Headwinds eventually batter all stocks, even a fiercely expanding and globally relevant biotech like Moderna (MRNA -0.18%). And despite a run-up of more than 400% in the past three years, the ascendant coronavirus vaccine developer might soon be facing a combination of issues that'll give way to a serious slowdown.
Nonetheless, there's also the chance of turning at least one of the potential lemons into the sweet lemonade of even higher earnings, and it's entirely plausible that the company will be in better shape in the fall than it is at the moment. So let's get a better understanding of which obstacles are likely to be opportunities, and which aren't.
Booster market shares and viral variants are looming challenges
As management sees it in its first-quarter earnings update, things are on the up-and-up for its share of the coronavirus vaccine market. The company has already pocketed $6.1 billion in revenue during the first quarter out of its expected total of $21 billion in sales this year. And since October 2021, its Spikevax vaccine has grown as a share of booster doses administered in the U.S. from 27% to 43% as of April. Likewise, there are even larger gains elsewhere in developed markets, such as in Spain, where its share of boosters popped from 11% to reach 56% in the same period.
The trouble is, looking from October to April glosses over the shift in market share from February to April, which paints a different story. For example, in the U.S., Spikevax's share of booster doses actually dropped from 45% to 43%. Similar-sized drops in share also occurred in Germany, Italy, Spain, and South Korea over the last three months. This isn't a five-alarm fire for investors, but it is an indication that competition in the coronavirus vaccine market is growing fiercer, which will eventually have an impact on Moderna as well as other vaccine stocks.
When paired with the general trend of less demand for jabs over time, Moderna will need to keep innovating just to keep its product relevant and effective compared to the circulating variants of the virus. And in a very real sense, that's another problem. Right now, the biotech is working on a new version of its jab that protects against the original SARS-CoV-2 virus as well as the original omicron variant when used as a booster shot.
But regulators at the Food and Drug Administration (FDA) plan to meet as late as the end of June to figure out which variants of the virus should be targeted with boosters intended for use in the fall. After all, the original omicron variant is largely extinct, and only its offspring lineages continue to circulate, so regulators might prefer to focus on vaccines that more closely match current variants and future threats. If they opt for a different set of variants than Moderna's new candidate targets, the company won't have enough time to change course and manufacture jabs with a different formulation, and its efforts will be wasted.
That hasn't stopped it from forging ahead with plans to start manufacturing its updated jab in June, though. Therefore, there's a not-so-small risk that the FDA will put the kibosh on the biotech's work in progress because it doesn't believe it'll be capable of matching the variants that people need to be protected from going forward.
Government orders might not be timely, but that could be a good thing
There's one other issue on the horizon, but it might be an opportunity. Per Stéphane Bancel, Moderna's CEO, as of May 4 the U.S. government hasn't allocated money in the budget to buy booster doses of any version of Spikevax for the anticipated fall surge. If this situation doesn't resolve soon, to continue selling its jab, the biotech could sell it directly to individuals, pharmacies, and insurers.
And if it does, per Bancel's interpretation of statements made by the Centers for Medicare & Medicaid Services (CMS), the price per dose for the 2023 fiscal year could be in the $60 range. That's quite an increase compared to the price of around $16.50 per dose that the U.S. government has paid the company since the start of the pandemic. So its unit economics -- and therefore its bottom line -- just might get a whole lot better if the government doesn't manage to allocate funds for vaccine purchases.
Still, without additional investments in its commercial organization, it's hard to imagine Moderna succeeding seamlessly in its shift from essentially selling to one customer in the U.S. to selling to a great many customers. Therefore, investors should expect its selling, general, and administrative expenses to rise considerably if this situation unfolds, which might offset some of the additional earnings from selling doses at a higher price.