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Investment Overview
In my last note on New Jersey headquartered Pharma giant Merck (MRK) and Cambridge, Massachusetts based Moderna (NASDAQ:MRNA) I recommended both companies stock as a potential buy opportunity, based on Merck’s decision to exercise an option to continue co-developing a “personalised cancer vaccine” (“PCV”) with Moderna. Candidate mRNA-4157/V940 was evaluated in combination with KEYTRUDA, Merck’s anti-PD-1 therapy, as an adjuvant treatment for patients with high-risk melanoma in a Phase 2 clinical trial being conducted by Moderna.
Merck made a $250m upfront payment to Moderna to make sure it remained part of a program that has been ongoing since 2016, and as one or two readers pointed out at the time, this was likely a riskless decision since Merck had insight into the results of the ongoing Phase 2 open label study and therefore may have known that the Keytruda / mRNA-4157 combo was effective and safe.
Merck and Moderna finally announced this week that the study had met its primary endpoint, at a press release stating that:
The Phase 2b KEYNOTE-942/mRNA-4157-P201 trial of mRNA-4157/V940, an investigational personalised mRNA cancer vaccine, in combination with KEYTRUDA®, Merck’s anti-PD-1 therapy, demonstrated a statistically significant and clinically meaningful improvement in the primary endpoint of recurrence-free survival (RFS) versus KEYTRUDA alone for the adjuvant treatment of patients with stage III/IV melanoma following complete resection.
Adjuvant treatment with mRNA-4157/V940 in combination with KEYTRUDA reduced the risk of recurrence or death by 44% (HR=0.56 [95% CI, 0.31-1.08]; one-sided p-value=0.0266) compared with KEYTRUDA alone.
The news that Keytruda + MRNA-4157 reduced risk of recurrence or death by 44% has been hailed as a major breakthrough in the battle against cancer, and sent Moderna’s shares soaring from $165, to a high of $216 on 14th December – a >30% gain, increasing the company’s market cap valuation by nearly $10bn.
Merck’s share price spiked slightly, rising from $109, to $112, before dropping back to ~$110 at the time of writing, although its share price is up 30% over the past six months.
It isn’t surprising that Moderna stock leaped higher than Merck’s. As I discussed in my last note, whilst Merck has been generating revenues >$40bn for per annum for more than a decade, and has forecasted for revenues of $58.5bn-$59bn in FY22, and has seven blockbuster (>$1bn of revenues per annum) selling assets in its portfolio, including $17bn per annum selling cancer drug Keytruda, Moderna – which only went public in 2018 – has only one commercial stage asset.
That asset is of course its SpikeVax COVID vaccine – one of the most successful drugs of all time -albeit over a short period – in terms of revenue generation, with >$18bn sales in 2021 and on track for >$21bn in 2022.
SpikeVax has saved countless lives during the pandemic and will undoubtedly continue to do so, although it is unlikely that governments will buy the product in bulk again as they did this year and last. A private market will emerge, and Moderna will increase its price per dose likely >$100, but even so, SpikeVax revenues will likely fall <$10bn in 2023. Moderna has declined to provide any guidance.
The reality is that Moderna was never intended to flourish as a commercial stage company so early, but the company was able to adapt its technology to produce a vaccine against COVID, alerting the world to how effective it can be, and sending its valuation soaring – to as high as ~$190m when shares hit their peak of $385 in September 2021.
Moderna’s technology platform has tremendous potential – the ability to instruct the body, using custom designed strands of messenger RNA, to manufacture any protein that can help fight diseases of almost any kind – but the technology is still in its infancy and we may have to wait a decade or more to see it at its most effective.
With shareholders to satisfy and under pressure to deliver alternative sources of revenue now that SpikeVax sales are falling, Moderna’s ambitious CEO Stephane Bancel has not held back calling the Keytruda / MRNA-4157 data “big, big news”, dismissing safety concerns, comparing it favourably with other cancer treatments such as CAR-T cell therapy (a field which has now produced >5 commercial stage oncology drugs) and telling Endpoints News:
We are going to be very aggressive in taking financial risk, because we believe in this product.
As impressive as Moderna’s achievement is, however, not everybody within the biotech community has received the news as enthusiastically as Bancel, who also told the Wall Street Journal in relation to MRNA-4157 that “the data is so strong, for me it’s a COVID-like moment”, and suggested Cancer vaccines can be bigger than Keytruda.
