Description

Moderna Inc. (MRNA) will not be unfamiliar to anyone who has lived through the past 15 months. We do not intend to lay out here an exhaustive narrative of the sell-side research, popular press coverage, regulatory agency announcements, social media activity or the company’s own communications, but we feel that for much of the past few months, bottoms-up, fundamental analysts have been put off due to massive sentiment-driven retail speculation in vaccine-exposed stocks, the unknowable path of the pandemic, and corresponding government policy trajectory. We believe that is now changing, and at the very least the shares now embed such an unrealistic view of future cash flows that investors will be attractively compensated with a margin of safety for holding a short position through what is sure to be a volatile next 12-18 months. We believe a generous DCF-based modeling of the business through the next decade yields a fair value of just $176 per share, or 55% downside from current, suggesting one of the most attractive short risk-rewards we have seen in recent memory.  This valuation gives MRNA full credit for a very optimistic earnings profile for both the company’s COVID-19 vaccine and its product pipeline. A further, more realistic look at the pipeline yields our base case fair value of $126 per share, -68% from current.

First, to summarize some of the more bullish arguments we have heard on the stock:

1.       Argument: There is nothing fundamental about this stock. There is no model that will help you analyze how this stock trades. There is no research you can do to get comfortable on either side of the trade. Our view: While we acknowledge this view certainly describes the trading in recent months, that is really the opportunity for patient investors to engage in the midst of a panic-driven bubble. To illustrate a stark difference between MRNA and another S&P 500 constituent that has been untethered from fundamentals for years, Tesla: at least in the case of Tesla there is an open-ended secular growth story with clear global policy tailwinds, whereas we have heard of no one on the buyside or sellside who believes MRNA revenues will not be declining precipitously after 2022. It thus seems much harder for a stock now trading at 8x peak revenues to continue to generate excitement for the future. The high retail ownership of MRNA is a double-edged sword; we believe these holders are generally weak hands that will sell as quickly as they entered, compounding the violence of downward moves as the narrative meets a more sobering reality.

2.       Argument: Consensus numbers are too low and upward revisions will continue throughout 2022. Our view: It is true that analysts have undershot relative to likely demand, especially prior to MRNA’s 2Q21 update. Even after the quarter, there are still a meaningful number of estimates for 2022 revenues below $14bn, while MRNA’s disclosure of $12bn in advanced purchase agreements for next year implies something higher. Yet we question how a stock could rise 275% in 8 months without embedding some amount of future upside to estimates, and think we are approaching a level at which further surprises are constrained by the upper bounds of theoretical global demand – more on this below.

3.       Argument: The exceptional speed to market and efficacy of MRNA’s COVID-19 candidate de-risks the rest of the pipeline, implying a higher probability of success for other infectious diseases, oncology, and rare diseases candidates. Our view: We believe this narrative has gained particular traction with generalists and retail investors, who assume that the technology will prove similarly efficacious against a wide range of different antigens with significantly different biology vs. SARS-CoV-2. However, our research has struck a cautionary tone, especially given the lack of data MRNA has provided thus far on the efficacy of pipeline candidates, and the poor track record of success among mRNA approaches in oncology in at least a decade of focused effort. One can even assume that all of MRNA’s late-stage candidates are approved without approaching today’s market value. More discussion of this below.

4.       Argument: The emergence of highly infectious variants of concern suggests (1) multiple future waves of boosters are needed, including the potential for ongoing annual or semiannual boosters in perpetuity, (2) existing vaccines are inadequate to prevent breakthrough infections, so newer generations of the vaccines are required which will rely increasingly on mRNA technology, with its rapid development times and high efficacy, and (3) herd immunity threshold is meaningfully higher than originally thought due to higher R0 of VOCs like the Delta strain, while observed rates of non-compliance will prevent us from reaching this threshold in the timeframe expected.” Our view: This is the crux of the scientific argument for MRNA, and while we are not virologists or epidemiologists, we believe the preponderance of evidence available today casts significant doubt that this gloomiest of auguries is the likeliest outcome. To start, it is noteworthy that MRNA decided to stick with their original prototype formulation for boosters, which suggests that the existing conditionally approved vaccines are sufficient to confer protection against VOCs like Delta, as opposed to any next generation candidate put forward thus far. Second, evidence from India, Missouri et al. suggests that lower vaccine coverage rates can “steepen the curve”, speeding the rate at which virulent strains burn through a population and increasing the unobserved coverage through natural immunity, which may mean we are closer to herd immunity than assumed based on doses administered, although important caveats remain. Third, most of the arguments for ongoing boosters rely on the shorthand that elevated neutralizing antibody titers are equivalent to elevated vaccine efficacy, which has several problems.

