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Moderna is the ‘Tesla of biotech’: analyst

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Jefferies Managing Director and Senior Research Analyst Michael Yee joins Yahoo Finance Live to discuss Moderna’s move to the S&P 500 and Biogen’s stock dive after some hospitals decided to not administer the company’s Alzheimer drug.

Video Transcript


JULIE HYMAN: Moderna entering the S&P 500. And as I talked about earlier in the show, people who had been longtime investors in this company effectively hit the lottery when the biotechnology they had been developing for years finally paid off with the COVID-19 vaccine. Michael Yee is here to talk with us about this. He's Jeffries managing director and senior research analyst. Michael, it has just been a fascinating trajectory for Moderna. And as you pointed out to us in the break, this is now the second biggest biotech company in the world. First of all, I'll ask you, should it be?

MICHAEL YEE: Well, it's a great question, and thanks for having me here. I think depending on your long-term outlook of what this company could do and all of the pipeline drugs that theoretically could come about over the next 10 years, based on those prospects, it could and should be one of the largest biotech companies in the world. Think about how fast they came up with nothing a year ago, and all of a sudden, they're doing $21 billion and have injected hundreds and hundreds and hundreds of millions of people with their drug safely. That's a pretty big accomplishment.

MYLES UDLAND: Michael, something we were chatting about before-- and I'm not sure if this is a way that you think about the business, but the rally we've seen in Moderna over the last year has been in part because of the positive COVID results. But at a certain point, it's about what the mRNA platform can do. How do you maybe break down the stock price on what's been realized and what investors are hoping can happen in the future?

MICHAEL YEE: It's a great question. Fundamentally, we think that if you are going to have a COVID vaccine for a while, for many years, that there is a piece of business there that's probably worth $75 to $100 a share, a little less than half the company. More than half of the company is based on the idea that they have a lot of other important vaccines coming. I will tell you that they have a flu vaccine with data later this year that could be much better than the Sanofi flu vaccine. So we could all be taking a flu vaccine from Moderna that could do billions of dollars. They have other respiratory viruses vaccines coming behind that. So the idea that they could have not one but many similar drugs to the COVID-19 vaccine does preclude the potential that there's another $150 to $200 of value based on that. That's pretty powerful.

BRIAN SOZZI: Michael, if there is something that could trip up the bull case on Moderna, what would it be?

MICHAEL YEE: Well, there's early signs that people are reluctant to bless the boosting for the COVID-19 vaccines. We very much don't believe that's going to happen. But I would say if 2022, all of this fear about Delta and outbreaks never really play out and nobody really gets a vaccine in 2022 and the sales are very small and the jabs are small, I think that's going to really question what the value here is for this. And I would also say if there's a safety problem or other safety problems or the flu data later this year is a very big disappointment, that's going to be a big problem too. Because people are reading through from the power of COVID to the fact that every other vaccine must be so great just like that. And that's not always the case, obviously.

JULIE HYMAN: And Michael, is that why you have a hold rating on Moderna, because of these potential unknowns or risks, or is it and/or the valuation?

MICHAEL YEE: It's a little of both. First, fundamentally, the valuation does apply a huge assumption that so many other vaccines are going to be coming with higher probabilities over the next few years. And as a fundamental investor and a fundamental analyst and as a biotech expert, I can tell you that doesn't always play out, does it?

The second thing is the valuation at $100 billion, making it the second largest biotech with just one product fundamentally is concerning to me. And quite frankly, I would tell you that a lot of institutional investors believe this stock simply has taken on a life of its own. It has completely broken out. It is a bit disconnected from the fundamentals. And I'd like to say that people just believe it's the Tesla of biotech. It has taken on a life of its own, has priced in a huge amount of assumptions over the next 10 years that haven't really played out yet, and valuations is very high. So Tesla of biotech, a lot of assumptions. Fundamentally, we're at a hold here.

JULIE HYMAN: I'm not sure Stéphane Bancel is quite the tweeter that Elon Musk is, but definitely I see some of those parallels. Michael, it was striking to me yesterday. I looked at our Yahoo Finance interactive heat map of the NASDAQ 100. There was Moderna up the most in the upper left corner, and all the way on the bottom right was Biogen. And this is remarkable to me because Biogen is another biotech giant, right? But obviously, it's had such struggles with its Alzheimer's treatment, Aduhelm, and yesterday, hearing that a couple of big hospital systems are not going to be administering it to their patients. How big of a problem is this for Biogen?

