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1 Big Question Facing Moderna in 2022

By David Jagielski – Jan 8, 2022 at 10:30AM

Key Points

  • Moderna has been generating some incredible sales thanks to its COVID-19 vaccine.
  • This year promises to be another strong one for its business.
  • Beyond 2022, however, there is much more uncertainty about its future.

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This question could make or break the stock in the years ahead.

Moderna (MRNA -1.12%) has gone from a relatively unknown stock a few years ago to a business that's worth more than $85 billion thanks to its COVID-19 vaccine. Many investors have earned great returns on the stock, which soared 143% last year, blowing past the S&P 500's 27% return.

But whether it's a good buy today is more of a question mark. And that's because its future post-COVID is uncertain. How much revenue it might generate and which products it will rely on for growth when the pandemic is over are just a few of the things long-term investors will want to know. And the key to answering that may rest with what the healthcare company decides to do on a more immediate issue.

A person receiving a vaccine from a nurse.

Image source: Getty Images.

What will Moderna do with all its cash?

Over the trailing 12 months, Moderna has generated $11.4 billion in free cash flow. Prior to 2020, the company was normally burning through cash from its day-to-day operations. As of its most recent quarter (ended Sept. 30), its cash and equivalents totaled $5.6 billion. Plus, it had another $3.4 billion in investments for a combined total of $8.9 billion that it has available on fairly short notice. A year earlier, that number totaled $3.2 billion.

Deciding what to do with all that cash will be crucial in determining what Moderna's future may look like after COVID-19. An acquisition, for example, could go a long way in expanding its pipeline while also giving it some products that can generate revenue immediately. Rival COVID-19 vaccine maker Pfizer, for instance, recently announced a $6.7 billion all-cash purchase of Arena Pharmaceuticals, a clinical-stage company with a promising immuno-inflammatory drug, Etrasimod, which could generate $2.5 billion in annual revenue at its peak.

Moderna can't count on COVID-19 revenue forever

These questions are important to answer because if COVID-19 starts to truly subside, that will undoubtedly result in a steep drop in demand for Moderna's vaccine. Plus, there's always the threat that more competition could enter the field, specifically from Novavax, which may seek Emergency Use Authorization for its COVID-19 vaccine in the U.S. as early as this month.

And Moderna needs to work on its pipeline. Early data from its flu vaccine last month was uninspiring, suggesting that it wasn't better than what's already out there. One of its more promising vaccines, for cytomegalovirus (a common type of virus), is in phase 3 trials and could bring in $2 billion to $5 billion of annual revenue at its peak. However, for a company that's brought in just under $5 billion in revenue (mainly due to its vaccine) in just its most recent quarter, it's going to need much more than that to attract growth investors.

Should you invest in Moderna today?

In the past three months, Moderna's stock has fallen 34% (while the S&P 500 rose by 9%) and the danger is that conservative investors may increasingly turn away from the healthcare company. While Moderna has done a great job since the start of the pandemic, it needs to start putting its cash to good use and find ways to expand and diversify its business. 

Until that happens, I would avoid the stock as there's some considerable risk here. And with growth stocks falling out of favor with investors of late, it wouldn't be surprising for Moderna's stock to continue declining.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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