a.       For one, neutralizing antibodies are supposed to decline after vaccination. The waning immunity as measured by reduced antibody levels ignores the role of cellular immunity, which is the harder-to-measure but more durable interplay between cytotoxic T-cells and memory B cells that can remain dormant for years or decades. This is the main mechanism of durable immunity in many vaccines – to make the obvious point for another well-known vaccine, the reason individuals inoculated with the polio vaccine do not become vulnerable to the disease later in life is not because neutralizing antibodies remain elevated throughout the remainder of the patient’s life, but rather because the immune system has been primed to generate these antibodies when necessary.

b.       Second is a detail from MRNA’s own Phase 3 COVE clinical study. The company presents data showing no discernible erosion in vaccine efficacy (VE) through at least 4 months of follow-up after dose 2 (Figure 1). In fact, the slide is titled “Phase 3 COVE Study: Vaccine efficacy is durable through six months”. Yet this is the same company urging a booster at 6 months post primary course—why is this medically necessary if the study shows exceptionally high protection as far out as they have measured? While we are not arguing that boosters should not be recommended (which in fact has already happened for vulnerable individuals), Moderna’s own study presents evidence that a six-month interval after the second dose is unnecessarily brief for the general population.

Figure 1: MRNA Vaccine Efficacy over Time.

Source: company 2Q21 earnings presentation

Finally, it is worth pointing out that the scenario in which annual boosters are recommended not only in 2022, but also indefinitely into the future, is already widely modeled by most analysts, so we do not believe this is upside to consensus. Bloomberg consensus assumes at least $6bn of revenues for the company at least through 2028, and an average of $14.2bn during in the years after 2022. The sparser Visible Alpha estimates for specifically COVID-19 revenues show ~$4bn through 2028, an average of $5bn per year, which is ~240mm doses a year at the 2Q21 blended ASP of $21/dose.

Figure 2: Bloomberg and Visible Alpha Consensus for Moderna’s Overall and COVID-19 Revenues, Respectively:

Source: Bloomberg and Visible Alpha as of 8/13/21

To put this into context, data from the World Health Organization tells us that prior to the pandemic, the global market for seasonal influenza vaccines was US$4bn and 500mm doses (implies US$8/dose). So if COVID-19 becomes an endemic seasonal virus on the order of influenza (surely a bull case scenario for which limited evidence exists today), the current consensus view is that MRNA will maintain almost 50% global market share at almost triple the blended average price per dose of influenza. This strikes us as an exceptionally aggressive base case, which nevertheless still fails to justify Moderna’s current sky-high valuation.

One way we have gotten comfortable in sizing the 2022 opportunity (and beyond) for MRNA is by working backward from the global population to find an addressable number of patients, then applying what we know thus far on pricing.

What Is the Maximum Number of Patients Served by MRNA in 2022?

There are ~7.8bn humans alive today. To start with, we can subtract off China’s 1.4bn as being unaddressable for the following reasons:

·       Aside from the geopolitical motivations to support national champions and avoid using American vaccines, China has already administered 1.8bn doses, enough to give every Chinese citizen at least partial protection.

·       The country already has 5bn doses a year of available capacity, with a further 1bn doses lined up to be supplied by Pfizer/BioNTech through local distribution by Fosun Pharma next year. In fact, assuming China does not wish to use the less efficacious inactivated vaccines originally rolled out domestically, they will still have at least one dose per capita of either Cansino’s adenovirus-based vaccine or the PFE/Fosun mRNA vaccine.

