share of $7.70. Revenues amounted to $5bn for the period. But the company now expects to sell fewer vaccines throughout the rest of 2021. It was initially projecting total vaccine sales for the year of $20bn. Now the target is just $18bn. 

The good news is, the organisation already has $17bn in signed advanced purchase agreements in place for 2022. This suggests sales will only drop modestly in 2022.

However, this is not guaranteed. Just because these agreements have already been signed, it does not necessarily mean customers will cough up.

Compared to a year ago, when Moderna’s vaccine was just one of three, there is now a broader range of treatments for coronavirus on the market. More potential vaccine makers are also in the process of developing and seeking regulatory approval for their treatments. 

While these challenges could impact the company’s Covid vaccine sales, I think it is important to point out that this is not a one-trick pony. 

Moderna share price potential 

In October, Moderna started recruiting patients for a Phase 3 trial of its mRNA Cytomegalovirus (CMV) Vaccine. This virus infects the majority of people at some point during their lifetime. Infections are often benign, but it poses a significant risk to pregnant mothers and recipients of donated organs.

Researchers have been trying to develop a vaccine for this virus for more than five decades. It looks as if Moderna stands a chance at being able to crack the code with its mRNA technology. Analysts estimate the potential market for such a treatment could be worth as much as $5bn a year for the company. 

The group also has a range of other treatments in its development pipeline, although it could be some time before these reach the market. 

Considering these potential treatments and sales from the Covid vaccine, Wall Street analysts believe Moderna share price is worth $300 a share. 

It looks to me as if the market is concentrating too much on Moderna’s slowing growth and is not giving any account to its growth potential.

As such, I would buy the stock for my portfolio today as a growth investment. As the rest of the market is selling, I think now could be an attractive time to snap up the shares as a long-term investment at a discounted valuation. 

The EV powerhouse

Tesla (NASDAQ: TSLA) has transformed the automotive industry over the past few years, becoming the global leader in electric vehicles. This has seen revenues increase from $7bn in 2016 to over $31bn last year. It has also managed to reach profitability, posting net incomes of $721m last year. Furthermore, as electric vehicles become more and more mainstream, revenues and profits are expected to continue increasing.

But as revenues have soared, so has the share price. In fact, in 2016, the Tesla share price was just $40, compared to $770 now. This is an increase of 1,825%, a figure far larger than the revenue growth. This leads me to believe that like several other S&P 500 stocks, Tesla is overpriced.

One reason I believe that Tesla is now overpriced is due to the rising competition. For example, many traditional automotive companies, such as Volkswagen and Daimler, are now transitioning into electric vehicles. These companies have significantly larger revenues and profits, yet far lower market caps than Tesla. As such, I feel that these companies are very capable of taking market share from Tesla. New EV companies, such as Lucid Motors, also have their sights on challenging Tesla. Accordingly, although the EV market is expected to get far larger, this rising competition is a risk that cannot be ignored.

The valuation of Tesla is also lofty. In fact, using its 2020 earnings, it has a price-to-earnings ratio of 1,203. Although earnings are forecast to increase drastically over the next few years, this still signals that Tesla may be overpriced. For this reason, I’m leaving Tesla shares on the sidelines for now.

A newly added S&P 500 stock

Since it made its vaccine, the Moderna (NASDAQ: MRNA) share price has soared, reaching highs of $490. Yet at its current price of $430, I still believe that this S&P 500 stock is overpriced.

In line with its most recent trading update, the valuation of Moderna shares is not actually overly lofty. In fact, it managed to reach revenues of $4.3bn, while net income reached $2.8bn. This can be contrasted with a loss of $117m in the same quarter last year. This shows the success of the vaccine. It also means that Moderna has a forward P/E ratio of just 20, which is very good value for a pharma stock.

So, why do I think Moderna shares are overvalued? Well, the vaccine is the company’s only commercially approved product, and it’s likely that demand for this will start to decrease in the long term. This means that such a high share price is heavily reliant on other products, like its HIV vaccine, becoming commercially approved. If this does not happen, the Moderna share price could crash. Therefore, I think shares are overvalued and I’m staying away. I prefer FTSE 100 stocks instead. 

