Here’s how to avoid missing the next Moderna
IIf you were one of the premonitory investors who understood the merit of Moderna (NASDAQ: mRNA) before his impressive (and swift) work on the coronavirus vaccine, well done! I can’t say I was. But fear not, today’s market offers plenty of opportunities for investors to take advantage of significant returns by buying a neglected stock.
As a longtime (formerly) Moderna skeptic, my suspicion remained strong, even throughout her vaccine development work last year. In the end, my hesitations caused me to miss some stellar feedback. Let’s take a trip down memory lane and examine my mistakes so you can avoid missing your window of opportunity with equally explosive actions.
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Difficult beginnings for promising biotech
The mid-2010s was not a good time for Moderna. Before its initial public offering in 2018, it was the subject of criticism regarding the remuneration of its executives. And before that, his general attitude of secrecy towards the scientific community aroused contempt. Both of these issues were of concern to investors like me.
Moderna had no drug candidates close to approval in 2018. The company’s only revenue was $ 135 million generated from collaborations. Meanwhile, CEO compensation stood at $ 58.6 million, the highest of any biopharmaceutical executive at the time.
Yet for a company that, in principle, should have lived fair and stretched every dollar until establishing a recurring revenue stream, I raised my eyebrows at the lavish paycheck. But the issue of scientific secrecy loomed as a bigger investment risk in my mind.
Rough diamonds are easy to miss
Typically, biotech companies conduct research and then publish the results in academic scientific journals, assuming the results are notable and positive. Being published in prestigious journals helps start-up companies to build their credibility and visibility.
The publication of studies also allows the scientific community to examine the merits of a company’s therapeutic or technological approach. Reviews provide an additional level of protection for investors in the form of scientific oversight by third parties. As a former researcher, I particularly appreciate the opportunity to benefit from this supervision. Moderna didn’t do much in terms of publishing. In 2016, the editorial board of Natural biotechnology, one of the most prestigious scientific journals, denounced the glaring lack of publications of Moderna concerning its technological platform and its clinical programs.
While it is true that sometimes there is no data worth publishing, I have found the company’s silence to be suspicious. And I wasn’t alone: the editorial board made a direct comparison between Moderna and Theranos, an equally low-key but private biotech that was later dishonored.
Once Theranos disintegrated and its early investors were crushed, I couldn’t help but think about the lack of evidence to back Moderna’s claims about its mRNA technology. Eventually, he started publishing more data in the later years of the decade.
During the pandemic, I assumed the worst when it looked like management planned to maintain their no-communication strategy throughout the vaccine development process. Why hide your results if they are beautiful?
Eventually, the data on the efficacy of the vaccine were published and submitted to the required scientific review, where they were found to be very favorable. And as the stock skyrocketed throughout 2020 and 2021, early investors got rich – having always been an opponent!
Total yield data by YCharts.
Changing your mind is always an option
So what’s the investment lesson from my assessment of Moderna’s remarkable arc over the past few years?
The most important message is that companies can change significantly while you’re not looking, so writing off a stock for good means you might end up missing out.
If I had followed Moderna’s progress instead of avoiding her because she was too secretive, I would have witnessed her flurry of research posts that might have addressed my concerns. It might not have prompted me to buy the stock in 2019, but it would have brought me a lot closer to the idea of adding it to my portfolio.
The second point to remember is the most difficult to internalize, and is that criticism of a company’s practices may be perfectly valid, but totally unrelated to shareholder value or shareholder returns.
Moderna’s lack of research publications in the middle of the last decade may have left investors at more risk in the development process due to the lack of scientific oversight, but that risk was never realized.
Likewise, the CEO’s pay seemed excessive, but the most important fact was that only a small portion of the pay was actually in the form of money, which wasn’t very rare. And even if the pandemic hadn’t happened, there’s a good chance none of these issues would have wrecked the business.
My final tip is to leave yourself open to changing your mind. Promising and innovative start-ups often stumble, sometimes in more than one way. If you’re not ready to consider an investment unless a company’s record is flawless, you might rule out the next Moderna.
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Alex Carchidi has no position in the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.