Prosper Junior Bakiny, The Motley Fool
5 min read
It’s not that rare to see stocks in the volatile biotech industry that quadruple (or more) in value over a relatively short period. That’s what has happened to Moderna (NASDAQ:MRNA) and Iovance Biotherapeutics (NASDAQ:IOVA) this year. Shares of the former are up 570%, while the latter has gained 433%. The question for investors is whether these companies are still worth investing in after their impressive runs this year. My view is that they aren’t. Here is why.
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1. Moderna
Moderna achieved a significant milestone this year. The company reported positive Phase 3 results for intismeran autogene in certain patients with melanoma. Intismeran autogene is an investigational personalized cancer vaccine, a category of products designed to target mutations specific to patients’ own tumor cells.
This factor could lead to improved efficacy and long-lasting immunity. And until Moderna’s recent achievement, no such candidate had posted strong Phase 3 clinical trial results. So, this was a breakthrough for the biotech leader, and intismeran autogene should become a commercial success.
However, Moderna’s shares may have risen too much, too fast following this clinical win. The company’s market cap is now $77 billion. Do intismeran autogene’s prospects justify that? In my view, even taking into account Moderna’s recently approved influenza vaccine, the answer is no.
Let’s assume Moderna can generate $5 billion in profits by 2031, and suppose we require a 12% rate of return. The company would need a forward price-to-earnings ratio of 27.1 by 2031 for its market cap to be justified at today’s levels. Will Moderna really command a forward earnings multiple that high by then, a factor based on expected growth?
For that matter, will the company generate $5 billion in profits by 2031? Note that Moderna developed intismeran autogene with Merck (NYSE:MRK), and the two companies will share the profits from this product equally. And according to some projections, intismeran autogene could generate over $1 billion in annual sales by 2031. For Moderna to rack up $5 billion in profits, it will have to launch more products — its influenza and coronavirus vaccines won’t allow it to make that much. But Moderna could face significant clinical setbacks.