·       Far from being a net importer of vaccines, China has demonstrated marked success exporting COVID-19 vaccines to Belt-and-Road partner nations in Southeast Asia and the Middle East, tallying almost 600mm doses exported as of July 2021. So even if many of these patients are redosed later on, the ROW pie is getting smaller for MRNA, especially for primary doses.

This leaves us with 6.4bn remaining individuals. We believe that we can eliminate 30% conservatively off the top, or 2.0bn, as non-compliant for ideological, logistical, financial, religious or public health reasons.

·       Even in advanced economies where vaccines are plentiful and provided at public expense, surveys show that ~15-30% of people are unwilling to receive the vaccination, or ~30-40% of people including those who are uncertain if they will receive the vaccination:

Figure 3: Willingness to Get Vaccinated against COVID

Source: Our World in Data

While reluctance to getting the vaccine likely bodes well for the longevity of the COVID-19 vaccination opportunity, it constrains the absolute number of doses that can be administered in any period and thus puts a cap on annual demand.

·       According to WHO statistics, 5.2bn people live in what the agency terms low and middle income countries (LMICs) excluding China. This designation covers a wide range of economies, with 57 generally poorer nations like India, Pakistan, Nigeria and Ethiopia (over 3bn people in total) relying on Gavi for procurement support through the COVAX facility.

·       In an upside case, we might hope that vaccine coverage for COVID-19 is able to use the existing infrastructure in these countries for common childhood inoculations like tuberculosis, measles and diphtheria, although this is probably unrealistic due to the added difficulty of convincing an adult population to take time away from their lives to receive the vaccine (they should be less compliant than newborns to make an obvious point). Even assuming this is achieved in 2022, we can see in Figure 4 that coverage for routine childhood vaccines runs around 80%, further reducing the addressable population for MRNA:

Figure 4. Childhood Vaccination in Gavi Countries

Source: Our World in Data

In our view  it is probably a conservative assumption to say that ~20% of the Gavi populations are not addressable even if they were willing to be vaccinated.

Lastly, we can eliminate the portion of the world population under the age of 6 months, or ~50mm, and a further 6mm living in exceptionally sparsely populated areas of fewer than 5 people per sq km.

Figure 5. Build-down of Global Addressable Population

These adjustments quickly reduce the addressable number to ~4bn people, only 53% of the global population. Of the 4bn, only 21% or 880mm represent high income countries, from which 92% of MRNA’s disclosed orders for 2021 have come. These countries will have mostly fully vaccinated their populations by year-end (even as of today, over 70% of the EU has received at least one dose, 60% of the US population has received at least one dose, 46% of Japan, 41% of Korea, 72% of Canada), leaving fewer than 200mm addressable by primary dose beyond 2021 (probably closer to 150mm).

A quick study of other large countries further whittles down the addressable market. For instance, in India, the world’s largest producer of vaccines, there are three local vaccines accounting for hundreds of millions of doses (Bharat Bio’s COVAXIN at ~400mm doses, Biological E’s 300mm doses, 50mm from Zydus Cadila), in addition to the large number of Astra-Zeneca doses produced by Serum Institute locally (500mm doses), and another 250mm doses from the Russian Sputnik V vaccine imported and over a billion doses slated for production locally. MRNA is authorized for local distribution in concert with Cipla, but the dosage numbers have not been disclosed. Taken in conjunction with India’s higher rates of reticence about the vaccine and the higher ASPs of MRNA’s vaccine, it seems likely that MRNA’s ultimate volumes in this market will fall far short of its share in HICs.

Source: https://www.bbc.com/news/world-asia-india-56345591

In Russia, the only approved vaccines are being produced by Russian developers – Gamaleya, FBRI, and Chumakov Center. The government’s disparaging comments about foreign-produced vaccines like the mRNA vaccine produced by MRNA have been blamed for a lack of trust among the population even for the local alternatives. It thus seems very unlikely that American-made, next-generation technologies like MRNA will gain any traction.

