Moderna (MRNA 3.01%) has been a tremendous growth story in recent years, generating billions in revenue from its COVID-19 vaccine, its first commercial product. But investors have been dumping the stock of late, fearful of how it may do next year and beyond. President Joe Biden recently said that the pandemic is effectively over, suggesting that demand for COVID vaccines will likely decline significantly next year.
There will still be a market for Moderna's vaccine and booster shots, but the big question is how much it will generate in sales from them. And investors recently got an insight into just how much that might be.
The vaccine market in the U.S. could be worth barely $5 billion
Moderna's Chief Commercial Officer Arpa Garay recently projected that the COVID vaccine market (including boosters) in the U.S. will be worth between $5.2 billion and $12.9 billion moving forward. The range depends on both the price of booster shots and the number of people who are eligible to receive them.
But even if you're optimistic that it will be on the high end and close to $13 billion, Moderna will still have to fight for market share with rivals Pfizer and Novavax, which also have authorized COVID vaccines in the U.S. Pfizer has dominated the global market and projects $32 billion in revenue from its COVID vaccine this year. Moderna, meanwhile, expects to bring in $21 billion, while latecomer Novavax might generate only a couple billion in sales.
Through the first half of this year, Moderna generated $2.4 billion in sales from the U.S. (23% of its top line). If it generates a similar amount for the back half of the year, that will put it right around $5 billion -- nearly what that entire market could be worth next year. And while it may not depend on the U.S. for the bulk of its revenue, Moderna will likely fetch a higher price for its vaccine in that market than it will in other countries, which could negatively impact its margins. And demand for COVID vaccines is likely to decline across the world as well, not just in the U.S.
The end result is the same: Moderna is due for a drastic decline in both revenue and net income next year.
Moderna investors should brace for a tough year in 2023
There's little doubt there will be a sharp drop-off in sales for Moderna next year. And the danger is that it is doubling down on that area of its business, developing other COVID vaccines aimed at variants and even a combination that includes the flu. One of its more ambitious vaccines is mRNA-1230, which includes the flu, COVID, and a vaccine for the respiratory syncytial virus (RSV) -- although that's not even in phase 1 trials yet.
But if concerns around COVID continue to subside, it could be a tough sell to convince people to take a COVID shot, even if it's part of a flu vaccine. And when the company released initial results from its flu vaccine late last year, the results suggested that it wasn't any better than what was already available to the public.
Moderna hopes it could have multiple products (e.g., a flu vaccine and an RSV vaccine) launched within two to three years, which could help diversify its portfolio. But that still isn't enough reason to buy the healthcare stock as non-COVID revenue likely won't be near enough to make up for the drop the company will see in its top line next year.
Moderna could soon be an expensive stock to own
If you were to look at Moderna's earnings multiple, you might think this is an incredibly cheap stock to own, trading at just four times its profits. But in a year from now, it could look a whole lot more expensive because, with lower sales, its valuation won't look nearly as attractive. Based on analyst projections for next year, Moderna is trading at a future earnings multiple of 24. The average healthcare stock trades at less than 16 times its future earnings. That would be a hefty premium to pay for a business that has an uncertain future.
Investors hoping Moderna's stock will rally may be setting themselves up for more losses in the weeks and months ahead. Its $50 billion-plus valuation is simply too rich right now. The safer option for investors is to wait and see how the company performs next year than to buy the stock and go along for what could be a rough ride.