MRNA: bearish put debit spread
Thesis
The melanoma vaccine data is out, and the stock still prices in far more than one indication can pay for. Merck and Moderna published the full INTerpath-001 Phase 3 results on October 22 after the data leaked. Intismeran plus Keytruda cut the risk of recurrence or death by 42% (hazard ratio 0.58). Patients alive and recurrence-free at two years were 82% on the combination and 70% on Keytruda alone. That result is good for patients. For the stock it fell short, because the bar was set by the Phase 2 result of 49%. Fierce Biotech reported that distant metastasis-free survival came in below what Phase 2 had suggested. BioSpace wrote that the data leaves open questions about whether it carries over to other tumor types.
The valuation is the problem. MRNA quoted at $195.75 this morning, down from a $202.63 close, which is a market cap of about $87B. The stock is still up roughly 590% this year. Analyst targets sit well below the price:
- Citi kept a Sell rating with an $80 target after the data. Its September downgrade said about $13B a year in oncology revenue would be needed to support a share price near $200, close to 7x Citi's own model.
- TD Cowen models $3.4B in peak intismeran sales, holds the stock at Hold, and has a $90 target.
- Rothschild Redburn rates it Sell with an $81 target.
- The consensus target was about $110 as of Citi's September downgrade.
A large group of retail holders bid the stock up on a "cancer cure" story, and that story now has a number attached. Q3 earnings on November 6 will turn attention back to declining COVID revenue and the cost of cash burn.
Structure
Options are expensive. The IV index is 97.8%, IV percentile is 98, and IV rank is 68. Selling the 130 put offsets much of the high premium on the long 190 put. The March 2027 expiry gives the thesis time through earnings and the post-ESMO period. The spread has its full value at $130, which is still well above the analysts' sell targets.
Main risk
The main risk is a sharp rally in a crowded, momentum-driven stock. Several things could set one off:
- A better-received full presentation at ESMO this weekend. TIKR quoted the companies saying the benefit grew after six months.
- Positive readouts in other tumor types.
- Talk of Merck making a strategic move.
- A squeeze, since shares fell as much as 26% in one session.
Beta is 1.15, liquidity rating is 3, and 30-day historical volatility is 105%, so expect large daily swings. The most you can lose is the debit paid.