Vaccination shares: GSK vs Moderna

Equities

Moderna and GlaxoSmithKline represent two interesting paths pharmaceutical stocks have taken this year. We examine the GSK share price and Moderna shares to see which has come out on top – and what the future holds for both.

GSK shares & Moderna

Examining the GSK price

GlaxoSmithKline’s fortunes in 2021 have been up and down. While competitors like Pfizer and AstraZeneca have enjoyed major share price growth across the pandemic, GSK stock hasn’t been so reactive.

At the time of writing, the GSK share price is around £14.35. Before the pandemic, GlaxoSmithKline shares had peaked at £18.42 in January 2020. Since then, it’s been a tale of ups and downs. Shares fell to a new low in February 2021, but as we can see from the current price, progress has been made since then.

News came in June from CEO Emma Walmsley that GlaxoSmithKline is currently in the progress of separating its core pharmaceuticals business from its consumer goods side. New GSK, taking over pharmaceuticals, and the spin off, which will be listed on the London Stock Exchange, will remain linked with New GSK taking a 13.6% share of the new entity.

The whole plan could put GSK share price back on a growth footing. After the separation, New GSK is aiming at annual sales growth of over 5% between 2021-2026. Underlying profit growth is targeted at 10% in the same period, hoping to generate £33bn in sales by 2031.

That’s the mid-to-long term outlook. One thing that may put off investors is the GSK’s updated dividend payment scheme. The company has stated it will pay shareholders a dividend of 55p per share in its new form – down from the 80p investors used to enjoy.

Shares rose 2.8% after the demerger plans were announced at the tail end of June. The plan is ambitious, but some analysts believe this may not be enough to support GSK share prices in the long run. Questions over CEO Walmsley and her senior team are being raised as, under Walmsley’s tenure, GSK has struggled to take off compared with some of its competitors.

What about Moderna shares?

Moderna shares, on the other hand, are having a much better 2021 than GSK’s.

Share prices have risen 125% across the first six months of the year. Moderna’s mRNA-1273 vaccine is one of the most widely distributed inoculants used to combat the Covid-19 virus.

Moderna is nearing an $100bn market capitalisation. Its product revenue has grown from virtually nil at the start of the pandemic to around $1.7bn – purely driven by vaccine sales. Given the company is just 11 years old, Moderna can be considered one of the biggest beneficiaries of the Covid-19 pandemic.

Moderna shares are currently trading at $246.66 – up 4.8% in daily trading as of 15th July 2021.

While this is all amazing in the short term, what about the longer view? Moderna product-generated revenues were small to low at the beginning of the pandemic. While it was able to create a product in huge demand quickly and effectively, there are concerns that revenue growth, flagged at a $21bn top end for 2021, could not be sustainable.

However, Moderna’s executives are hopeful its technologies and research can help provide solutions for other diseases in the future. The company is looking to leverage its Covid expertise into other respiratory disease vaccines such as Respiratory syncytial virus (RSV) and cytomegalovirus (CMV).

Betting on other pandemics, however, is possibly not a smart bet. While Moderna is pushing ahead with trials on some vaccinations that could prove effective should we see other wide-scale breakouts, a lot of its experimental products are still in the early stage.

Comparing Moderna shares & GSK

What can we glean from the above?

A couple of things. Moderna’s ability to capitalise quickly on the Covid-19 situation, helped by emergency authorisation of its vaccine, has led to huge yearly and 6-month gains. The company is close to reaching a new all-time high market cap and will probably remain so.

It’s during the transition out of the pandemic and if Moderna can swing into sustainable revenue generation from its product side to bolster regular operations that will be really telling here.

Switching to GSK, it has come out with a fairly radical plan of action. It has set itself goals that, while ambitious, are fairly achievable for the company’s size and scope. Crucially, in the long term, GlaxoSmithKline doesn’t seem as tied in with the pandemic and its progression as Moderna.

