Karen Andersen, CFA, senior strategist, biotechnology, Morningstar

After 11 years of researching and developing mRNA-based vaccines, Moderna emerged from relative obscurity last year to receive emergency authorization for its first-ever vaccine to reach the market, the mRNA-based COVID-19 vaccine (mRNA-1273), joining Pfizer and BioNTech.

“mRNA has been a game-changing approach as we work to combat the pandemic and look beyond,” Moderna CEO Stéphane Bancel and two senior executives declared in an open letter last month. “We are dedicated to bringing our mRNA vaccine platform to multiple diseases where there is an unmet need, and we are hopeful for the breakthroughs that we believe Moderna will be able to achieve.”

Two weeks ago, Morningstar initiated coverage of Moderna, laying out three scenarios for the company: An optimistic “bull case” for shares rising to $207—18% above Thursday’s closing price of $175.59; a gloomy “bear case” for $79 a share, a 55% price plunge—and a still-dramatic 33% price drop under its “base case” scenario of $117 a share.

Worse for Moderna, Morningstar assigned the company its “very high uncertainty” and “no-moat” ratings, concluding in a report that Moderna is still building its “moat,” or sustainable, competitive advantage. Morningstar cited the shrinking COVID-19 vaccine and drug market, which it projects will fall from $67 billion this year to $61 billion in 2022 and up to $8 billion annually starting in 2023; and how effectively Moderna can build a broad pipeline of vaccines and therapeutics.

“We see threats of major value destruction,” Morningstar warned.

Moderna’s COVID-19 vaccine is projected by Morningstar to generate $18.8 billion in sales in 2021 and $16.5 billion in 2022, followed by roughly $2 billion in future annual sales due to recurring booster shots in high-risk populations.

Morningstar gave Moderna a 60% probability of launching its most advanced prophylactic vaccines in CMV (now entering Phase III) and influenza (entering Phase I) in 2024, but only 40% and 30% for hMPV/PIV3 and respiratory syncytial virus or RSV, respectively; both are expected to launch in 2025. Morningstar assigned 40% probability to Moderna’s KRAS cancer vaccine and intratumoral triplet programs, but only 10% for the personalized cancer vaccine program.

“We think it has both the funding and the technological capabilities already in-house to bring most of these programs to market,” Morningstar observed. “However, we see uncertainty around its defenses against other novel mRNA vaccine market entrants, and we think the firm is still in the process of building a moat, as we expect multiple new competitors will be entering the vaccine market during and following the pandemic.”

GEN Edge discussed Moderna’s strengths and challenges in COVID-19 and beyond with Karen Andersen, CFA, Morningstar senior strategist, biotechnology.

GEN Edge: Why did Morningstar assign Moderna ratings of “very high uncertainty” and “no-moat”?

Karen Andersen: The market that Moderna is in the process of really establishing for mRNA therapeutics, with BioNTech simultaneously, to me looks just incredibly promising. But there is incredible uncertainty about who will end up having the most promising technology.

Some of the factors that have made Moderna and BioNTech so successful during the pandemic—their ability to scale up manufacturing quickly; the ability to just, in a few weeks, actually make the vaccine—are things that I worry could make it easier for a competitor to come in with, if someone has a better way of modifying the mRNA, or if someone has a better lipid nanoparticle or even equivalent, or if someone’s willing to offer cell products at a lower price. Those are things that we feel could substantially interfere with Moderna’s ability to maintain any kind of competitive advantage in the long run.

GEN Edge: What are Moderna’s biggest challenges?

Andersen: The key is with the virus. We’re not really sure how much more it will mutate, and how many more shots people will need. Is this going to be something where everyone needs an annual booster for COVID-19, which is something we put in our bull case? Or is it something where maybe only infants will need it and there won’t be any more change at all? That’s something that we put in our bear case scenario.

Other challenges we outlined in the report are companies that we see right now developing mRNA vaccines for COVID-19—companies like CureVac and GlaxoSmithKline, which have worked for a long time on mRNA technology. In China, AbogenBio, the Institute of Military Medicine, and Walvax Biotechnology will enter Phase III with their mRNA vaccine called ARCoV in May.

If you look at the patent protection that Moderna has, they use a proprietary lipid nanoparticle. But one of the key modifications that they’ve made to the mRNA sequence itself is based on some technology that came out of [the University of Pennsylvania] back in 2005, and that’s something that both they and BioNTech have licensed. Once that expires, or if other companies can find other ways to modify mRNA around that, that’s where I start to wonder exactly how strong that defense is against other companies doing, if not exactly the same thing, something quite similar using different technology.

GEN Edge: Why is UPenn’s technology of concern?