Stocks and Shares ISA investment

Before 2020, few investors had heard about this enterprise. Outside of the biotechnology industry, the company was relatively unknown. However, it shot to fame after its coronavirus vaccine became one of the first to receive approval last year. 

Since then, the company has become a household name. The Moderna share price has reflected this growth. The stock has risen a staggering 1,800% since the beginning of 2020. 

As the company’s vaccine has been rolled out around the world, sales and profits have jumped. For the fourth quarter of 2020, Moderna reported sales of $570m and a net loss of $270m. In the second quarter of 2021, revenues totalled $4.3bn, and net income surged to $3bn. 

Based on these numbers, analysts believe the stock is trading at a forward price-to-earnings (P/E) multiple of 15. I do not think that looks too expensive for a cutting-edge biotechnology company. 

That being said, the demand for Covid vaccines may fall in the long run. As other companies bring their treatments to market, competition could increase. This would push down prices and overall demand for Moderna’s product. 

The outlook for the Moderna share price

Competition is a risk to the company’s growth, but when looking for investments for my Stocks and Shares ISA, I focus on each asset’s long-term potential. 

In the case of Moderna, I think the coronavirus vaccine is just the start. As of March 2021, the company had 13 programmes in clinical trials and a total of 24 development programmes researching vaccines based on its proprietary RNA technology.

Moreover, the Covid vaccine helped prove the RNA technology. It is now providing a steady stream of cash for the company to invest back into treatment development. 

Considering all of the above, I would buy the company as a speculative investment for my Stocks and Shares ISA. Now the group has proven its technology, there is no telling how many other products it could create using the same method.

As well as this growth potential, the Moderna share price also appears cheap based on its current profitability. That is without giving any consideration to future growth.

I would only buy the asset as a speculative stock because I know just how unpredictable the drug development and commercialisation process can be.

Moderna might have some promising treatments under development, but there is no guarantee they will ever make it to market. The success of the coronavirus vaccine has helped de-risk RNA technology, but it has not eliminated the risk. I will be keeping this in mind going forward. 

What has driven the Moderna share price?

Although the Moderna share price fell back slightly last week, this does not take away from its excellent performance in 2021. This has been driven by a few major factors.

Firstly, the company’s results have excelled. Indeed, in the recent second quarter trading update, revenue reached around $4.3bn, a 125% rise from the previous year. Net income was also able to reach nearly $2.8bn, a 128% rise from the previous year. This demonstrates the success of the company’s Covid vaccine. There is also evidence to show that protection provided by the vaccine begins to wane after several months, and hence, bolster vaccinations may be required. As such, the vaccine may continue to provide large revenues for the company for the foreseeable future.

Secondly, in July Moderna was added to the S&P 500. This often increases demand for the stock, because many fund managers use index funds and only buy stocks that are in the S&P 500. Since its addition, the stock has managed to rise around 50%.

Is there further to rise?

The recent drop has certainly made Moderna shares a more attractive proposition, and this may lead to investors buying on the dip. Further, the pharma company trades on a forward price-to-earnings ratio of 20 for 2021. In comparison to other pharma stocks, many of which are unprofitable, this is not overly expensive. These are reasons that indicate there may be further to go. 

On the other hand, there are reasons why Moderna may have reached its peak. Indeed, I worry that it may not be able to maintain its growth due to increased competition in the vaccine market. The Novavax vaccine is one example that is expected to arrive later this year. I am also concerned by the fact that the vaccine is Moderna’s only commercially approved product. Indeed, the company’s other vaccines, that aim to guard against HIV, the flu and other viruses, are only at a very early stage. This dependency on the Covid jab may lead to problems down the line, especially if, and when, demand starts to weaken.

Would I buy?

There are certainly a lot of things to like about Moderna shares, and at the moment, the company is performing excellently. But I worry about the future of this business, especially due to the lack of other products. This differs from other pharma companies like Pfizer, which has a variety of other products to accompany its vaccine. For this reason, I’m not going to buy Moderna. I think there’s still further to fall, before a buying opportunity emerges.

The explosive Moderna share price

It’s no secret that Covid-19 has ravaged the world economy, nor that the demand for a vaccine continues to rise. That’s fantastic news for Moderna’s share price, of course. Being one of the first companies to produce a vaccine with a high efficacy rate has drastically elevated sales. And looking at the latest earning report, the extent of this boost is clear.