If you are looking into trading or investing in Moderna or GSK stock, then be aware of the current market conditions, share price, and other variables. Only invest if you can potentially afford to take any losses as trading and investing both present risk of capital loss.

Should you follow Baillie Gifford into Moderna shares?

Investments

Ballie Gifford US Growth Trust half-year report today talked up the progress at Moderna, one of the companies that has developed a Covid-19 vaccine and enjoyed a spectacular run on its share price as a result.

After a tough year for everyone, the Edinburgh-based investment trust spoke of entering 2021 “with light at the end of the tunnel”.

Shares in Moderna have risen by more than 500% in the last year as it has spearheaded the effort to find a vaccine. “Moderna’s success has not come easy,” notes Baillie Gifford, adding that work so far is only “the tip of the iceberg”. Moderna is the trust’s 33rd largest holding, making up 1.2% of the fund. Tesla ranks number one at 8.7%, with Shopify second with 6.4%. Other top ten holdings include Amazon, The Trade Desk, Wayfair, Roku, Netflix, Peloton, Appian and Alphabet.

Management note: “The company has been investing in its mRNA platform for over a decade. It has had to overcome challenges with drug stability, delivery, and expression. However, now that these challenges have been solved in coronavirus, the learnings ought to be transferrable to the next vaccine that Moderna develops. This does not guarantee success by any means, but it makes the chances higher. Once Moderna has a DNA sequence of a protein to work on, it can be up and running with clinical trials in a matter of weeks. We are moving from a world of spaghetti at the wall drug development to something more akin to industrial manufacturing.”

Baillie Gifford also discussed the rise in electric vehicles and the “breath-taking” innovation at SpaceX, a private investment. Space investment is a hot topic and growing corner of the market. Last week a number of stocks related to space exploration jumped on news ARK Investment Management is planning to a launch a sector ETF.

Baillie Gifford US Growth Trust seeks to invest predominantly in listed and unlisted US companies and to hold onto them for long periods of time, in order to produce long term capital growth. The company has total assets of £810.3 million (before deduction of loans of £18.7 million) as at Nov 30th 2020.

During the six months to Nov 30th 2020, the Trust’s share price and net asset value (after deducting borrowings at fair value) returned 50.8 per cent. and 53.8 per cent. respectively. This compares with a total return of 11.1 per cent for the S&P 500 index in sterling terms over the same period.

UK inflation slips, M&S profits slide, indices hold trading ranges

Morning Note

It’s widely accepted that the pandemic is a profoundly deflationary shock to the global economy. No surprise then that UK consumer price inflation slowed to 0.8% in April from 1.5% in March. In fact, the bulk of the decline was due to lower oil prices.

Schemes to keep the economy on life support continue to support purchasing power – it may take some months for inflation to bottom as the economy goes through a painful readjustment.  Input prices for manufacturers declined 5.1%, whilst factory gate prices were 0.7% lower.  What comes next is anyone’s guess, but inflation could be round the corner as central banks and governments deal with vast debts.

M&S sales drop, but cash flow better than feared

Retailers will be at the coalface when it comes to inflation. Big discounts are expected as shops reopen over the summer – better to clear the old lines than having a bunch of shorts and bikinis to scrap. Marks & Spencer has been a bellwether for the UK high street, but lately its crown has slipped.

Results today indicate it’s had a tough time coping with the pandemic – in the six weeks to May 9th clothing sales tumbled 75% , while food sales declined 8.8%. But management are happy that they’ve outperformed their Covid-19 scenario with £150m better cash flow after six weeks than they had feared. Dividends of course are out of the question – MKS will not pay a final dividend for 2019/20 and it does not plan paying one for 2020/21.

Overall full year profits before tax declined around 20%. Free cash has halved over the year to £225m and after tax profits were down 40%. We knew it was going to be tough for M&S, so the focus for investors is the transformation plan, which is accelerating with more cost savings planned. Covid-19 has accelerated lots of consumer trends and it may just be the catalyst required to accelerate Marks & Spencer’s transformation into a 21st century retailer.

