Moderna (MRNA 1.69%) has brought in billions of dollars in revenue and profit from its coronavirus vaccine. And that's thanks to orders from governments. Last year, Moderna generated $18.5 billion in vaccine revenue. It's heading for $21 billion in product revenue this year, according to advance purchase agreements signed so far.
But Moderna's vaccine story may change. And it could happen as soon as this fall -- at least in the United States. I'm talking about the switch from selling to governments to selling directly to healthcare providers. That's known as the private market. Congress hasn't approved funding to cover purchases of updated coronavirus vaccines for all Americans. And Moderna says it's preparing for a private market in case U.S. funding and orders don't come through. What does this mean for revenue? Let's take a closer look.
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Today's vaccine market
First, a look at the advantages and disadvantages of the current market. Government orders offer companies a streamlined experience. For instance, in each country, Moderna deals with just one customer: the government. This results in easier rollout and lower costs linked to the sales effort.
The system also offers the company and shareholders visibility on future revenue. Governments usually sign advance purchase agreements for doses. And as the name of these agreements indicate, they are established well ahead of time. In many cases, by as much as a year.
The one disadvantage of selling directly to governments has to do with price. In order for governments to pay for vaccine doses for everyone, vaccine makers must make them affordable. Moderna priced its vaccine at a little more than $16 for the U.S. -- a price that CEO Stéphane Bancel says "doesn't reflect the value of a vaccine from a pharmacoeconomic standpoint."
Now, let's consider the idea of a private market. Here, drug distributors will purchase vaccine doses and dispatch them to pharmacies, hospitals, and other healthcare settings. In this situation, Moderna sets its price. But insurers then get involved to decide what portion they will cover. Centers for Medicare & Medicaid Services has indicated a reimbursement level of $60 for coronavirus vaccines, Bancel said during the company's most recent earnings call. And Bancel has said Moderna will raise the price of its vaccine once it transitions to a private market.
The advantage of a private market
Clearly, the advantage of a private market for Moderna is price. So, let's imagine Moderna decides to price its vaccine or booster at $60. And let's try a couple of calculations. If only half of all Americans fully vaccinated by Moderna opt for a booster, that represents revenue of $2.3 billion. Now let's be even more cautious in our calculations. If only those individuals who have already gone for a second Moderna booster opt for the next Moderna booster, revenue would total $405 million.
It's important to remember two things. First, recommendations for a second booster so far have been limited to the most vulnerable individuals. Many other people, who aren't necessarily the most vulnerable, still might seek annual boosters. And second, my calculations concern the U.S. market only. So, even using my most cautious estimate, sales around the world could bring Moderna well into billion-dollar territory.
Of course, the move to a private market has its challenges. It will require a different sort of commercial organization and logistics. That's because Moderna no longer will be selling to just one customer per country. Moderna also won't have the security of advance purchase agreements signed a year ahead of time.
So, what does all of this mean for this vaccine giant?
It's too early to directly compare Moderna's revenue today with what it may gain in a private market. Right now, there are too many unknowns -- for instance, Moderna's costs in such a market and the number of individuals who will opt for annual vaccination. But it is fair to say Moderna's revenue could remain quite significant. Even if vaccine sales volume declines from today's level.
What does this mean for investors? It's important to keep an eye on Moderna's transition into a private market -- whether it happens this fall or farther down the road. And it's also important to make your decision to buy Moderna based on its entire pipeline -- not just its coronavirus program. The company has 46 programs in development and doesn't plan on being a coronavirus-only company forever. And finally, if you invest in Moderna today, you'll want to hold on for the long term. That will give you the opportunity to potentially benefit from Moderna's coronavirus success over time -- and its other programs.