In Brazil, Moderna is still not approved for use, with Sputnik, Pfizer/BioNTech, JNJ, Astra-Zeneca, Sinopharm, and Sinovac all already approved. The breakdown of the 143mm administered doses in Figure 6 reveals a much higher weighting of Sinovac and Astra-Zeneca than in higher-income countries:

Figure 6. Doses per Manufacturer Breakdown in Brazil

Source: PAHO

Brazil is far from an outlier within the PAHO (Americas) region – Mexico has not approved MRNA, while in Argentina only 2% of doses administered have been MRNA. This does not mean, of course, that MRNA will not achieve some orders from this part of the world next year (they have disclosed 10mm doses from Colombia and 20mm doses from Argentina in the order book), but they are not approaching HIC market share even including these orders.

So we estimate that of the roughly 4bn patients that are at all addressable, 20% are most addressable, with some big question marks about the remainder.

MRNA market share

The brings us to Moderna’s market share of this opportunity. To start, we can look at the company’s own disclosure about order mix for 2021 and 2022. In Figure 7, we have laid out 2021 guidance for shipments in millions, our  estimate for ASPs by region, and implied revenues next to the addressable number of doses in the top table (assumes 100% vaccination in 2021 which is not going to happen). Because MRNA does not disclose some orders (Botswana, Saudi Arabia, UAE, Singapore), we can bridge to about $19bn of the $20bn guided for 2021. The analysis suggests 11% market share of the global opportunity (where “global opportunity” means total addressable population * 2 doses per person – hence an implied 81% share of the US, where doses procured across all suppliers far outnumber the addressable population).

In the bottom table, 2022, the analysis becomes a bit more complicated because we must make an assumption about (1) primary vs. booster mix, and (2) whether options are exercised for additional doses beyond the existing signed advance purchase agreements. The gray-highlighted columns assume all options are exercised. Some of these options seem less likely to be exercised than others (for instance, Japan has the option to take an additional 100mm doses in 2022, on top of the 50mm already committed, but this would mean more MRNA doses in 2022 alone than the 126mm population of Japan, in addition to the ~50% of Japanese with at least one dose as of today). As for boosters, all evidence today points to HICs as the main opportunity, since LMICs will still be trying to get primary doses administered through 2022 and beyond. Based on the existing APAs, MRNA will achieve about 10% share of the global addressable dosing opportunity next year, which increases to 19% if all options are exercised.

It is noteworthy that the share of HICs is still 70% of total doses in the orderbook, or 51% if all options are exercised, which we feel shows strong evidence of poorer nations’ inability to pay MRNA’s more elevated asking price (many of the Chinese and Russian doses are distributed free or at cost, while Astra-Zeneca’s and Novavax’s price to LMICs is substantially lower than MRNA’s). The revenues from HICs, which again are only about 870mm addressable individuals, will decline 23% YoY in 2022 even if all options are exercised, and this becomes an even bigger decline in 2023 when no primary dose demand (which is twice the volume per individual) remains.

Figure 7. Moderna Disclosed Orders and Implied Market Share

Another way of assessing market share prospects is by comparing production volumes for the other major suppliers.

In clinical trials, BioNTech/Pfizer’s mRNA candidate BNT162b2 showed comparable efficacy and safety to MRNA, and has generally moved faster through subsequent commercialization and regulatory milestones (for instance, BNT162b2 completed BLA submission before MRNA, was granted EUA for adolescent populations first, disclosed 2.2bn doses contracted for 2021 vs. MRNA’s ~900mm, shipped over 1bn doses in 1H21 vs. MRNA’s 300mm, and has >1bn doses booked for 2022 vs. MRNA’s 500mm). BNTX has a more robust clinical pipeline than MRNA (15 oncology candidates in trials vs. MRNA’s 4), and PFE and BNTX will have 4bn doses of capacity for 2022 vs. MRNA’s 2-3bn (depending on booster dosage). Thus, in any estimate of the total market for mRNA COVID-19 vaccines, PFE/BNTX appear to have 60-70% market share.