MICHAEL YEE: Yeah. Well, Biogen is on the other side of the spectrum, as you said. And fundamental analysts are really struggling with this one because we do believe that the Alzheimer's drug will get reimbursement. It can be a big drug. There's huge demand for it. We all know there's millions of Alzheimer's patients. And as an option out there, patients are going to want this drug, and it can lead to big sales.

The problem is the market has no visibility on that. They are constantly bombarded by all of these headlines about reimbursement, about a federal investigation into the approval, and also these sites, Mount Sinai and Cleveland Clinic, that are putting up roadblocks to actually administering them. You put that all together, and it's very difficult for an investor to predict what's going to happen. We do believe that all of that will play out fine, and it's going to have to climb the wall of worry. But right now, nobody wants to be involved in that.

So that's a problem. People don't have any confidence in that, and it's a very noisy stock. So that's, unfortunately, the problem here. And no one feels the urgency to have to buy it, and why would you? People are just buying Moderna and other health care stocks and everything else out there. So I get that, and it's going to take time for that to play out over the next six months.

JULIE HYMAN: Yeah. And you do actually have a buy rating on that one. Is the noise over this drug hiding some other potential positives that could be coming out of Biogen? It seems like a lot was riding on this one development.

MICHAEL YEE: I think that not only is it just purely undervalued and underappreciated because, again, 6 or 12 months, we might be sitting here saying today what the quarterly sales were, and they're probably going to be just fine, and they're going to be big. And everyone's just nervous right now. I am pessimistic about the rest of the stuff in the pipeline. There's not as much sexiness around it or as much fascination with it like a Moderna where everyone can understand how big those programs could be. And they're in very high-risk areas of Parkinson's and ALS and Alzheimer's, and so it's been very difficult. And they've got a lot of fundamental problems.

I think a lot of people think at some point, Biogen could be a take-out target, both for the actual fact that they do $10 to $15 billion of other revenues of other products, and Alzheimer's will be just fine, and it's going to be a big market long term. So I do think people believe at some point, that's possible. That might be the hidden secret there. But for the time being, I think they've got to get reimbursement clarity. And no one's going to step in on this thing until they have a lot more comfort with that.

MYLES UDLAND: Michael, finally, I just want to ask a little bit about the state of conversations you're having with folks that are trying to get a read on biotech. And I take it from the Tesla comment there's a lot of frustration, perhaps, among investors on why certain stocks are working, why others aren't. And I'm just curious how the space has evolved through the pandemic. So many eyes on it, but really, Moderna is the big winner.

MICHAEL YEE: Yeah. Well, I would put perspective around that. Our institutional clients believe biotech fundamentally has been phenomenal. It's been phenomenal for the last 12 to 18 months. Go pull up the XPI. And for the last three years-- let me be clear-- it has been one of the biggest bull markets in biotech in the last three years. Record numbers of financings, record numbers of investment, record numbers of IPOs, and valuations at the high end. If you back out those five large companies, there's tons of other stocks that are doing very well, although they're lot smaller. So in the context of it's been fantastic for the last few years, having a pullback and having a bit of a challenge for the recent last six months is put into perspective.

The second thing I would just say is there is a lot of other great companies that people are focused on besides Moderna and Biogen. They are Fate and cell therapy companies and gene editing companies like CRISPR and Intellia which have been out there and have been big performers, and you can see those. So there's a lot of great innovation. There's probably going to be some M&A, and there's still a lot of great things going on in biotech. Some of the large companies which are more mature, I think, are having some struggles. And the way they've solved that is often by buying smaller companies. So we should see some M&A. And in the big picture, things have still been very good for biotech.

JULIE HYMAN: Well, Michael, we will have you back on soon to talk about all of those other developments as well. In the meantime, you heard it here first, folks. Moderna perhaps the Tesla of biotech. Appreciate your time today, Michael. Michael Yee, Jeffries managing director and senior research analyst.