Human nature pretty much guarantees that stocks (and other assets) will frequently overshoot and undershoot fair value, as defined by standard fundamental metrics.
That certainly seems to be the case with Moderna (NASDAQ: MRNA), the pharmaceutical company that made its name in 2020 with a successful Covid vaccine using mRNA (messenger RNA). That’s a single-stranded molecule of RNA that carries genetic instructions from a cell’s DNA to its protein-making machinery.
On Aug. 19 this year, Moderna and industry titan Merck (NYSE: MRK) made a very bullish announcement about Moderna’s mRNA-based cancer treatment, Intismeran.
That personalized drug, combined with Merck’s Keytruda immunotherapy drug, increased recurrence-free survival and distant metastasis-free survival in melanoma patients compared to Keytruda alone, the companies said. (Keytruda already has often proven to be an effective cancer drug).
The news got investors excited that the Moderna vaccine might cure not only melanoma skin cancer, but also perhaps lung, kidney and other cancers. That’s because mutations are common across cancers.
Buying Binge
Maniacal buying of Moderna shares ensued. The stock skyrocketed 290% from Aug. 18 to Oct. 21. The next day findings of Moderna and Merck’s phase 3 study of Intismeran began coming out. The findings were positive. Intismeran, when added to Keytruda’s immunotherapy lowered the risk of return for melanoma 42% compared to the Keytruda alone.
The trial also measured whether the melanoma cancer spread to organs, such as the lungs or brain. That’s the main cause of death from melanoma. And Moderna’s vaccine lowered the risk of spreading or death by 38% after about two years.
The results, which include an absence of serious side effects, may lead more patients to opt for the drug, Sekwon Jang, director of melanoma research at the Schar Cancer Institute in Virginia, told Bloomberg.
“With this combination [of Merck and Moderna drugs] I think the risk-benefit ratio actually is much more favorable,” he said. “I expect more of my patients will chose to receive this treatment,” if it gets approved. Many analysts think it will.
But that wasn’t enough to excite investors. The stock has dropped 20% since Oct. 21, the day before the study’s findings emerged.
Cloudy outlook
There were some concerns raised by the study. It showed that the new drug can help some patients, but it’s not clear how many. “It’s quite an individualized discussion,” Lisa Tachiki, oncologist at Fred Hutch Cancer Center, told The Wall Street Journal. Concerns include how far a cancer has spread.
Also, data on how much longer patients will live on the Moderna drug aren’t due for over a year. “Are we actually helping our patients live a little longer? Or are we just delaying something that potentially can still be salvaged with immunotherapy at the time of recurrence,” Tachiki said.
The sales potential of Intismeran also is open to question. “While approval seems likely, commercial success is far less certain,” Trung Huynh, an analyst at RBC Capital Markets, wrote in a commentary.
An approved melanoma treatment could enjoy sales of $4 billion a year (split 50-50 between Moderna and Merck), according to analyst estimates. That’s not huge.
But Morningstar analyst Karen Andersen forecasts $16.8 billion of Intismeran sales in 2035, which encompasses a 100% probability of approval for melanoma and a 60% probability of approval for lung, kidney, and bladder cancers.
As for the stock, you could argue that it has simply retreated from overbought levels. Andersen thinks it’s still 22% above fair value.
So where it goes from here is anyone’s guess.
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