Nor are MRNA and PFE/BNTX the only companies developing mRNA vaccines for COVID-19.

·       Recently the Korean president unveiled plans for a $1.9bn investment in homegrown coronavirus capacity, including original mRNA technology, which will make the country a top 5 global producer.

o   Source: https://www.reuters.com/world/asia-pacific/skoreas-moon-vows-invest-192-bln-by-2025-boost-vaccine-capacity-blue-house-2021-08-05/?taid=610baaf23233bc00010b54da&utm_campaign=trueAnthem:+Trending+Content&utm_medium=trueAnthem&utm_source=twitter

·       In China, local developer Walvax is in Phase 3 trials with an mRNA vaccine. The trial includes 28,000 patients with an estimated primary completion in October 2021. In parallel, Walvax is constructing a facility with 120mm doses of capacity.

o   Source: https://covid19.trackvaccines.org/vaccines/23/

o   https://www.reuters.com/article/health-coronavirus-china-vaccine-idUSKBN28V0KN

·       Gennova is in clinical trials in India with a target of 60mm doses by year end.

o   Source: https://indianexpress.com/article/business/founder-and-ceo-of-emcure-pharmaceuticals-satish-mehta-interview-mrna-vaccine-7444860/

·       While CureVac’s phase 3 readout was a disappointment and reduces the near-term threat from another prominent German mRNA developer, the candidate is still being considered for certain sub-populations and has the infrastructure in place to produce 1bn doses a year.

Outside of mRNA, Novavax’s protein-based construct showed strong results in Phase 3 trials and is currently in the submission process for conditional approvals globally. The company recently reiterated plans for 2bn doses of capacity in 2022, of which ~1.3bn is contracted with Gavi for COVAX and the European Commission.

Astra-Zeneca’s Vaxzevria has released around 1bn doses through July 2021 and accounts for 90% of dosage supplied through COVAX to date. Through partnership with the Serum Institute of India, AstraZeneca will be capable of supplying >3bn doses from 2021 onward, sold at cost.

A quick back-of the-envelope analysis (Figure 8) reveals that relatively little of the ~4bn addressable population will remain to MRNA and BNTX in 2022. Making the quite generous assumption that only patients receiving the mRNA vaccines will not need two doses next year (ignoring the AZN, JNJ, Russian, Chinese and Indian vaccines completely), MRNA will have already dosed 450mm individuals in 2021 and PFE/BNTX will have already dosed 1.1bn, leaving 2.6bn individuals in the addressable population unvaccinated and thus requiring two doses in 2022. Again, making the very generous assumption that 700mm people in HICs (= 83% compliance as a percentage of the addressable population) receive a booster, we reach an upside estimate of 5.9bn doses of demand in 2022. Subtracting off the known NVAX contracted doses, assuming 1bn AZN doses (the same they shipped in the first 7 months of 2021 and far below slated capacity), and assuming a further 1bn from other vaccines (hundreds of millions of Chinese exports, hundreds of millions of Russian exports, hundreds of millions of domestic Indian doses, hundreds of millions of JNJ would easily clear 1bn if not 2bn), then we are left with only 2.6bn doses of mRNA demand from the addressable population. If BNTX/PFE takes 60% of this market, MRNA is left with 1,000mm doses of remaining demand. While MRNA could ship more than 1,000mm doses in 2022, the analysis below simply means that any excess would either go unused, be wasted or be stockpiled, all of which would depress future-period orders. At MRNA’s anticipated country mix, the projected revenues from 1,042mm doses would be $16.7bn, which is already significantly below consensus $19bn, effectively limiting the remaining upside revisions that are possible.

A small footnote on wastage. Our research implies that 5-15% of doses shipped are ultimately discarded. However, to use the example of the US, the CDC will reduce future shipments of vaccine to sources where wastage is occurring, which ultimately means that current-period waste results in lower future orders and is effectively a pull-forward. 

