Cheap Vaccine, Growing Stocks

It has been suggested by multiple news outlets that Moderna, if they do get their vaccine ultimately approved, would not be that profitable. 

The problem is as follows: if Moderna were to market their approved vaccine, they would be looked at like greedy animals for overcharging for it. They would probably spend a boat-load to get it approved, but could not price the vaccine exorbitantly to take advantage of that work and capital put into doing so. Optics would prevent Moderna from “overcharging”. 

On the other hand, if Moderna were to charge only a small amount for the vaccine, it may be heavily used across the globe but Moderna itself would not show a very high profit, even though they caught lightning in a bottle. Chances are that they would be pressured by governments, domestic and foreign, to lower the price as much as possible.

If Moderna’s profitability is most likely capped, then what is the upside for them? 

There is a lot of hype around their vaccine and that hype be unwarranted given what we talked about above. However, a more nuanced look might show that large asset managers, like BlackRock, Vanguard, and State Street, could (should) be rooting for Moderna to work out their vaccine. 

The theory goes that as soon as a vaccine can enter the market, other stocks will benefit as consumers gain confidence, revenues increase, and subsequent earnings grow. If investors have large portfolios of companies, supporting one company where the profits would be minimal but whose product is impactful to the economy, should raise the values of all of their other holdings. Moderna’s stock could go to zero and the large asset managers would still do very well.

This brings about the second-level thinking that, if large asset managers were to take a seat on the Moderna board, and guide their corporate strategy, that the Moderna employees could potentially receive incentives that are not typical. Why would an asset manager want Moderna to maximize profits if that a) would limit the vaccine’s positive impact that it could have on the economy and b) not maximize benefits to thousands of other companies they may also be invested in? Instead, as we said in the last paragraph, they could manage Moderna to an extremely low, unprofitable value, but pay Moderna’s staff based on how well other company’s do? It would make sense for Moderna to do so. If you are a Modrona employee, why take a $2MM share price surge on Moderna stock when you can get a bonus from your rich diversified shareholders of $10MM…and look like a good guy for selling your vaccine at dirt-cheap prices?

One does not have to own Moderna stock in order to benefit from their hopefully positive vaccine trial, but everyone, particularly in the stock market, should be rooting that they are successful. A positive vaccine is a big step towards the economy and stock market fully recovering.