Modern (NASDAQ: MRNA) and the Pfizer/BioNTech the partnership may not enjoy a duopoly in the US COVID-19 vaccine market for much longer. Johnson & Johnson (NYSE: JNJ) announced advanced-stage results for its candidate coronavirus vaccine last week. The health giant now plans to seek the Food and Drug Administration’s Emergency Use Authorization (USA).
Are Moderna’s shares a purchase after J&J’s announcement? Or is the most prudent move to sell biotech stocks? The answer is probably more complicated than you expected.
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Complex dynamics
Let’s look at Johnson & Johnson’s results first. The headline was that the company’s vaccine candidate COVID-19 achieved an overall effectiveness of 66%. At first glance, you may think this is really disappointing. The two coronavirus vaccines that have already won the USA have achieved more than 94% effectiveness.
However, there are several important things to note about J&J results. The company’s study included only a single dose compared to two doses of Moderna’s vaccine. In addition, J&J data included new variants discovered in the UK and South Africa. The South Africa variant weighed especially on effectiveness. And despite the lower overall efficacy, the J&J experimental vaccine was 85% effective in preventing severe cases of COVID-19.
So, what does all this mean for Moderna? There are some complex dynamics at play.
Johnson & Johnson is expected to win US for its COVID vaccine. An effective single dose immunization should play an important role in reducing the pandemic. Also remember 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. If J&J’s results had been poor, it probably would have opened up more sales opportunities for Moderna in Europe and elsewhere. These opportunities are likely to be more limited now.
However, the Biden government plans to buy another 100 million doses of the COVID-19 vaccine from Moderna and Pfizer. This would mean that the total doses guaranteed by the USA are sufficient to vaccinate all American adults this year. Any short-term financial impact for Moderna due to increased competition in the US market will be negligible.
My opinion is that Moderna is not a mandatory sale just because of the results of J&J. On the other hand, I also don’t think that these results make Moderna a mandatory purchase.
Analysts’ enthusiasm is waning
But what about the waning enthusiasm of some analysts towards Moderna? For example, Bank of America analyst Geoff Meacham recently downgraded the stock to underperforming (equivalent to a sale) to neutral. Could the results of the J&J vaccine be a factor behind this more pessimistic view? I think not.
Meacham’s main concern is evaluation. Moderna’s shares have soared more than 670% in the past 12 months, and the biotechnology market capitalization is now over $ 60 billion. This has nothing to do with Johnson & Johnson.
Therefore, should investors sell Moderna shares due to concerns about the valuation? Not necessarily.
The company is expected to earn more than $ 13 billion in 2021 with its mRNA-1273 vaccine. This total would make Moderna’s market capitalization much more palatable. There is a good chance that biotechnology will also see a significant recurring prescription for its COVID-19 vaccine.
Think long term
My recommendation is to see Moderna as a platform game. Its messenger RNA (mRNA) technology worked incredibly well with COVID-19. There is a good chance that Moderna’s mRNA approach is also highly effective in other vaccines and therapeutic candidates. And biotechnology can develop new programs very quickly due to the inherent advantages of its technology.
It is Moderna’s long-term prospects that lead me to believe that the stock is still a purchase. Of course, there probably won’t be many massive catalysts in the short term. But I hope it will be a very different story in the next decade and beyond, as Moderna applies its mRNA approach to a wide range of diseases.