Gene-Editing Collaboration Is What's Next for Moderna — Here's What TradeSmith's Tools Say about the Stock
In 2020, Moderna Inc. (MRNA) was a decade-old biotech company that most people had never heard of because it had never brought a product to market, let alone had one in the third and final phase of clinical trials.
Yet it was able to become a household name in 2021 as one of the main providers of COVID-19 vaccines.
When sharing experiences of getting the shot, friends and family started asking each other, “Did you get Pfizer or Moderna?”
Moderna's COVID-19 vaccine led to its first profitable quarter ever in the first quarter of 2021, and the money started rolling in from there.
It generated $18.5 billion in revenue in 2021 and topped that in 2022 with $19.3 billion. But Moderna has been kicking a can of problems down the road, because the more vaccinations that are given, the smaller its pool of potential customers.
Sixty-nine percent of the U.S. population is now considered fully vaccinated, and 34% have received a booster shot as of October 2022, numbers that were surely baked into Moderna's projection that it would make only $5 billion in 2023.
Pressured by the knowledge that you're only as good as your last hit — as well as a potential $14.3 billion decrease in revenue ahead — Moderna recently shared an answer to the question “What's next?”
In an announcement that mainly flew under the radar, Moderna said that it formed a partnership with Life Edit Therapeutics, a company that specializes in gene-editing technology.
Through the agreement, the duo will work together on research and preclinical studies funded by Moderna. Moderna will be responsible for further development, manufacturing, and commercialization of anything that bears fruit from the collaboration, while Life Edit will receive up-front payments and royalties tied to different milestones for a product.
Moderna was vague in its recent earnings call about the partnership, which is to be expected in the competitive world of biotech, with CFO Jamie Mock saying that the two companies working together “has the opportunity to advance potentially life-transformative or curative therapies for some of the most challenging genetic diseases.” But what isn't vague is that there's a lot of money to be made — for biotech companies and shareholders alike — through advancements in medicine and health that come from gene-editing technology.
Gene editing holds the promise to offer better treatments or even potential cures for:
Cancer
Heart disease
Cystic fibrosis
Diabetes
AIDS
And many other diseases.
Relatively speaking, gene editing is still a tiny piece of the overall medical sector for now, with the global genome editing market size valued at $5.06 billion in 2021. In comparison, the global biotech market was valued at more than $1 trillion in 2021. But by 2030, the global genome editing market is expected to be worth $21.36 billion, a 322.13% increase in less than 10 years.
Now, to be clear, biotech investing is notoriously risky, as it can cost hundreds of millions of dollars and years to develop a product that ultimately may not pass FDA approval. But with TradeSmith's tools and proprietary algorithms, we're able to help our readers go past the news and measure what ultimately matters — if a company deserves your hard-earned money at this moment in time.
Let's see what our tools have to say about Moderna.
To start off, Moderna has a Business Quality Score of 84.
Our Business Quality Score ranks every company based on a composite of four broad quality metrics:
Growth: This metric measures changes in a company's metrics such as sales, profit, return on equity (ROE), return on assets (ROA), and cash flow over the past five years.
Profitability: This metric measures a company's current level of profitability relative to its assets, sales, and shareholder equity.
Safety: This metric measures a company's financial strength (debt burden, credit risk, etc.) and its stock's historical volatility versus the overall market.
Payout: This metric measures how much of what a company earns benefits shareholders via dividends, net share buybacks, and debt repayment.
So, having an 84 is pretty good.
But there a few things that jump out about Moderna in a bad way that risk-averse investors in particular will want to know.
As mentioned earlier, biotech companies have risky business models because drug candidates that they invest millions in may never receive approval and make it to market. Unsurprisingly, our Volatility Quotient (VQ) designates Moderna as a sky-high-risk investment.
Moderna is also in our Red Zone, which indicates it's an investment to stay away from at this point in time.
Also, there is more insider selling of MRNA stock than there is insider buying.
It makes sense that executives would want to take profits, as the stock was trading for around $20 in January 2020 and is now trading for roughly $143, but when insiders begin offloading their own shares, it can signal a lack of conviction in the business. After all, if the company's executives expected the stock price to appreciate, they would want to hold on to their shares or buy more.
Overall, Moderna's partnership with Life Edit Therapeutics could create a blockbuster technology or medicine that leads to a surge in the share price. But with our tools highlighting some red flags, and with the expectation that the company will make $14.3 billion less in 2023 than it did in 2022, it may be more appropriate to add MRNA to a watchlist and wait for an Entry Signal than to start a new position or add to an existing position.
Having said that, biotech overall is an industry to be bullish on. Make sure to check out TradeSmith Daily again tomorrow for more on this topic.
We'll be featuring a gene-editing company that could be more worthy of an investment than Moderna.
Have a great Wednesday,
Keith Kaplan CEO, TradeSmith
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