Key Points
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Moderna and Merck have developed a cancer vaccine that has been highly effective in treating melanoma patients.
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In a late-stage trial, it reduced the risk of death and melanoma recurrence by 42% when paired with Keytruda.
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The problem is that the vaccine is personalized and can be both costly and time-consuming to produce.
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The hottest stock in the S&P 500 this year has been Moderna (NASDAQ:MRNA), soaring well over 600% thus far. Investors have been bullish on the company’s growth prospects again, this time due to a cancer vaccine it’s been working on with Merck (NYSE:MRK), whose cancer drug Keytruda has generated tens of billions of dollars.
Data from recent clinical trials has investors optimistic that the vaccine could bring in a boatload of revenue for Moderna, potentially giving the healthcare company the long-term growth catalyst it has desperately needed. While its COVID vaccine gave it a temporary boost, this could be a much more sustainable growth opportunity.
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While it looks probable that the vaccine will obtain approval given its encouraging results, there could still be a big obstacle to its long-term success: producing it in high quantities.
Image source: Getty Images.
Why mass-producing it won’t be easy
In clinical trials, the vaccine, known as intismeran, showed that it was highly effective in treating melanoma patients when used with Merck’s leading cancer drug, Keytruda. The risk of death and melanoma recurrence dropped by 42%, versus when Keytruda was used by itself.
It’s a tremendous sign of success for the vaccine, but it’s also a personalized vaccine. That means it can’t simply be produced at significant scale, at least not easily, anyway. It requires a custom-manufacturing process which can span six weeks.
That means the cost of the treatment is likely to be high as the production process won’t have the same economies of scale that other drug and vaccine makers benefit from. While it can still generate more than $5 billion in peak annual sales for Moderna based on one analyst’s projections (based on just melanoma), investors may need to temper their expectations as to how long that may take and how profitable the vaccine will be.
Moderna’s stock hasn’t been this high since 2022
In just the past 12 months, Moderna’s stock has surged more than 800%, and now, it’s up to around where it was in early 2022. Back then, however, it was on its way down as the market was bracing for slower growth ahead for the business.
Now, with a huge potential growth catalyst around the corner, excitement is building once again. However, my concern is that investors are getting ahead of themselves with the stock once again. Approval for intismeran would be a huge win for the business, but given the costs and lead times that will be associated with its production, it may not lead to massive profit growth, and that’s been a big concern in recent years, as 2022 was also the last time that the company wasn’t in the red.
Even with the approval of intismeran, Moderna may by no means be able to get back into the black in the near future. This is a company that’s generated $2 billion in revenue in the past four quarters. Adding $5 billion in additional revenue from intismeran, which wouldn’t arrive right away, would still mean about $7 billion in sales, potentially on an annual basis. Meanwhile, the stock’s valuation is already around $90 billion.
The stock looks too hot to buy right now
The long-term hope is that intismeran may be effective in treating other types of cancers, but that’s by no means a sure thing at this stage. Growth investors who buy the stock at its current levels are taking on some considerable risk given that there are still plenty of question marks around the business, and just how much profit intismeran will really generate for the company.
I’d put Moderna’s stock on a watch list right now, because at its current price point, there’s simply too much future growth and optimism priced in; it’s not worth buying right now.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Moderna. The Motley Fool has a disclosure policy.
