Known for its Covid-19 vaccine, Moderna Inc. (MRNA, Financial) holds a strong position in both clinical development and commercial manufacturing scale for mRNA vaccines. Currently, the company has 44 potential treatments and vaccines in different stages, including 24 undergoing clinical trials.
As a result of the declining demand for Covid-19 vaccines around the world, however, investors may be wondering if it is beneficial to invest in the stock.
Moderna’s plan for a post-pandemic world
Since its Covid-19 vaccine is Moderna’s only approved and commercialized product currently, investors want to know how the declining public sentiment about vaccines and governments ending their initial vaccine campaigns will affect the company’s sales. In a recent investor call, Moderna offered insights about a Covid endemic market and the estimated market value.
According to the company, the Covid-19 vaccine market will likely follow that of influenza. Like with flu shots, Moderna projects that people might need annual coronavirus booster shots. The flu market annually sees around 500 million to 600 million shots. If Covid boosters follow the same pattern, the company estimates the market could be worth $12 billion to $24 billion a year. However, it depends on the vaccine uptake, the government’s backing of boosters, the mutation of the virus and the public's medical needs.
If this projection is accurate, the Covid-19 vaccine market could help Moderna succeed for several years as well as establish it as a key player in the fight against pandemics. Further, its experience in developing and manufacturing vaccines quickly at scale will be invaluable as it looks to protect the public from future outbreaks.
Mixed earnings put pressure on the stock in a volatile market
Unlike the past two years, Moderna's third-quarter revenue missed analysts' estimates of $3.53 billion and declined 30% to $3.4 billion. The diluted GAAP earnings of $2.53 per share were down 67% year over year, but surpassed expectations of $3.29. The company noted the fill and finish stage during production was disturbed and caused supply chain constraints by the contract manufacturers. Additionally, sales were brought down as the company had to produce two bivalent booster shots simultaneously at the request of U.S. health authorities.
Product sales declined 35% year over year to $3.1 billion. The company said the other factor that hurt sales was the vaccine's authorization timing. The omicron-specific booster was approved in the U.S., Europe and Japan toward the end of the quarter. Hence, production and distribution started late, which resulted in lower sales.
This year's advanced purchase agreements are expected to generate revenue of $18 billion to $19 billion, coming in below its previous estimation of $21 billion. Furthermore, product sales in 2023 are estimated to be between $4.5 billion to $5.5 billion, down from the forecast of $9.5 billion in sales for 2023.
On the bright side, Moderna highlighted its stacked product pipeline during the earnings call. The company has 24 vaccines in clinical trials, up from eight vaccines three years ago. The pipeline is pretty full and will help reduce negative investor sentiment.
In addition, Moderna is quite busy using cash reserves to buy back shares. It announced a $3 billion share buyback in February and another $3 billion share repurchase program in August, thereby creating value for shareholders.
Merck deal is a major positive for Moderna
In October, Moderna and Merck (MRK, Financial) announced a deal in which Merck will jointly develop and commercialize Moderna's personalized cancer vaccine, mRNA-4157/V940. Under the terms of the agreement, Moderna will receive $250 million as an upfront payment. The two companies will share the costs and profits from the commercialization of the vaccine on a 50-50 basis.
Following the announcement of the deal, Moderna's share price spiked as it helped to solidify the company's position as a leading player in the field of immuno-oncology.
Morgan Stanley (MS, Financial) analyst Matthew Harrison said Merck’s excercise of its option signaled that the Phase 2 PCV study in adjuvant melanoma produced successful results. Based on the latest update from the analyst, he had a specific price target of $197 and gave it an equal weight rating.
Takeaway
Moderna is best known for its Covid-19 vaccine, which has been a big sales driver in recent quarters. However, with the pandemic seemingly coming to an end, there are concerns that vaccine sales will dwindle.
While this is certainly a risk, it is important to remember that Moderna has a broader business than the coronavirus vaccine. The company also has an impressive development pipeline of other vaccines and medical treatments.
However, even if sales of the Covid vaccine decline, they are not going away entirely. Moderna has already signed deals to supply vaccines to several countries worldwide, which will continue to provide a steady stream of revenue.
As a result, while there are certainly risks, there are also many things to like about Moderna. For these reasons, I believe the stock will continue to attract investor interest.
