Moderna at the Edge of its Line of Defence

By Mihir Gupta, Ameya Joshi, Sukrith Kumar (UCL) and Filippo Palacino (ETH Zurich)

Stock Name: Moderna Inc.


Sector: Health Care

Industry: Biotechnology, Biological Products

CMP: $70.53 (as on 23rd October 2020)

Recommendation: Hold

Target: $72.5 - $73.5

Duration: 1 - 2 weeks

Company Overview

  1. Moderna Inc. is a biotechnology company, registered on the NASDAQ Stock Exchange, engaging in developing transformative medicines based on mRNA (messenger ribonucleic acid) for the treatment of infectious diseases, immuno-oncology, rare diseases and cardiovascular diseases

  2. Named as the top pharmaceutical employer by Science for the past 5 years, Moderna’s employee base consists of 830 workers, mainly operating from the headquarters in Cambridge, Massachusetts, where the company was initially formed.

  3. Moderna Inc has strategic alliances with AstraZeneca, Plc. (Nasdaq: AZN) and Merck, Inc. (Nasdaq: MRK), along with US Department of Defence and US Health & Human Services agencies, for their development programs

  4. Key financial overview for the company is as follows:

  • The company has seen significant growth in revenue, since its inception in 2010 and is forecast to experience a 91.8% forecast growth in CAGR over 10 years. Its current market capitalization is $23.4 bn, showing a large appreciation in value since its IPO in 2018, where the company was valued at $7.5bn (the largest IPO in Bio-tech).

  • It saw a turnover of $60.2 million for the financial year ended December 31, 2019, which was 50% of the turnover for 2018, reporting a net loss in 2019

  • As of Q1 of FY 2020-21, the firm earned $66.35 million during the quarter, compared to expectations of $24.24 million. There was an increase of 407.2% revenue, year on year, as of August 5th 2020. The growth here may have been a result of Moderna moving forward with their development of the mRNA-1273 vaccine, to combat COVID-19. The US FDA completed its review of the company’s application and allowed it to proceed into Phase 2 study.

Product Offerings

Moderna Inc.’s product offerings are segmented into two core modalities. These are the core modalities and exploratory modalities. These modalities are further sub-segmented into the following segmentations:

Core modalities: These are the main treatments that have been through preclinical development and are most likely to reach the commercial stage. The sub-segmentation is as follows:

Exploratory modalities:

  • These therapeutic treatments are aimed at attempting to discover cures or vaccines to cancer (predominantly) and are potentially not as close to reaching commercial levels, as core modalities are,

  • Some lines of investigation include specific cancer vaccines, intratumoral immuno-oncology and localized regenerative therapeutics.&

Sector and Industry Overview

As usual, we have utilised a Top-Down approach in order to analyse the industry from a medium short-term perspective. Our analysis is centred around identifying whether the price movement is being driven by a strong market sentiment or through outlying events. As price movements that are dependent on outlying events have increased susceptibility to rapid reversals, we believe that the evidence of a stock’s trends is stronger if the stock is moving in the same direction as its competitors.

We have started our approach by briefly considering the general market which will be discussed in greater detail in a parallel report. We have used the NASDAQ Composite as a benchmark for the wider market as Moderna is listed within it.

Graph 1: Cup and Handle Formation and RSI for NASDAQ Composite ( as on 25/10/2020)

We can see that after a solid uptrend that lasted for several months, the index is now in the process of forming a cup and handle pattern. This demonstrates that the market is currently experiencing a period of consolidation and is primed to break out soon (for more information - see our report on Logitech International!). The RSI indicator is currently in its mid-range but is rising. This shows that it could return to its almost overbought levels it maintained while the index was in its uptrend, further indicating a bullish breakout.

As the market is in a period of uncertainty, it is key to identify the winning and losing sectors within the index from a medium-short term perspective by identifying their performances in the last six months, three months, and five days. This will give an indicator for the future performance of the index.

Graph 2: S&P 500 Sectoral Performances for the last 6 months ( as on 25/10/2020)

Graph 3: S&P 500 Sectoral Performances for the last 3 months ( as on 25/10/2020)

Graph 4: S&P 500 Sectoral Performances for the last five days ( as on 25/10/2020)

We can conclude that the recovery after the COVID-19 market crash was led by the Consumer Discretionary, Information Technology and Industrial sectors. The recovery has been slowed by the Energy, Real Estate, and Healthcare sectors. This gives us an insight toward Moderna’s immediate future, as it is a part of the Biotechnology industry (as it specialises in developing drugs and vaccines based solely on research of Messenger RNA) which is part of the Healthcare sector. We have analysed the S&P 500 Healthcare Index in order to better understand the Healthcare sector.

