We've gotten used to revenue increases from Moderna (MRNA 3.01%), so the most recent earnings report may have felt to investors like a bucket of ice water thrown over their heads. The coronavirus vaccine maker posted a 35% drop in third-quarter product sales. And profit fell a whopping 68%.
The company also recorded a charge for inventory write-downs, linked to coronavirus vaccines that went unused.
Does this news mean that demand is falling and it may be time to walk away from Moderna? Or is the stock actually a bad-news buy? Let's find out.
The timing of authorizations
First, look at the current picture. The revenue declines stem from the timing of regulatory authorizations. Moderna won U.S. authorization of its omicron-specific booster in late August and authorizations in Europe and Japan in early September. That means booster rollout began late in the quarter -- which equaled lower sales. Moderna expects higher product sales in the fourth quarter as it delivers more and more boosters.
The booster also plays a role in the leftover vaccine situation. That's because demand shifted away from the original coronavirus vaccine to the strain-specific booster.
In more bad news, Moderna said it would defer $2 billion to $3 billion in vaccine sales to next year, due to supply chain issues -- deliveries from fill-finish contract manufacturers have been delayed.
But is all of this truly bad news? Not in the traditional sense. Moderna is simply facing challenges that happen in the world of biotech -- and in other businesses too.
Of course, it's still important to keep in mind that the coronavirus vaccine business is heading for a transition. And that transition probably will result in more challenges and less revenue in the near term.
The shift to a private market
The company expects to shift to a private market next year. That means Moderna no longer will be signing billion-dollar government contracts. Instead, it will sell directly to pharmaceutical distributors and healthcare providers, so it will have to take on all distribution costs. The shift will also result in revamping the distribution process and even the product -- Moderna will switch to a single-dose product from multi-dose vials.
All of this means 2023 may not be the easiest of years for Moderna. Since Fool.com readers are long-term investors, though, we're more interested in the picture over time, not just a single year.
And the long-term picture looks a lot brighter. First, Moderna predicts that the coronavirus vaccine market will follow in the footsteps of the influenza vaccine market. The flu market represents 500 million to 600 million doses worldwide. Even if the coronavirus vaccine market comes in at fewer doses than that, it may still be big. So Moderna could continue to generate significant revenue from its vaccine over time -- even if 2023 is rocky.
Second, Moderna has 48 programs in development. And outside of the coronavirus program, three candidates are in phase 3 studies. In fact, if all goes smoothly, Moderna aims to launch a flu vaccine and a respiratory syncytial virus (RSV) vaccine in the next two to three years. That would provide more than one revenue source in the not-too-distant future.
Is it time to buy?
Considering all of this, is Moderna a buy today? Shares currently trade at 7 times forward earnings estimates. But since we don't have a very clear picture yet of Moderna's post-pandemic revenue, it's hard to value them on that basis alone.
That's where pipeline breadth and progress come in: Here, things are looking good for Moderna. At the current level, I believe the stock is a buy. If you have the patience to hold on through some of the challenges ahead, you may be rewarded by Moderna's innovation over the long term.
