Moderna (MRNA -2.49%) made a name for itself through its coronavirus vaccine. It's the biotech's first and only product -- and harnesses the company's core messenger RNA technology. The vaccine has generated billions of dollars in earnings over the past two years.
Now, however, demand from that star product is on the decline -- and Moderna faces a serious drop in revenue. This has been worrying investors, weighing on the stock price.
But what if I told you the coronavirus vaccine may be only the start of the Moderna story? This innovative biotech has branched out -- and it could be on its way to creating a respiratory vaccine empire.
The future of the coronavirus program
First, let's consider what's set to happen with the coronavirus vaccine program. Yes, product revenue won't match the $18.4 billion of last year. Moderna predicts at least $5 billion, according to coronavirus vaccine contracts signed so far.
That figure could move higher though, as Moderna still is negotiating potential contracts with pharmacies, hospital systems, and others. As we head toward a post-pandemic situation, the company will sign deals with these private players instead of with the government. In this private market, the price of Moderna's vaccine will move higher, too -- possibly reaching as much as $130 a dose.
Moderna sees this market following that of the flu, with people going back for annual boosters. This is positive because it represents a source of recurrent revenue. The company forecasts a coronavirus market of $15 billion. This season's coronavirus hospitalization rate has been almost triple that of the flu. So, it's very likely those who go for a flu vaccine will want protection from the coronavirus too.
But Moderna isn't stopping here. The company is aiming to launch vaccine products across coronavirus, flu, and respiratory syncytial virus (RSV) -- and reap major rewards as early as 2027.
The next step is tackling RSV. Moderna has reported strong data and aims to file for regulatory approval shortly -- with the idea of a possible launch next year. The company is entering a market with great need and limited competition. The U.S. Food and Drug Administration (FDA) just approved GSK's RSV vaccine -- the first to enter the market. And the FDA is set to decide on Pfizer's candidate later this month.
A billion-dollar opportunity
Moderna sees the RSV market as a $6 billion to $8 billion opportunity. GSK has the first-to-market advantage, but Moderna may win on its formulation. GSK's vaccine must be reconstituted with an adjuvant. Moderna's potential vaccine would be sold as a prefilled syringe, making it easier to administer. In any case, there's room in the market for more than one vaccine to reach blockbuster status.
Moderna also is on its way to serving the flu market, worth $6 billion to $9 billion. Though Moderna will face competition, it also may benefit from its use of mRNA technology, which allows the company to update vaccines with current strains more quickly than those using traditional processes. That means Moderna may formulate a more targeted vaccine faster. The flu candidate also could reach commercialization as early as next year.
Now, let's consider the financial elements. Together, the coronavirus, RSV, and flu markets represent more than $30 billion in 2027. Moderna aims to take $8 billion to $15 billion of that.
Initially, getting there will be costly. Moderna will invest $6 billion to $8 billion in research and development over the coming three years. But, by 2027, this will drop to about 10% of respiratory vaccine revenue. At the same time, cost of goods sold will fall to the range of 20% to 25% of sales, compared with more than 40% today.
Recurrent free cash flow
Finally, the respiratory vaccine portfolio may translate into $4 billion to $9 billion in annual free cash flow -- and possibly more down the road. And we're talking about just this business. Moderna is working on 47 programs across therapeutic areas. If even a few of them are successful, we could be looking at higher levels of revenue -- and eventually profit -- over time.
So is Moderna building a respiratory vaccine empire? It's very likely. Company president Stephen Hoge says Moderna's pipeline "represents the broadest and most advanced portfolio of respiratory virus vaccine candidates."
More importantly, though, Moderna has a clear plan about how to turn this work into recurrent revenue and cash flow. And this is great news for those who buy the stock today -- and hold on for the long term.
