Vaccine giant Moderna (MRNA -1.49%) had been spoiling us. We'd gotten used to quarter after quarter of excellent news. And then, in the third-quarter earnings report this week, Moderna cut its 2021 vaccine revenue forecast. Moderna said it now predicts $15 billion to $18 billion in coronavirus vaccine revenue this year. That means revenue may be as much as $5 billion lower than expected.
As a result, the shares sank 32% in two trading sessions. All of this sounds pretty grim. But, in fact, the situation isn't as bad as it looks. The $5 billion in revenue actually isn't lost. Let's take a closer look at why the market reaction was overdone -- and why the future still looks bright for this biotech company.
The earlier forecast
First, a little background. In Moderna's previous earnings report, the company forecast $20 billion in coronavirus vaccine sales for 2021. This is according to advance purchase agreements with various governments -- and the company's ability to deliver those particular orders this year.
Fast forward to this week's earnings report. As mentioned above, Moderna predicted a lower number. But that isn't because Moderna lost orders or sales. The biotech still will bring in the full $20 billion. But part of it will come in a bit later. There are two reasons for this.
First, Moderna is deferring the delivery of some vaccine doses to higher-income countries to early 2022. It's doing this so that it can prioritize doses to lower- and middle-income countries. And these countries pay lower prices. By delivering doses to the African Union and the COVAX initiative for equitable vaccine distribution instead of countries that pay more, Moderna will generate lower revenue in the coming weeks.
Second, Moderna is shipping more doses internationally than it did earlier in the year. International shipping adds more time to the whole process of getting doses from factories to people's arms. Moderna expects to speed up the process once delivery to certain countries becomes routine. In the meantime, shipping abroad is slowing things down. And that means some deliveries meant for the fourth quarter instead will arrive in early 2022. As a result, Moderna will record sales from those orders in 2022 instead of 2021.
What does this mean for investors?
Right now, it's more important than ever to look at Moderna through a long-term lens. From quarter to quarter, vaccine deliveries -- and revenue -- may ebb and flow. And as we see here, this sort of movement has nothing to do with overall demand for the vaccine. In many cases, logistics can determine whether a delivery arrives in one quarter or the next.
Instead, we should look at the level of advance purchase orders for the coming year -- and how Moderna plans to evolve its coronavirus vaccine program in a post-pandemic world. Right now, Moderna has signed $17 billion in advance purchase agreements. These involve upfront payments so they are pretty secure. Moderna also has options for about $3 billion. That puts next year at about the same level as this year.
Beyond that point, it's too early to predict exactly how much coronavirus vaccine or booster revenue will represent for Moderna. But it could remain significant. Experts say the coronavirus is here to stay. That means countries will need to stock up on vaccines or boosters for at least part of their populations. And Moderna is moving forward with exciting projects for a post-pandemic world. I'm thinking of its strain-specific booster candidates and a combined flu/coronavirus/allergies candidate.
So, Moderna's change in this year's revenue guidance doesn't change my long-term outlook for the company. Instead, I see it as a reminder not to panic -- and to focus on the big picture over time.