Although the hype around the results are to some extent justified, before rushing to buy Moderna stock, however, it is probably worth considering these results in the context of other therapies, rival MRNA companies, and the wider implications across oncology as a whole.
KEYNOTE-942/mRNA-4157-P201 Study – Assessing The Results
According to the results press release:
KEYNOTE-942 is an ongoing randomized, open-label Phase 2b trial that enrolled 157 patients with stage III/IV melanoma. Following complete surgical resection, patients were randomized to receive mRNA-4157/V940 (nine total doses of mRNA-4157) and KEYTRUDA (200 mg every three weeks up to 18 cycles [for approximately one year]) versus KEYTRUDA alone for approximately one year until disease recurrence or unacceptable toxicity. The primary endpoint is recurrence-free survival, and secondary endpoints include distant metastasis-free survival and safety.
The release also notes:
It is estimated there will be nearly 100,000 new cases of melanoma diagnosed and almost 8,000 deaths resulting from the disease in the U.S. in 2022. The five-year survival rates are estimated to be 60.3% for stage III and 16.2% for stage IV
Immune checkpoint inhibitors (“ICIs”) – alongside excision and lymph node dissection – are considered the standard of care in stage III/IV melanoma. Besides Keytruda, Bristol Myers Squibb’s (BMY) ICI Opdivo is an alternative, with Opdivo plus Opdualog (another BMY drug that targets T-cells), or Opdivo plus Yervoy (another BMY drug that targets the antigen CTLA-4), or even Keytruda plus Yervoy additional options.
Researching the efficacy of these approaches, I came across the following statement from BMY’s Opdivo.com website:
At the 7.5 year follow-up analysis, OPDIVO + YERVOY reduced the risk of dying by 47% compared to YERVOY. At the primary analysis at 28 months, OPDIVO + YERVOY reduced the risk of dying by 45% compared to YERVOY alone and half of the patients on OPDIVO + YERVOY were alive at 72.1 months, compared to 19.9 months with YERVOY.
To the best of my knowledge we do not yet have full results from the Keynote-942, just the headline news of the 44% reduction in risk of recurrence or death. I also found a head-to-head comparison between Keytruda and Ipilimumab (Yervoy) online, which showed that in patients with advanced melanoma, 67% (185/277) of patients using Keytruda survived, versus 60% of patients using Yervoy. The same site claims:
Half of the people who received KEYTRUDA every three weeks were alive without disease progression at 4.1 months, compared to 2.8 months for people who received ipilimumab. The cancer did not progress in 43% of people receiving KEYTRUDA compared to 32% of people receiving ipilimumab.
That seems to imply that Keytruda plus MRNA-4157 would have a marginal edge over Yervoy plus Opdivo, although it is also worth noting one observation that has been made about the Keynote-942 study by many observers.
Moderna and Merck used what is known as a “one side p-value” to get to its statistically significant result, whereas most studies use a “two-sided” one – using a one-sided test apparently gave KEYNOTE-094 a greater chance of success, and had a 2-sided test been used statistical significance may not have been achieved.
Moderna responded to this criticism that it had made no secret of its intention to use a one-sided P value and that it was appropriate for this study given the smaller number of patients involved – a defence that seems to have been generally accepted by critics.
To summarise, KEYNOTE-094 does seem to have achieved some results of genuine note – a bona fide breakthrough moment for so-called “cancer vaccines” but there is also much we still don’t know, and we will have to wait until the full data presented before judgements can be made about e.g. durability of response, safety, comparisons against current standards of care etc.
What is perhaps most exciting about the study is the potential repeatability of the approach. Keytruda is approved in a host of cancer indications – lung, head and neck, bladder, stomach, cervical, liver, kidney and breast cancers, to name a few, as well as multiple hematological cancer indications. If Moderna can supply adjuvant therapies in all of these indications, it may well have found itself a therapeutic that commands a double-digit billion dollar per annum revenue opportunity.
What Happens Next? How Do Moderna / Merck Stay Ahead of Rivals?
The personalised cancer vaccines developed by Moderna – and other companies, such as BioNTech (BNTX), and Gritstone Bio (GRTS) – are not really vaccines at all.
The SpikeVax vaccine carries instructions to make the Spike protein expressed by the COVID virus, so that the body recognises this foreign invader and manufactures T-cells to defend against it. By the time the actual virus arrives, the immune system is prepared and can defeat it.