Andersen: One issue is that it’s not exclusive, and the other is, how long would that protection actually last? On the lipid nanoparticle side, I know Moderna is using its own technology, but obviously, that’s not the only lipid nanoparticle that can work. BioNTech uses a different one that, by anyone’s analysis, looks virtually identical for the COVID-19 vaccine. That’s where I am looking at the intellectual property on a few different levels.

GEN Edge: Moderna, CureVax, BioNTech, and GlaxoSmithKline account for nearly half of mRNA vaccine patent applications. Yet several other firms have patents in that field. How likely is Moderna to consolidate the fragmented field through mergers and acquisitions?

Andersen: That would definitely be an option, especially for the smaller companies that have innovation with a new delivery technology. I think that other firms are probably going to be looking to make acquisitions and make similar moves as well.

GEN Edge: What else will Moderna need to do to create that competitive “moat”?

Andersen: Hopefully we’re moving towards the end of the pandemic. Clearly, there’s an innovation gap between Moderna, BioNTech, and anyone else who’s looking at mRNA technology. Other companies are clearly behind.

The key question to me is: can Moderna keep it that way? Can they always stay one step ahead of their competitors? Part of that decision for moving them to a narrow moat would be watching these readouts for other companies like Translate Bio and Sanofi or CureVac, and seeing if they’re able to do things with their own technology with mRNA that also looks promising. If they’re not, that might be more of an indication that Moderna and BioNTech are in a separate class for now.

Part of it is just looking at what other modifications Moderna is able to make or other proprietary changes. If they continue to stay with their lipid nanoparticles, it implies that maybe there’s not as much of a hurdle for other companies to come up with their own lipid nanoparticles like BioNTech has, that are just as safe and effective.

Part of it is watching what additional changes Moderna is able to make, and part of it is watching the competitors and seeing what their clinical data actually ends up looking like.

GEN Edge: What uncertainties over COVID-19 fuel concern, if not skepticism, about Moderna?

Andersen: In every scenario, we’ve modeled very strong pandemic sales in 2021 and 2022, and then also assumed a third dose, a booster shot. We don’t know exactly what this is going to look like because Moderna is still studying this in trials. Either it’s going to be a dose like the one we already have, or it’s going to be something that’s more based on, for example, the South Africa variant. It looks likely that we’re going to be seeing that at least evolving, while the virus is still circulating at higher levels globally.

For the scenario analysis we looked at how the virus might evolve beyond this, so once we get to a point where maybe it’s not spreading as widely, maybe it’s not given as much opportunity to mutate. So, maybe we won’t actually see much change beyond this.

mRNA technology is very new, and even if the virus makes no changes from here on out, we have no idea how long that protection will last: We know at least six months, but we don’t know if there could be some residual protection for 10 years? 20 years? Or for just one year? At this point, it’s difficult to make that call. Those are the key uncertainties.

On an even bigger level, we have examined in this report the idea of herd immunity and whether that’s possible globally. We’re increasingly thinking that herd immunity globally looks very unlikely. In the United States, I think there definitely could be very large parts of the country that see something similar to herd immunity. There are definitely going to be regions where vaccination rates maybe aren’t quite as high, and we’re still seeing some virus. But assuming we continue to see people get vaccinated over the next few weeks, and then we see maybe approval for ages 12 1/2 and up, that’s going to help get more people vaccinated who might be spreading this in middle school and high school.

We saw the vaccines generate very strong efficacy data in trials, and vaccine hesitancy went down. Then we’ve seen what’s happened with AstraZeneca and Johnson & Johnson (J&J) being more scrutinized for some very rare side effects. So now, people are, I think, at the very least very hesitant to get the J&J vaccine, but it may have rubbed off a little bit on the idea of just getting vaccinated, or even getting a second shot of Pfizer or Moderna. So yes, probably more so than other companies I cover, there are uncertainties on many different levels for this company.

GEN Edge: Morningstar sees potential for post-pandemic sustained revenue for the COVID-19 vaccine through booster shots—$8 billion in annual sales in the bull case, dropping to $2 billion in the base case, and $500 million in the bear case. How much of projected sales this year and next will come from booster shots?

Andersen: That’s a good question. The vast majority of the sales projections are just the first two doses for 2021. But if you look at our 2022 sales projections, it’s probably two-thirds of sales coming from booster shots.

Part of this assumes that Moderna is providing booster shots for people who’ve had the first two doses of Moderna, but also the idea that we think mRNA shots are clearly most advanced in terms of studying booster shots. I don’t know what the odds are that J&J and AstraZeneca are going to be in that market, so I think there could be a lot of people who got AstraZeneca or J&J shots and end up getting a third dose of Moderna or a third dose of BioNTech. It makes it in my mind at least a bigger market opportunity, but just for a single dose.

