As the biotech responsible for developing one of the world's first safe and effective messenger RNA (mRNA) vaccines against the coronavirus, Moderna (MRNA 1.69%) is by definition a technologically sophisticated operator. What's more, its pipeline is chock-full of exciting new projects that could treat some of the world's most difficult conditions.
But as smart investors know, the social utility of a business doesn't always correspond to the chances of an investment paying off. Nor does being an early leader in a breakthrough space guarantee a perpetual seat on the throne. So let's explore three high-impact things that experienced investors are likely to understand about Moderna and which are likely to shape their decisions about the stock.
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1. The competitive landscape for mRNA medicines is still in its infancy
The most important thing that smart investors know about Moderna is that the field of mRNA medicine is far from being mature. In turn, many of the competitive showdowns that could eventually pressure Moderna's profit margin aren't anywhere on the horizon yet. Consider this chart:
In a nutshell, the overwhelming majority of mRNA programs in the world are in preclinical development, which means that there is probably a plethora of high-impact medicines in the works which nobody has even heard of yet.
Though Moderna has established itself as a leader in the preventatives segment thanks to its coronavirus vaccine, smart investors appreciate that its leadership might not extend to other therapy areas.
Or it might. Either way, the competition in mRNA hasn't even fully started outside the domain of coronavirus jabs, so expectations of the company's eternal dominance are misplaced.
2. Continuing as a leader in mRNA will require continued investment
The second thing wise investors understand about Moderna is that biotechs need to constantly invest in research activities to keep their pipeline populated and advancing.
Right now, the company spends around 10.7% of its annual revenue on research and development (R&D), which works out to nearly $2 billion. That's substantially less than the proportions spent by many of its larger competitors in the mRNA space like Pfizer, which spent just over 17% of its sales on R&D last year, as shown below:
MRNA Research and Development Expense (% of Annual Revenues) data by YCharts
There's no guarantee that increasing R&D spending would cement Moderna's position, but it probably wouldn't hurt. And with its sky-high profit margin of more than 66%, there's plenty of room to hike investment in research without slashing earnings.
3. mRNA medicines might not be as lucrative in the futures as they are now
Spending more on R&D is especially important, considering that the global market for mRNA medicines is expected to undergo a sharp contraction as revenue from mRNA coronavirus vaccines drops alongside the pandemic's eventual withdrawal.
For reference, in 2021, Moderna brought in $18.5 billion, representing a sizable portion of the global market, and its total for next year could be as high as $22 billion. But in 2035, global mRNA product revenue is forecast to be around just $23 billion, and that sum includes far more than Moderna's sales alone.
Though there's no guarantee that such a forecast will turn out to be accurate, it does mean that global mRNA revenue is likely to start falling sharply at some point in the next couple of years, after which it'll return to growth at a much slower rate than what the market has enjoyed recently.
Beyond that, Moderna will likely retain at least some of its coronavirus jab income for the next few years, but smart investors aren't expecting the company to escape the eventual share price haircut when its only commercialized product is in lower demand and sales are falling in its market.