Figure 8. Build-Down to MRNA Addressable Demand

Beyond 2022

Regardless of MRNA’s 2022 revenues, we believe there is no justification for the company’s current market valuation unless COVID-19 revenues are sustained for a much longer period. In the transition from a primary dose to a secondary dose market, dose volumes fall by 50%, so MRNA will either need to double market share or raise prices by 100% to offset the declining volumes. The table below (Figure 10) shows some of the challenges the company will face. By 2023, assuming 33% market share of the addressable market and a 75% uptake of the booster (quite high relative to influenza vaccine coverage rates in HICs, which are generally below 60% - see Figure 9), on flat pricing, revenues would decline 41% YoY. As the business increasingly relies on ROW doses to offset falling volumes in developed markets, we believe ASPs and gross margins will contract, to the tune of 600bps over two years through mix alone. There is significant downside to these projections if boosters are not universally recommended, if compliance with a booster is more comparable to other seasonal infectious diseases, or if MRNA’s market share in HICs underperforms the 33% modeled.

Figure 9. Developed Markets Seasonal Influenza Coverage Rates

Source: Bernstein

Figure 10. Revenue Build for MRNA through 2023

Note that the dramatic ASP decline in “Other” countries reflects the impact of MRNA’s disclosed 467mm dose commitment to Gavi/COVAX, which management described as “substantially” below the US price level of $16.50/dose – we assume $9/dose, which is still multiples of what other developers are asking from COVAX.

Rolling out the analysis on similar assumptions to 2030, assuming a gradual reduction in booster compliance over time, suggests the DCF below, where at -5% perpetuity growth and a 10% discount rate, MRNA’s COVID-19 vaccine is worth just $22.8bn or $53/share:

Figure 11. MRNA COVID-19 DCF

Playing devil’s advocate: if MRNA were somehow able to achieve strong demand and continue generating cash flows on the order of the 2021 level for the next 10+ years, the DCF should still only justify $91.7bn or $213/share of value, a far cry from the stock’s current $390 level (Figure 12). Thus, we can pick virtually any blue-sky scenario we like in the DCF without meaningfully approaching current market values. This all implies that MRNA will need to show incredibly strong results from the development pipeline to justify its market cap.

Figure 12. MRNA COVID-19 DCF if Peak Revenues Are Sustained Indefinitely

Pipeline

Moderna was a $6.7bn market cap in December of 2019, before the announcement of its candidate for COVID-19. This is the starting point for the market’s view on the value of the pipeline. So what has fundamentally changed in the intervening 20 months to alter the value of the pipeline?

1.       Success of mRNA vaccine in combatting COVID validates the platform value of the technology

2.       Increasing financial resources have expedited the breadth of MRNA’s early stage pipeline and development timelines of clinical candidates.

What has not changed, however, is that no substantive clinical trial data on any of the pipeline candidates have been published. There is no evidence that we are aware of that suggests that success against one antigen guarantees or even increases the likelihood of success against others, especially in areas as disparate as oncology immunotherapies, localized regenerative therapeutics, rare diseases and infectious diseases. The strongest case can be made for flu and RSV, which are at least other respiratory viral infections, and which MRNA has moved quickly into the clinic in the past 6 months. We could also add CMV, which has shown promise in clinical trials and is moving into Phase 3 soon. Ascribing some order-of-magnitude higher probability of success to the other pipeline candidates seems quite aggressive, but for the purpose of bull case argument we will assume that the pre-COVID pipeline value, excluding RSV, influenza and CMV, has now doubled to $13bn.

We further assume that MRNA is successful in its development of a flu vaccine, with such stellar results that the company quickly takes a 35% share of the global market at a 100% premium to prevailing prices, resulting in a >$3bn, growing revenue stream. While this is not a likely outcome (for instance, BNTX/PFE are collaborating on an mRNA-based flu vaccine as well which would eat into MRNA’s market share and pricing opportunity), it is still only worth $38/share or $16.5bn of present value:

Figure 13. MRNA Seasonal Influenza DCF

RSV is somewhat harder to quantify given the lack of an approved RSV vaccine, but we can compare CDC reported disease burden between influenza and RSV. The agency reports 235,000 hospitalizations of young children and adults over 65 per year from RSV, vs. 140,000-810,000 hospitalizations from influenza. RSV causes an estimated 14,000 deaths per year, while influenza causes 12,000-61,000 deaths per year. So flu causes ~2.0x the hospitalizations and ~2.6x the deaths of RSV on average.

