When you think of biotech giants, you may think of Amgen or Biogen. These companies have brought significant treatments to market over time -- and have generated billions of dollars in earnings, too. Most investors would be happy to find the next company set to follow in their footsteps.
Well, I've got one that's already started -- and is likely to continue along the path to biotech stardom. Right now, this particular player has fallen out of favor. But there's reason to believe this company will become a biotech giant by 2030.
I'm talking about Moderna (MRNA 1.69%). And its successes won't necessarily be tied uniquely to its blockbuster coronavirus vaccine. Let's find out how Moderna may become one of the industry's leading players.
Billions of dollars in annual earnings
First, let's consider Moderna's path so far. The company brought one of the first coronavirus vaccines to market in late 2020. Since, it's generated billions of dollars in annual revenue and profit. In fact, right now Moderna's annual net income actually surpasses that of Amgen and Biogen. It's important to remember that the two are older, established biotechs, and their top drugs face losses of exclusivity.
BIIB Net Income (Annual) data by YCharts
Moderna faces a different problem at the moment. Its only product -- the coronavirus vaccine -- is on the decline. Demand has dropped for vaccines as we head toward a post-pandemic world. And that's scared off many investors: The stock has dropped more than 30% this year.
Now let's consider how, in this context, Moderna may become a biotech giant by 2030. It's true that the coronavirus vaccine probably won't bring in the same level of revenue it brought in over the past couple of years. But the revenue opportunity isn't completely disappearing. In fact, the product still may generate blockbuster levels of revenue over time as people go for annual coronavirus boosters.
Moderna expects the market to follow that of the flu. About half of Americans go for annual flu shots. If the same population goes for the COVID shot too, Moderna's jab could be quite successful when it comes to generating recurrent revenue.
But here's what's even more exciting: Moderna may not be a one-product company for much longer. The biotech aims to launch flu and respiratory syncytial virus (RSV) vaccines next year. Those and the coronavirus vaccine together are set to make up a multibillion-dollar respiratory vaccine portfolio.
A $30 billion market
Here's how the numbers look. Moderna predicts the market for COVID, RSV, and flu vaccines to reach $30 billion by 2027. And the company expects to capture as much as half of this market.
To get there, Moderna is investing heavily in the near term. The company said it will put $6 billion to $8 billion into the program over the coming three years. Then, by 2027, Moderna will shift to "maintenance" mode, spending about 10% of respiratory vaccine revenue on research and development for the program.
All of this should result in $4 billion to $9 billion in free cash flow annually -- and that could move higher. Of course, Moderna's free cash flow was higher during the height of the pandemic. But it's important to remember that a pandemic is an unusual situation. We can't expect those sorts of numbers regularly.
Even at their best of times, biotech giants Amgen and Biogen haven't produced free cash flow to match Moderna's pandemic levels.
BIIB Free Cash Flow data by YCharts
So, it isn't realistic to compare the Moderna of tomorrow to the Moderna of earlier pandemic days.
Many programs in the pipeline
Instead, it's a better idea to consider the earnings potential of the respiratory vaccine portfolio -- and other programs -- over time. Here, we've just spoken about the respiratory assets. But Moderna also has many other programs in the pipeline -- including a vaccine for cytomegalovirus (CMV), which is in phase 3 development.
So, if Moderna meets its respiratory vaccines goals and launches a CMV vaccine, we could be looking at a biotech giant by 2030. The CMV market represents an opportunity of $2 billion to $5 billion. Moderna, thanks to its billions of dollars in coronavirus vaccine revenue, also has the resources to develop these programs.
All of this means that today looks like a great time to get in on Moderna. Coronavirus gains were great. But the next chapter, thanks to a variety of products and promise of recurrent revenue, could be even better.
