Moderna NASDAQ: MRNA is set to open up more than 11% today after announcing an agreement to sell at least 100 million COVID-19 vaccine doses to the US government.
Moderna has emerged as a leader in the race to produce a coronavirus vaccine; the biotech’s 30,000 volunteer study is the largest in the world. Its mRNA-1273 candidate is in the final stage of testing and Moderna expects it to be completed in September.
US Government Deal Has Additional Upside
The agreement to sell 100 million doses to the US government is great news for Moderna, but the deal also grants the US the option to purchase up to an additional 400 million doses. With the price per two dose-course coming in at around $30.50, an additional 400 million doses would equate to around $6 billion more in revenue.
Of course, the race for a vaccine is crowded and involves a lot of major players. The US government has also reached advanced purchase agreements with Johnson & Johnson NYSE: JNJ, AstraZeneca Plc NYSE: AZN, Pfizer Inc NYSE: PFE and BioNTech SE NASDAQ: BNTX, and Sanofi SA NYSE: SNY and GlaxoSmithKline Plc NYSE: GSK for their respective vaccine candidates.
To give you an idea of the formidable competition, Pfizer received a fast-track designation from the FDA and aims to produce up to 1.2 billion doses by the end of 2021.
Moderna is also aiming to produce 1 billion or more doses in the near future, but is looking for manufacturing partners to support this effort.
Moderna Is An Unproven Company
If Moderna is the first to produce an FDA approved vaccine, and manages to produce a billion or more doses, shares will go to the stratosphere.
But those are two big “ifs.”
As it stands, Moderna has:
- Never broken $300 million in annual revenue (it has a market cap of over $30 billion).
- Specializes in mRNA vaccines, a promising but unproven type of treatment.
- Doesn’t have any other products in late-stage trials.
So even though Moderna’s COVID-19 vaccine candidate seems promising, there is a lot of uncertainty with their ability to beat formidable competition on development – not to mention, distribution.
US Government is Investing Heavily in Vaccine Candidates… But Not Much in the Grand Scheme of Things
On the one hand, the US government has now invested $2.5 billion in Moderna (it previously provided $1 billion for research efforts). You could look at those investments as major votes of confidence.
But on the other hand, the government has spread billions of dollars to several vaccine developers. It is simply taking a prudent and diversified approach in order to secure hundreds of millions of doses as soon as possible.
And it makes perfect sense. The government has been forced to spend trillions of dollars in order to alleviate the virus-induced damage to the economy. Compared to that damage, a few billion-dollar commitments are drops in the bucket – especially considering the upside.
Overhead Resistance on the Chart
MRNA is set to open in the mid-$70s today, where it will run into a lot of resistance from the past three months.
In May, shares peaked at $87, after more than quadrupling over the previous three-and-half months.
From there, shares based for two months, before breaking out to new highs. However, the breakout was short-lived and MRNA peaked at $95.21.
Over the past month, the price action has been very volatile, bouncing between the high-$60s and the low-$80s.
From a technical standpoint, I’d hold off on MRNA – it’s best to wait and see how it reacts to the news.
Ideally, it would put in a proper base, culminating in a decisive breakout. But that may be unrealistic with the nature of the coronavirus vaccine news cycle.
A Risky Proposition
You’ll need to have nerves of steel if you plan to buy-and-hold Moderna. There’s a lot riding on its coronavirus vaccine – which, this can’t be stated enough – is filled with uncertainty.
If you want to make a play on MRNA, I’d look for a short-term entry point. A tight three-month base is a pipedream with MRNA. But if shares can consolidate for a few weeks and decisively breakout to new highs, you can look to get in. Just make sure you put a stop-order within 5-10% of your purchase price – you need to protect your downside on MRNA.
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