In the case of cancer, the cancerous cells are a part of the body, so the immune system must be taught to invade itself – a far trickier and riskier proposition. In the case of PCVs, samples of a patient’s tumor are taken and used to create customised injections for each patient, targeting 34 separate mutations to enable T-cells to spot and attack these mutations and prevent cancer growth.
Apparently it takes ~45 days to create such a personalised vaccine, and patients must undergo a fairly punishing regime of injections, but Moderna believes it can shorten the timeline, and compared to e.g. cell therapy, where a patient’s cells are harvested, engineered ex vivo and then reintroduced into the patients’ system, it may present a safer, faster option in time.
Moderna and Merck are confident that they have the necessary data to persuade the FDA to allow them to conduct a Phase 3, likely pivotal study in a much larger patient population. That may take a year or two at least, although that has not stopped CEO Bancel from discussing potential price points (similar to Keytruda), and the setting up of production plants around the world.
Relatively speaking, by targeting melanoma Moderna and Merck are targeting the “low hanging fruit”, since melanoma is easier to treat than other cancers where tumors are harder to access- timelines on other solid tumors may be lengthier.
Moderna’s main rival in the PCV space is BioNTech – also its main rival in the COVID vaccine space, having co-developed the Comirnaty shot with Pfizer (PFE). That means that, like Moderna, BioNTech is flush with cash it can use to fund R&D.
Unlike Moderna, who may bring several new vaccines to market in the coming years, including influenza, respiratory syncytial virus (“RSV”) and cytomegaolvirus (“CMV”), with a double-digit billion dollar revenue opportunity potentially in play (including COVID vaccine sales), and has drugs in development for several other “Therapeutic Modalities”, such as cardiovascular, and autoimmune, BioNTech is more purely focused on oncology.
BioNTech has promised cancer vaccines before 2030, and has been working with the likes of Regeneron (REGN) and Roche (OTCQX:RHHBY) in indications including melanoma, with Phase 1 data expected in the first half of next year. Head and Neck, lung, and pancreatic data may also arrive before the end of 2023.
Conclusion – Moderna Makes Another Breakthrough As The Post-COVID Era Begins
Over the past two years the market has largely judged Moderna on its COVID vaccine and the revenues it may generate from that single source. With this week’s PCV data, Moderna may just have kicked off its “post-COVID” era.
In fact, calling it a post-COVID era may be a misnomer as Moderna is likely to continue to be heavily reliant on SpikeVax revenues in 2023, and will be closely monitoring and attempting to stimulate the emergence of a global market.
I have speculated before that a private COVID vaccine market could be worth $5-$10bn to Moderna, and soon it is likely that we will see Moderna launch its RSV, CMV, and influenza vaccines, which could add another $5bn per annum to its top line revenue generation.
When we consider that a company like Cystic Fibrosis giant Vertex (VRTX) has a market cap of $78bn on revenues <$8bn, and Regeneron a market cap of $79bn on likely FY22 revenues of ~$13bn, then we can probably conclude that Moderna’s valuation of $74bn is fully justified, with perhaps significantly more upside in play.
While Moderna lacks the diversity of the commercial products pipeline that Regeneron has, and the market dominance that Vertex has, the sheer potential of MRNA across so many diseases makes it a potential powerhouse, and Moderna may be able to match its rivals for revenue generation with its infectious disease vaccine franchise.
Although it may be 2-3 years before a melanoma “vaccine” is approved, and more data needs to be made available before a full judgement can be made, meeting its KEYNOTE study endpoint represents an important win for the company, signifying its moving ahead of rival BioNTech in the development race, and revitalising the overriding MRNA thesis, which had begun to suffer slightly in the face of slower than expected progress ex-COVID.
Merck also stands to benefit from its work with Moderna, although the Pharma is already beginning to look beyond Keytruda, whose patent protection expires in 2027, and as I have written before, the outlook seems to be a positive one, based on products and pipeline. Moderna is a good partner to have, although the relationship is not entirely harmonious, Merck having previously opted out of co-developing Moderna’s KRAS targeting cancer vaccine.
Nevertheless, although Merck stock is up 21% since I covered its decision to stick with Moderna and MRNA-4157, and Moderna stock is up over 30%, I think there may be more to come from both companies. Although Moderna CEO Bancel’s comments on the company’s latest breakthrough may seem hyperbolic, and investors need to be very patient, MRNA is still very much a technology to get excited about.
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