Total revenue for the last three months came in at a staggering $4.4bn. By comparison, this time last year, revenue sat around $67m. That’s 6,500% higher! With such a vast jump in sales, profitability also took an enormous leap forward from a loss of $117m to a gain of $2.8bn.

Almost all of this growth is attributable to the sale of Moderna’s Covid-19 vaccine worldwide. And it doesn’t look like the demand is going to slow down in 2022 either. The management team estimates total delivery of 800 million to one billion doses of the vaccine by the end of 2021. These figures increase to two and three billion respectively for 2022. In other words, this latest earnings report could be just the tip of the iceberg. So, seeing the Moderna share price explode this year is hardly surprising.

It may not last

As encouraging and exciting as these sales statistics and forecasts are, there remains a glaring problem. All this growth is stemming from a single product. A product whose demand will likely fall drastically within a few years. That creates a problem for the management team regarding how they intend to maintain its explosive growth in the future. After all, Moderna’s share price is currently being significantly inflated by the prospect of significant future performance. And if the growth starts to show signs of slowing down, Moderna’s share price could be in for quite a tumble.

Yet the company is by no means a one-trick pony. Beyond addressing the pandemic, it has a vast pipeline of drugs currently in development to tackle infectious diseases and autoimmune disorders, as well as cancer treatments. The concern I have is that most of its drug candidates are in early phase I/II trials. Even if these were all to receive regulatory approval (which statistically is unlikely), it could be anything up to a decade before they reach the market.

The bottom line

The surge in cash flow has undoubtedly provided a lot of opportunities. But this potential has most likely already been factored in to Moderna’s share price today. And while the stock may continue to climb over the short term, I’m sceptical that this trend will continue indefinitely.

If management cannot replace its Covid-19 vaccine revenue as demand starts to fall, I think the stock is likely to take a hit. But over the long term, Moderna’s drug pipeline looks quite promising. So, if a drop were to occur, that might present an excellent opportunity to add this business to my portfolio. For now, though, it’s staying on my watchlist.

A solid 2021

The rest of 2021 looks set to mark a good period for Moderna. With Q1 revenues recently announced at $1.9bn, this is substantially more than the $571m revenue of Q4 last year. Moderna recently stated it intends to supply 800 million doses of Covid-19 vaccines in 2021 and three billion in 2022 – a factor that is likely to continue to boost revenue. This places my confidence for the future Moderna share price in good stead, as the large demand is likely to continue.

Moderna also recently announced it had signed advance purchase agreements for $19.2bn, all for Covid-19 vaccines, set to be delivered this year.

Many analysts also seem to remain positive about the Moderna share price for the future, regardless of the intellectual property (IP) rights scare (explained below). Goldman Sachs raised its target price on the biotech stock to $228, up from $206. Barclays also raised its target to $194 from an original $178.

Not all good news

However, I cannot see the long term providing opportunities for a rise in the Moderna share price.

Firstly, although the rest of 2021 and potentially 2022 provides optimism for Moderna, after this I can see the Covid-19 vaccine market falling off. I suspect by the end of 2022 that a large proportion of populations would have been vaccinated. As a result of this, I predict demand to drop – and therefore more than likely a fall in the Moderna share price.

Another negative is the recent announcement by the Biden administration coming out in support for the suspension of Covid-19 vaccine IP rights. This could allow lesser-developed countries to create vaccines locally, potentially affecting the revenue of Moderna. Countries such as India, with its current huge infection problem, could opt for cheaper ways to inoculate its large population.

Post-Covid-19 potential?

Although many analysts remain positive about the future Moderna share price, I do not share the same levels of optimism.

I see the IP rights narrative, supported by the World Trade Organization, potentially posing a real problem for Moderna should it go ahead. Prior to the pandemic, the Moderna share price hovered between $18-$25. With it currently sat well over $150, should the vaccine rollout come to an end within the next few years, what is to stop the share price from falling back down to these levels?

From a short-term perspective, I see potential in the Moderna share price for the rest of 2021 and possibly 2022. However, I tend to view stocks with a long-term outlook. As such, I am opting against buying Moderna any time soon.