In particular it looks as though M&S has learnt just how important online is – so it’s making its Ocado venture more central to the business, introducing 1,600 Clothing & Home lines to be available online via Ocado. Much smaller store footprint, more focus on food, leverage the Ocado platform – there is at last a lot to be said for the MKS approach. Of course, we’ve talking about Marks’ recovery and transformation plans for many a year.

The pound eased back from the day’s highs on the weaker inflation numbers, with GBPUSD retreating under 1.2250, eyeing a potential retest of yesterday’s swing low at 1.2220.

Stock markets soft as scientists question Moderna vaccine data

Wall Street snapped a three-day win streak after doubts were raised about Moderna’s potential vaccine. Some scientists asked by health news website Stat queried the data, or lack thereof. Stocks ran up against the bad news as energetically as they ran with the good. It just shows how the market is clinging to any kind of sort of good news.

European shares followed lower again on Wednesday. The FTSE 100 just held onto the 6,000 level yesterday but opened lower this morning. Basic resources, financials and banks were the leading losers. Indices are within recent ranges as the tug-o-war between the economic reality on the one side and the twin hopes of stimulus and scientific research on the other play out.

API data shows surprise draw, WTI clings to $32

Oil was steady in its recent consolidation pattern as API figures showed a draw on US crude stocks. Inventories fell 4.8m barrels in the week to May 15th, vs expectations for stockpiles to build by 1.5m barrels. EIA figures are due later today and are seen showing a build of 1.7m barrels. With WTI trading above $30 again shale producers are already seen coming back on stream, which could tilt the balance back towards oversupply.

Nevertheless, demand is picking up and shut-ins have resulted in a little more supply being taken off. Reports suggest Chinese oil demand has almost returned to where it was before the pandemic. WTI (Aug) is just about holding above $32 but has a look like it wants to pull back – EIA figures today may provide the catalyst.

The risk-off tone supported gold bulls, with prices making steady progress back to $1750, having struck a low of $1725 yesterday. The recent 7-year high at $1764 struck earlier in the week is the upside target.

The S&P 500 quickly retreated from the area of the late Apr swing high around 2954 and closed below the 61.8% retracement. Futures indicate it will open around this level.

Moderna vaccine: what do we know so far?

Equities

Moderna shares jumped another 20% and the S&P 500 rallied over 3% after the US drug maker reported positive results from its early stage trials of its potential Covid-19 vaccine. The news sent risk assets higher as a vaccine would help economies get back to a true normal far quicker than any other measure. But has Moderna really got the goods?

What we know so far:

  • All 45 participants in its early stage trial developed Covid-19 antibodies
  • Each were given a 25, 100 and 250 micogram dose – 15 people in each group. For each group they received two doses, 28 days apart.
  • Two weeks after the second dose, antibodies similar to people who have recovered from the disease were found in the 25-microgram group. In the 100-microgram group antibodies ‘significantly exceeded levels’ in recovered patients. Data for the final group was not available.

“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 [micrograms],” Moderna chief medical officer Dr Tal Zaks said in a statement.

“When combined with the success in preventing viral replication in the lungs of a pre-clinical challenge model at a dose that elicited similar levels of neutralizing antibodies, these data substantiate our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials,” he added.

Moderna is just one of many drug companies racing to be the first to develop a vaccine against Covid-19.

Shares in Moderna have soared this year by at least 300% to $80 by Monday’s close. It has just announced a new placing to raise $1.3bn at $76, yet shares keep rising and Wall Street still has a strong buy rating on the stock.

Needham recently upgraded its price target on the stock to $94 from $58.

“Based on these data, we believe the vaccine is likely to be found effective for prevention of infection in a Phase 3 trial,” said Needham analyst Alan Carr. “We expect Moderna to have meaningful supply by 4Q20. We have therefore added an mRNA-1273 revenue stream to our model and are raising our price target to $94.”

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