Flu vaccines are a $4bn global market because they have been around forever and consumers are used to thinking they need to get them every year. Because RSV is most dangerous to newborns and the elderly, a comprehensive vaccine would need to coordinate a clinical trial with infants, where the risks of an ineffective vaccine are extremely high.

There is also a reason there is no RSV vaccine in the market – it is hard to develop. To quote Bernstein, RSV is “the largest vaccine graveyard. Many companies have failed… Although RSV is susceptible to neutralizing antibodies, it has evolved multiple mechanisms of immune evasion, allowing it to repeatedly infect people. If you are infected with measles, you develop immunity for life, but if you develop RSV, you can acquire it again because no immune memory develops against the virus.” And Sanofi, GSK, Merck, Pfizer, and Janssen all have candidates in the clinic already.

So whereas we can assume MRNA has a fair chance of achieving positive results with its flu vaccine, there is a long history of failed RSV vaccines, and we assume a greater than 50% chance of failure for MRNA. For what it is worth, the sellside is assuming ~$300mm a year in revenues from RSV, which is 10% of what we model for MRNA’s influenza vaccine. It is thus probably far too generous to assume MRNA receives the same value from its RSV vaccine as from flu, and there is certainly a lower probability of success, so we assume $10bn of present value from RSV.

Lastly, based on the company’s disclosure, CMV is a potential $2-5bn opportunity at ~$450/patient. However, the company is pursuing an indication for inoculation of women planning on becoming pregnant. We believe the likelihood of high uptake among this population is limited, because it would only be feasible in pregnancies planned out months in advance, and would require substantial education of OBGYNs before achieving significant market penetration.

MRNA is not alone in attempting to address this market, and will need to contend with clinical trial candidates from Merck, Hookipa and VBI Vaccines.

We thus model less than $2bn of revenues, around $6.4bn or $15/share of value.

Figure 14. MRNA CMV DCF

Adding up the various sources of derived value (COVID-19, flu, RSV, CMV all assumed to have 100% probability of success, double the pre-pandemic market cap for the remaining pipeline candidates, and cash net of customer deposits) results in only $176/sh of value, or -55% from current.

Figure 15. Bull Case MRNA Sum-of-the-Parts Valuation

Moreover, we believe the stock would still represent an attractive short at $176, since this still represents an excessively generous underwriting of the business, with billions of dollars of COVID-19 revenues through the end of the decade, assumed success in clinical trials for which we have yet to see any data, and a doubling in value for an early-stage pipeline that has yet to show any progress.

For our base case, we revisit some of the pipeline assumptions above:

1.       Assuming 100% probability of success for influenza, a candidate for which we do not even have Phase 1 clinical data, is a stretch. We reduce this to 75%.

2.       We further reduce RSV, in light of the challenges previously highlighted and the likelihood of competitive pressure in coming years, to 25% probability.

3.       We reduce CMV to 50% probability of success on the Phase 3 uncertainty and competitive picture.

4.       The rest of the pipeline is far more exploratory in nature and we believe will result in negligible commercial value to Moderna in the next 5-7 years. Outside of infectious disease, we also argue that extrapolations of the COVID-19 success become even more tenuous. We thus assume a pre-pandemic value for these assets of $6.7bn.

These more subdued yet, we argue, far more realistic assumptions result in a further reduction in fair value to $126/sh including operating cash, a further -28% below our bull case underwriting.

Figure 16. Base Case MRNA Sum-of-the-Parts Valuation

Catalyst

Earnings results

Clinical trial results

Improvement in global COVID-19 case rate