The story behind the rally

Moderna was a well known US-based company even before the pandemic hit. It went public in 2018, and became the largest biotech IPO in history with a valuation of $7.5bn. 

Despite the lofty valuation, the Moderna share price traded quite flat after going public. In my experience, this is the case with drug discovery and development companies. When FDA approval comes through, or a drug reaches commercial viability, the share price often rockets higher. Before this point, high research costs can burden the company.

For Moderna, it jumped on the opportunity to help with finding a vaccine for Covid-19. This progress started in March last year, coinciding with the start of the rally in the share price. 

The price spiked further in November, when the vaccine (mRNA-1273) showed a 94% efficacy rate. The subsequent green light given for distribution, not only in the US but in other countries, continued to support the rally into 2021.

Over the past month, the share price has trod water around the $130 mark. This is down from the highs above $170 seen a few months back, but at the same time is a substantial increase from where it traded a year ago.

My outlook for the Moderna share price

In my opinion, Moderna are doing all the right things at the moment. The vaccine has even reached us in the UK, with it being offered out this week. The company is planning on supplying up to 1bn doses globally this year.

However, what about the finances? For 2020 revenue was $803m compared to $60m in 2019. However, due to high research and development costs, Moderna recorded a loss of $747m.

In my opinion, a lot of investors are buying the stock for speculative purposes. Fundamentally, I don’t see the business as being worth the current valuation of over $50bn. I understand high losses in 2020 may be reduced in 2021 now that it has the vaccine, but even then, I don’t see the numbers stacking up.

As an investor, I want to be able to see a future where stable and strong profits are generated. This is one of the key boxes that Moderna doesn’t tick for me, so I won’t be buying.

This isn’t to say that the Moderna share price can’t rally higher this year, indeed I think buyers will drive the price higher. But as a long-term investor, I don’t see this being supported in years to come.

While the bad press is disappointing for the company, it has plenty of other projects in the pipeline to keep investors interested. Another Covid-19 therapy of note is its antibody treatment designed to boost the immune system of those unable to take the vaccine. The company has sold around $726m worth of this treatment to the US government year-to-date and analysts forecast it could bring in $3bn worth of revenue this year.

AstraZeneca share price fluctuations

The AstraZeneca share price has endured a rather disappointing eight months after the excitement of its vaccine potential sent it rocketing above £93 a share back in July. Today it’s hovering around £72.

For the last 12 months, its price-to-earnings ratio (P/E) is still high at 40. But its forward P/E is a more reasonable 19 and earnings per share are £1.75. It offers shareholders a 2.8% dividend yield.

Acquisitions extend its reach

The company has also been making moves in cancer treatments and rare diseases. Late last year it announced a major acquisition of US biotech company Alexion Pharmaceuticals for $39bn. The AstraZeneca share price took a hit on the news because Alexion was reportedly worth around $26bn. This meant investors thought AstraZeneca had overpaid.

However, many are starting to see the future benefits in owning Alexion, the purchase of which is set to complete in Q3. It should give AstraZeneca a much stronger presence in battling rare diseases. It should also help boost its offering of immunology drugs.

Alexion had a remarkable 2019, achieving six regulatory approvals, seven business development deals, and hiring 800 new employees. Its focus is on researching and treating rare and devastating diseases. This acquisition is not just strengthening AstraZeneca’s business, but it should help improve cash flow, allowing more money to be allocated to research and development (R&D). Analysts believe it may also lead to a stronger dividend payment.

In its bid to streamline the business, AstraZeneca also recently sold its stake in Moderna for over $1bn. This will help towards the Alexion acquisition.

Risks to the business

However, there are always risks worth being aware of and acquisitions can come with their own set of challenges. Legal risks abound, particularly when dealing with healthcare. Then there’s the fact AstraZeneca is paying over the odds. Will it generate enough cash and business opportunities to prove its worth? 

There’s also the risk of reputational damage if the vaccine (or other drug) doesn’t work out as planned. That’s the nature of pharmaceuticals and always a risk investors face.

With the impact of the Covid-19 pandemic not yet resolved, I believe much more focus and government money is likely to be willingly spent on healthcare R&D in the future. I like AstraZeneca and would happily add its shares to my long-term investment portfolio.