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Good morning Pros! Today we’ll go a different route and learn about the thriving biotech industry, which can be very rewarding. We’ll also look at some exciting pharma companies and see if Moderna is a buy.

As always, if there’s anything you want us to cover or have any questions about investing, reply to this email.

📊 Analysis: Is Moderna a buy?

Moderna is undoubtedly one of the biggest pharmaceutical companies. The stock hit new highs during the pandemic. But, is it too late to cash this cow or is Moderna still a buy? Let’s dig in.

The current situation:

• The stock is currently trading at $103.88 after gaining 0.88% on the last working day.

• It has lost 4.13% in the last 30 days and has fallen 35.14% in the last six months.

• The stock has fallen 12.94% in the last 12 months and is down 44.45% since the beginning of the year.

• Moderna has a 52-week high of $217.25 and a 52-week low of $95.02.

Moderna stock has an IBD Relative Strength Rating of 17, which means the stock ranks in the bottom 17% of all stocks on that metric. Furthermore, it has a poor EPS Rating of 5, reflecting recent losses.

What do analysts say?

The 17 analysts offering 12-month price forecasts for Moderna have a median target of $167, with a high estimate of $430 and a low estimate of $66. The median estimate represents a +61.67% increase from the last price of $103.30.

What’s happening?

Moderna is a leader in the field of messenger RNA (mRNA)-based vaccines and therapeutics. After recording high numbers due to its COVID-19 vaccine, SpikeVax, the stock fell by over 77% due to reduced demand for COVID-19 vaccines. However, the company is not a one hit wonder as is focused on other vaccines as well.

The company currently has 45 development candidates, 39 ongoing clinical research studies, and 47 development programs. This is a huge number when compared to its competitors. Plus, the biotech firm has several late-stage programs that are said to be close to finding success, including:

• mRNA-1010 to provide protection against seasonal flu. Said to be better than existing solutions, the vaccine is expected to hit the market next year.

• mRNA-1345 is designed for seniors to cure respiratory syncytial virus. Moderna has submitted regulatory applications in multiple geographies for the experimental vaccine, ahead of a possible launch in 2024.

• mRNA-4157 for cancer patients. The vaccine is currently being tested and is being prepared in collaboration with Merck.

• mRNA-1647, currently in a pivotal phase 3 trial, this vaccine treats cytomegalovirus (CMV), and could be the first of its kind.

• VX-522 to treat cystic fibrosis, a rare genetic disease that affects the lungs and other organs. The vaccine is in its early stages and is being developed in collaboration with Vertex Pharmaceuticals.

Why is it down?

Moderna has been down for a while mainly due to one reason: decreased Covid vaccine sales. The company is yet to find another product as successful as its Covid 19 vaccine.

It reported a net loss of $1.4 billion in the second quarter of 2023, compared to a net income of $2.2 billion in the same period last year. However, it isn’t the only biotech company in such a situation. Other biotech firms that made money during Covid are down too.

Increased research cost is also to be blamed for this. The company expects this trend to continue as it invests heavily in new research. Moreover, Wall predicts annual sales forecast to dip by 65% in 2023 and by another 13% in 2024.

But there are good things too

Moderna is financially strong. The company has over $8.4 billion in cash and investments. Plus, some of its upcoming products look very promising.

Is it a buy?

The company’s shares are trading at about 7.2x 2024 projected sales. This makes it a little expensive but, if you look at what estimates say, you will notice it has the potential to grow. We don’t, however, see it giving major profits until 2025.

Pandemic-era growth may not be possible until 2027 that too if the company finds success with its cancer vaccine.

All in all, Moderna might not be the right fit for everyone because the stock can go in either direction. It’s a gamble but the company has proven that it has the means to create and market vaccines and some great products are in the pipeline. For now, a small investment in the company might be a good option if you can hold it for a good few years.

📊 Financial Planning: Identifying Top Biotech Stocks

Want to invest in biotech firms but not sure if it's the right option? You're not the only one. We receive a lot of requests from people who want to know the tricks to identify rewarding biotech stocks.

Firstly, this is not the niche for the faint of heart. It’s a highly volatile industry where prices can double or half in a day. A successful trial can send prices skyrocketing and a failed attempt can cause the company to lose billions.

The risk is high but so is the reward. Fortunately, you do not need any deep expertise in biomedical fields to choose the right stock, however, being aware of the industry can prove to be beneficial.

The most important thing is to know what to look at, here’s what you need to know:

See how much money they have

Pharma companies spend a lot on research and for this they need money. Ideally, you should consider firms that have funds to continue research.

