Moderna (NASDAQ: MRNA) shares declined nearly 6% in premarket trading on Wednesday after Citi downgraded the biotech firm to 'Sell' from 'Hold', citing concerns that the recent surge in valuation is difficult to justify. The downgrade comes on the heels of a massive rally driven by promising cancer vaccine data.
Citi raised its price target to $80 from $60, while also revising its sales and operating expense assumptions. However, the new target remains significantly below Moderna's Tuesday closing price of $203.46, implying substantial downside.
Citi questions Moderna's valuation
Citi's healthcare team, led by global head Geoff Meacham, said the company's valuation is hard to support based on public-company comparisons and the net present value of its pipeline. Meacham noted that Moderna's roughly $80 billion market capitalization is similar to Regeneron's, despite significantly lower expected revenue and earnings.
Citi estimated that even assigning a 100% probability of success to Moderna's leading intismeran oncology programs would support a price target of about $100 per share, which is still roughly half of the stock's recent trading level. According to Citi's analysis, Moderna would need to generate about $26 billion in annual oncology sales to justify a share price near $200, a figure that is almost seven times its current model, with about $13 billion of those sales accruing to Moderna.
Meacham also said the current valuation reflects aggressive sales expectations and probability-of-success assumptions that Citi considers unrealistic.
Cancer vaccine drives sharp stock rally
Moderna shares have rallied sharply since the company announced positive late-stage trial results for intismeran autogene on August 19. The personalized cancer vaccine, when combined with Merck's Keytruda, met trial goals in more than 1,100 patients with higher-risk or advanced melanoma. Moderna shares have gained 223% since the trial results were released, rising from around $62 on August 18 to an intraday high of $208 on September 25.
The rally followed a broader strategic shift by Moderna, with the company focusing its mRNA technology on areas including oncology, rare diseases, and autoimmune disorders. Citi said melanoma is a favorable setting for demonstrating the potential of the treatment because the cancer is highly responsive to checkpoint inhibition. However, Meacham noted that other potential applications, including renal, lung, and bladder cancers, present different biological challenges.
Citi target implies significant downside
Moderna closed at $203.46 on Tuesday before falling nearly 6% in premarket trading Wednesday. Citi's new $80 price target implies roughly 61% downside from Tuesday's close. The bank's analysis also suggested that a $100 valuation would remain around 50% below current levels even under a highly favorable assumption for intismeran's lead oncology programs.
The valuation comparison with Regeneron was another factor in Citi's assessment. Moderna and Regeneron have market capitalizations of roughly $80 billion and $77 billion, respectively, despite a significant difference in expected revenue and earnings.
Analyst sentiment remains mixed. According to LSEG data, 15 of 24 analysts rate Moderna as a buy, while six had buy or strong-buy ratings and three had underperform ratings.
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