Is this heroic US share a buy?

There is much positive activity taking place at this firm, but our overseas investing expert asks whether the company can be more than a one-product wonder.

Some heroes of the pandemic have been dumped unceremoniously by investors, such can be the brutality of the stock market. The question now is whether the producers of vaccines can be more than a one-product wonder.

Nobody much noticed Moderna (NASDAQ:MRNA) before February 2020 as the stock languished well below $20. Then Covid-19 struck and the pharmaceutical company came into its own, developing a very effective vaccine with remarkable speed and carving out a niche in a market where many rivals fell short of Moderna’s success.

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However, the $450 peak in Moderna shares in September 2021 showed the dangers of being swept along on an emotional bandwagon that far outstrips reality. The shares look far more sensibly priced at a third of that level, having bottomed out at around $130, and a $3 billion share buyback launched earlier this month could help to establish a floor.

Second-quarter figures were a bit mixed. Increased sales from the Covid-19 vaccine pushed revenue 9.1% higher to $4.53 billion but that was a lower figure than was achieved in the first quarter and it translated into lower profits, with net income down 21% year on year at $2.2 billion.

Advanced purchase agreements suggest that revenue will pick up again in the second half as most of the populated world moves towards winter, when the virus is likely to be more active.

Past performance is not a guide to future performance.

Moderna has not stood still since the peak of the pandemic and is coming close to becoming the go-to pharma for Covid-19 vaccines. Its Spikevax vaccine used against earlier strains has been replaced by a new version that is also effective against Omicron. Moderna claims its side effects are similar to the earlier vaccine and are typically mild.

A deal has been agreed for the European Commission to purchase an additional 15 million doses, so that those scheduled for July and August but which were delayed, can be replaced by the new more effective vaccine to be delivered later this year. That means sales may be again a little disappointing in the third quarter before a bumper end to the year.

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In the UK, the MHRA, which regulates medical treatments, has authorised use of the vaccine, the first one to tackle two strains of the virus.

Moderna this month announced that it will open its first vaccine manufacturing facility in the southern hemisphere, in Melbourne, Australia. It will be completed in 2024 and will produce 100 million vaccine doses a year for Covid-19, influenza and other diseases. This is in addition to a production facility to be built in the UK, announced earlier.

Despite all this activity, there is a fear that Moderna will prove to be too dependent on its Covid-19 vaccine. Indeed, the new vaccine will, it is claimed, be needed only once a year rather than as a booster given two or three times annually, so sales will be reduced by its own success. By the time it is produced at Melbourne, it is likely that the Indo-Pacific region will have learned to live with Covid and that it will have mutated into a mild disease. The UK facility will not be in production until 2025.

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On the positive side, Spikevax was a new class of inoculation using molecules that teach the body to fight disease rather than giving a small dose of the virus itself. Such treatments can be developed rapidly for other diseases including influenza and for viruses that appear suddenly and spread like wildfire.

Hobson’s choice: the price/earnings ratio is a measly 4.34, demonstrating the extreme caution being shown towards the stock. There is no dividend and it is unlikely that there will be one when so much cash needs to be ploughed back into developing the business. Indeed, one wonders if the share buyback cash could be better spent.

Last November, I warned investors to sell at $245. That advice still stands at just over $140. The risks far outweigh the positives.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.