Management usually provides information regarding available cash and how long it can sustain a firm; however, we suggest that you do some calculations on your own as well.

Let's consider Caribou Biosciences; said to be financially strong, the company’s 12 month expenses stand at $120 million. Based on this, we can calculate how much it will need to continue to operate at the current level.

In the most recent quarter, the company reported holding $292 million in cash, equivalents, and short-term investments. If we divide this cash reserve by the total expenses, we arrive at approximately 2.4 years. Beyond this point, Caribou will either need to secure additional funds by issuing new stock or taking on fresh debt, assuming it doesn't receive any additional financial support from new collaborations or achieve any cash-generating collaboration milestones.

Next, look at what the firm is working on. Caribou's biggest project is currently in phase 1 and is expected to complete the clinical trial phase in two years. Based on the numbers discussed above, the company will be able to complete this goal. Furthermore, if the trial proves to be a success, the firm may find investors to start the next phase.

Based on this, we can say the company has enough money. So, how much cash runways does a company need to be considered good? It cannot be answered without looking at expenses and the future. Ideally, it should have enough money to complete existing projects or phases.

However, bear in mind that a biotech's expenses are rarely entirely fixed.

Look at upcoming products

Where a company stands in terms of research and future projects can tell you a lot about a company. See what products it is working on and what kind of demand it has out there.

For example, there is a very high demand for cancer treatment and a number of biotech firms are working on producing vaccines and equipment that help reduce the risk of cancer.

Companies that are working on products with a high demand can prove to be very profitable (if they find success). For example, several firms are working on HIV drugs and some are ready to enter the market:

• Biktarvy, an HIV drug, which won FDA’s approval in February 2018, is expected to become the top-selling HIV drug in the world, with estimated sales of $6.1 billion in 2024.

• EvaluatePharma’s Triumeq is another strong contender. The company expects it to make around $4.7 billion in 2024.

These products are ready to hit the market but some firms are still busy creating even better options. For example, Gilead Sciences is focused on curing HIV.

Check trial data

Pharma companies are known for interpreting clinical trial data 'incorrectly' to boost the stock. This trick is used to keep investors happy and continue to ‘receive’ funding.

Typically, when a company discloses the outcomes of its clinical trials, it issues a press release that provides information understandable to non-experts, such as shareholders. Simultaneously, the company publishes the comprehensive dataset and an in-depth analysis in a respected scientific journal subject to peer review. It's customary to include transparent statements indicating whether the trial successfully achieved its predefined objectives or not. Challenges often arise when a trial falls short of meeting some or all of its predefined objectives, and the company's communication tactics either obfuscate or minimize this fact.

To be safe, always compare management's word and tone to actual results. Companies that do not provide clear data are usually playing with words. A fully or partially failed trial is a major red flag.

Biotech firms are not always afraid of accepting failure and learning from mistakes but some will occasionally spin words to fool investors. So, be smart and identify such firms.

Find strong collabs

It is common for biotech firms to join hands to invest in risky yet potentially high-impact programs. Working together helps reduce the risk and increases the chances of success. Almost all major companies such as Moderna and CRISPR Therapeutics have partnered with other big names. The former with Vertex Pharmaceuticals and Merck and the latter with Vertex Pharmaceuticals.

Such partnerships can tell you a lot about a company and where it’s headed. For example, the partnership between CRISPR Therapeutics and Vertex Pharmaceuticals started in 2015 when Vertex made an equity investment of $30 million as well as $75 million in cash in exchange for the exclusive rights to license up to six medicines produced by the arrangement.

This was the beginning of a successful partnership and the two firms have worked together on several hit projects, including the much-in-news sickle cell disease treatment the two are working on.

Interestingly, biotech firms don't only partner with other pharma companies. For example, Recursion Pharmaceuticals recently announced a new collaboration with Nvidia worth a $50 million equity investment.

When investing in pharma or biotech, look at the type of companies a firm is partnering with. Businesses that have partnered with other successful firms are more likely to be successful as they have the support of other big names.

Reminder: Pharma is not the same as biotech

Though similar, biotech and pharma are not the same.

While both companies make medicines, they use different ways to do so.

Medicines made by companies in the biotech industry are derived from living organisms while those made by pharmaceutical companies generally have a chemical basis.

The chart below explains some of the main differences between the two:

Disclaimer: The information in this newsletter is for informational purposes only and is not intended to be personal financial advice,