On Sept. 16 Novo Nordisk(NYSE: NVO) and Korro Bio(NASDAQ: KRRO) announced that they'd be starting a new drug-development collaboration worth hundreds of millions of dollars, in an area that most would assume to be Moderna's (NASDAQ: MRNA) home territory. It's natural for investors to wonder if the competitive landscape in biopharma may have changed in a big way.
And it might -- but probably not in the way that some are expecting. Let's examine the rationale behind this new team-up, and clarify how it affects other players in the industry.
This new collaboration is a competitive play
Novo Nordisk's deal with Korro is worth a total of $530 million in research and development (R&D) funding, milestone payments, royalties, and up-front payments to get the ball rolling. That makes the agreement a meaty but fairly routine one for the big pharma business, and a huge (potentially) once-in-a-lifetime catch for the small biotech.
While the specifics of the collaboration's intent aren't being disclosed, the two companies will be working on developing cardiometabolic therapies. If Novo Nordisk thinks Korro's candidates are worthwhile, it will have the exclusive right to license them or to take over the clinical portion of the development process, as well as commercialization.
Korro Bio specializes in RNA editing. Specifically, its platform enables editing of messenger RNA (mRNA) before it gets translated into proteins by cellular machinery. You can think of its approach as making corrections to the copies of subtly flawed manufacturing instructions (the mRNA), right before they're handed off to various factories for fabrication. Then, with the newly corrected instructions, the factories create properly functioning proteins instead of ones that cause disease.
Given Novo Nordisk's laser-like focus on developing new therapies to treat type 2 diabetes and obesity, like its blockbuster drugs Ozempic and Wegovy, the likely intent of this deal is to seed its pipeline with opportunities to make even more powerful interventions within the same target markets. But Korro's programs are nowhere near clinical-stage testing yet, and there isn't a strong proof of concept for its approach.
Nonetheless, it's a big green flag for the biotech's stock that a hungry giant like Novo Nordisk is willing to make such a substantial financial commitment to see what it can do. Similarly, it's a plus that the big pharma's thirst for novel candidates to treat cardiometabolic illnesses is extending into modalities like genetic medicine, which were until now outside of its wheelhouse. But there's no guarantee of success here, nor will Novo Nordisk be getting anything tangible yet from its commitment to Korro.
Therefore, it's a bit premature to take this latest development as a distinct reason for buying Novo Nordisk's stock.
There are plenty of other reasons to buy it, of course. During the past three years, its trailing-12-month (TTM) normalized diluted earnings per share (EPS) climbed 81% to $2.91. Plus, Wall Street analysts on average expecting it to generate EPS of $5.17 two fiscal years from now, so they believe the quick pace of growth will continue.
Should Moderna investors be sweating?
Now, let's turn to the issue that some of Moderna's investors may think affects its stock.
Korro's focus on mRNA means it's working with precisely the same type of RNA that Moderna is focused on. However, there isn't actually an opportunity for a head-to-head competition here, nor is there much chance that Novo Nordisk and Korro will even engage in any areas that Moderna is likely to be interested in.
While Moderna is skilled at performing various gene-editing techniques related to mRNA, it isn't currently developing any programs to therapeutically (and repeatedly) edit a patient's copies of mRNA in order to produce specific proteins.
To continue the manufacturing instructions metaphor, Moderna's infectious-disease vaccines are simply copies of instructions to make proteins that the patient's body might not have had before. There's no correcting of any copies going on; the intent isn't to prevent the circulation of incorrect instructions which cause disease when implemented at scale, but rather to manufacture things that there weren't previous instructions for.
So, although mRNA is definitively Moderna's home turf, Korro Bio isn't threatening it in any way by claiming a different subset of the same domain. In other words, Moderna is not at risk, so I wouldn't sell its stock over this.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Moderna and Novo Nordisk. The Motley Fool has a disclosure policy.