Graph 5: Technical Chart of S&P 500 Healthcare ( as on 25/10/2020)

This index, like many others, fell in March and quickly recovered its losses in the first half of April. However, instead of entering a steady uptrend, the index entered a consolidation period that lasted from the 20th of April until the 6th of June. This uncertainty in the market could be seen as a reflection of the socio-political uncertainties that resulted from the pandemic.

The Healthcare sector was more involved than others during these times as the rapid increase in demand for medical literature led many (often contradictory) articles being published on COVID-19 and potential vaccine development. The uncertainty in the markets was mirrored in the Healthcare Index as there was no strong trend that could be identified during this time period. Indeed, right after the significant bearish movement on the 11th of June, the healthcare sector saw a very weak uptrend – almost demonstrating movement to what can be expected from ranging markets. This is a strong symbol of undetermined general opinion. Another confirmation for this lack of general market sentiment is the steady decrease in the volume of trade in the past six months. In the past five days, the S%P HC Index saw a retraction of 0.13% indicating that we are still in unknown territory.

We assert that tracking industries within an index is all the more important if the index is neutral. What we are looking to identify is if there are opposing trends between industries that are pushing a sector to move in two different directions simultaneously, or if all industries within the sectors are achieving neutral returns.

We will now inspect the industries within the Healthcare sector more closely in order to determine the type of movement that is occurring.

Graph 6: Industry Performance for the last 3 months ( as on 25/10/2020)

Graph 7: Industry Performance for the last 1 year ( as on 25/10/2020)

Graphs 6 and 7 provide an extensive overview of the major industry drivers within the health sector. As it can be observed from Graph 7, Biotechnology (the one that Moderna primarily functions within) has been the key driver of the health sector as it has grown by 7.11%, beating the overall health sector and the S&P 500 (which has been used as a representative for the overall US markets). However, much of the growth in this industry can be attributed to the hype generated from the prospect of a potential vaccine for SARS-CoV-2. This is evident in Graph 7 as the Biotechnology industry saw unprecedented gains between May and July but is now entering a period of correction.

Graph 6 paints a more accurate picture of the immediate future of the Biotechnology industry. While the US markets and the overall health sector have been growing since the COVID-19 crash, Biotechnology has been in a period of decline since July, and in recent days has seen a correction of -9.34%. However, with markets expecting a viable vaccine by Q2 FY 2021, it is likely we will see a substantial pickup in the industry with the winners enjoying unprecedented gains.

In order to understand this better, we have analysed the charts of Moderna’s three main competitors: Sarepta Therapeutics Incorporated (a Biotechnology firm), AstraZeneca Plc, and Johnson and Johnson (both in the process of developing vaccines)

Graph 8: Technical Chart of Sarepta Therapeutics Inc. ( as on 25/10/2020)

As can be seen in Graph 8, Sarepta Therapeutics Inc falls in line with the industry and sector trends seen in Graph 7 and Graph 6. It overshot in its recovery and reached new highs of 175 points in July but has since returned to the same 137.5 support level it was testing before the COVID-19 crash. However, as Sarepta Therapeutics is not in the process of making a vaccine, it does not offer the best reflection of Moderna’s price action.

Graph 9: Technical Chart of AstraZeneca PLC ( as on 25/10/2020)

Graph 10: Technical Chart of Johnson and Johnson ( as on 25/10/2020)

AstraZeneca Plc and Johnson & Johnson are both developing vaccines which make them better candidates to represent Moderna. As can be seen in Graph 9 and Graph 10, AstraZeneca is emerging from a bearish head and shoulders pattern, while Johnson and & Johnson is witnessing a period of consolidation having broken down from the bearish rising wedge pattern it had formed, indicating a bearish outlook on both stocks. However, both companies could see some buying action in the immediate-term due to being given the green light to continue their vaccine trials (as they had been put on hold).

Overall, all the relevant sector and competitor analysis we have conducted in this segment lead us to believe that in the immediate-term, Biotechnology will continue its trend of correction after its prices were inflated in the fallout of the COVID-19 crash in March. However, as the industry’s price action is very sensitive to news regarding vaccines, we expect this industry to see prices pick up again in the short-term as the likelihood of a vaccine being developed becomes more certain.