GEN Edge: Your report also says, “We’re not yet convinced that COVID-19 will require widespread annual booster shots and, if so, whether these firms will remain dominant in the long run.” Is the bear scenario therefore the likeliest one?

Andersen: No. The key word would be “widespread,” because our base case is more focused on vulnerable populations. These would be infants, who obviously wouldn’t have any protection at all. Then, more elderly populations who may be more likely to lose protection or, if there’s a new variant, more vulnerable to having more severe disease.

The bull case would be implying that we desperately need companies like BioNTech and Moderna to, every six months or every year, continue to churn out the latest vaccine for the latest variant, and it’s a constant battle of trying to keep up with this virus. The bear case is coming to a standstill in terms of a lot of significant variation in the virus and fairly long-lived protection. That would mean globally, we would be in much better shape longer-term in terms of coronavirus, and we would just probably end up in a situation where we’re vaccinating young kids just to maintain the protection that we have.

GEN Edge: The report lays out three scenarios for Moderna’s future stock price a year from now. How key to Moderna’s future stock price, let alone its future, is pipeline building beyond COVID-19?

Andersen: If you’re thinking about their pipeline beyond COVID-19, looking at the other prophylactic vaccines they have in development for infectious disease, their cancer vaccine treatments, looking at everything in terms of more mRNA therapeutics for basically replacing biologics that we have today, that’s something that we didn’t vary substantially in our scenarios. If we had, Moderna would have become, in our terminology, more of an extreme uncertainty company. In reality, it probably is kind of borderline between very high and extreme uncertainty.

We decided that it’s just too early to include all their programs in our model, given that many are at the point where they’re just beginning clinical trials. Generally, we like to see a little bit of clinical data before we put something in our model, even if it’s just encouraging Phase I data. That’s clearly something that everyone is watching, in terms of where does Moderna go past COVID-19. We included a lot of the prophylactic vaccine programs because clearly there’s proof of concept with COVID-19, and a lot of these programs have already generated data. And a lot of these, we’ve given more than a 50% probability that they get through.

Cancer, I think, is a little earlier and a little more complicated in terms of, it’s not just about having mRNA that’s capable of generating whatever antigen you’ve picked. It’s finding the right antigen and cancers. That’s why we have less than 50% probability of approval on the cancer programs that we included in our model. But if you look at Moderna’s technology and think two things—one, they’re eventually going to figure out how to apply mRNA in all of these areas, and two, other companies are not going to figure out how to do this—then you’re looking at something worth well over $200 a share.

GEN Edge: Most of Moderna’s prophylactic vaccine candidates are in Phase I or about to enter the clinic. How much is that a challenge for Moderna? For example, Moderna has a Phase I vaccine candidate for RSV, where AstraZeneca and Sanofi on April 26 reported positive Phase III results for their monoclonal antibody candidate nirsevimab.

Andersen: What we did in our model is, for any of the programs that we felt were at a point where they were worth including, we figured out what the target population would be, what percentage of the population we think would be likely to actually get a vaccine. And then, we also gave a percent of that that we think Moderna would be capable of getting.

For an area like hMPV/PIV3, to my knowledge, that’s not a very competitive area, so that’s where we basically gave Moderna the market. On the opposite end of that would be things like RSV and flu. Obviously, flu is extremely competitive. In RSV, there are tons of programs, including programs with antibodies like nirsevimab.

In our base case, we’ve given Moderna something more like 15% roughly of whatever that market is to give us an idea of what peak sales potentially could actually be in a more competitive landscape, because if you do have an antibody, sure it’s not a vaccine, but if it’s protecting infants during really the most vulnerable time of their lives, that’s really what you’re trying to accomplish. You don’t need to have someone protected against RSV their entire lives.

GEN Edge: What pricing pressure does Moderna face for its pipeline vaccines? The U.S. Centers for Medicare and Medicaid Services has approved reimbursement of up to $40 a dose for the Moderna and Pfizer COVID-19 vaccines. How much more can Moderna expect for the pipeline vaccines?

Andersen: We’ve been a little more cautious on pricing, generally keeping prices in the United States closer to maybe $100 or $150 for the most innovative products. As we start to see data come out, there has to be some appreciation if these are the only vaccines for a certain virus.

Moderna doesn’t want to be seen as the enemy when it comes to pricing. Obviously, it’s going to be all over the news, whatever pricing they decide for any of their products, so that’s going to be a very difficult area for them to navigate going forward.

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