Shares of Modern (ARNM 6.34% ) were skyrocketing earlier this month when the company released interim results for its mRNA vaccine. Investors were bullish on the potential COVID-19 vaccine, sending the stock to an all-time high of $87. It has since dropped over 35% since then as some of the hype has died down. Coronavirus stocks like Moderna are particularly volatile around news related to any treatments or vaccines. And in Moderna’s case, investors were just too optimistic about the results, and here’s why.
The sample was far too small to be meaningful to investors
When Moderna released interim data from its Phase 1 study, the results were encouraging. The company found that of the antibody data it had on the people in its study it had vaccinated, all had developed neutralizing antibodies against the coronavirus. While this is definitely an encouraging sign, data was only available on eight participants and Moderna has vaccinated dozens so far. From a scientific point of view, this is encouraging because it is a good first step in the process. Phase 1 results are still limited in that they do not involve a large number of participants.
For investors, it is important to take this into account when reading and interpreting the results. Buying back shares of a company because its vaccine has gone eight out of eight in phase 1 antibody development is premature to say the least. While that’s a good sign, with such a small sample size, many factors can skew these results, and it’s unclear if it’s safe on a much larger scale. Without a sample size of several thousand, where there is a good representative sample of the population being tested, it is simply not meaningful enough data for investors to base their investment decisions on.
It’s still too early in the process
Companies are racing to try to make a COVID-19 vaccine available as quickly as possible. But the reality is that this could be far from happening. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), estimated that it could take 12 to 18 months for a vaccine to become available. However, other experts believe the timeline is too optimistic. Dr Paul Offit was a co-inventor of the rotavirus vaccine, and he thinks such a short timeline is “ridiculously optimistic”.
But however long it actually takes for a COVID-19 vaccine to be ready, the important thing for investors to note is that there is still a long way to go. A phase 1 study with limited data will not be helpful in predicting whether or not a vaccine will be successful. According to data from the US Food and Drug Administration (FDA), 70% of drugs that are in phase 1 progress to the next stage. It is in phase 2, which involves more people and where the studies last longer, that only about a third of the drugs pass. Such strong results from a phase 1 study are unfortunately not a good reason to invest in a company working on a possible vaccine.
Several other companies are also working on vaccines, including Pfizer ( DPF 0.50% ) and Inovio Medications (INO 6.52% ). Which company will end up with the vaccine that the general population will end up using is anybody’s guess at this point. While Moderna’s early results are encouraging, there’s no guarantee it’ll be the first to the finish line.
What should investors do?
If you’re investing in Moderna, it should be for what the biotech company produces today, not on the basis of vaccine results that might ultimately be worth nothing. Buying shares of a company based on its Phase 1 interim results is a gamble at best. If Moderna fails, the title will likely plummet. With the company posting losses in each of its last 10 quarterly results and generating sales of just $60 million in 2019, investors have little to fall back on if the company doesn’t end up developing a vaccine. Successful COVID-19. The stock is trading at over 350 times its sell and is a very speculative buy at this point.
Moderna shares are up 180% since the start of the year, while S&P500 is still down about 6%. However, poor performance or any indication that the company’s vaccine is in trouble could quickly change the stock’s trajectory. That’s not a risk investors might want to take, especially given how volatile markets have been so far in 2020.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.