Moderna (MRNA 4.54%) has become a well-known name in healthcare over the past few years thanks to its COVID-19 vaccine. This vital product has allowed it to generate billions of dollars in revenue and profit.
However, the company is focusing on growth and building out its business to be larger and much more diverse in the future, especially as the pandemic recedes. Moderna has very high hopes, but are they too good to be true?
Aiming to add $15 billion outside of its core business
To say Moderna has an aggressive growth plan would be an understatement. Over the next five years, the company expects to launch 15 products aimed at rare diseases, infectious diseases, and cancer. And by 2025, it projects that the number of programs that it has in phase 3 trials will double.
Outside of its respiratory business (which includes COVID), the company expects to add up to $15 billion in new revenue. It expects to reach that total five years after launching new products, which it projects will happen by 2028. This means that revenue could be flowing into the business 10 years from now.
Moderna points out that this projection is in addition to the $8 billion to $15 billion it expects in 2027 from respiratory products aimed at treating influenza, COVID, and respiratory syncytial virus (RSV). That suggests that by 2033, Moderna could be closing in on up to $30 billion in annual revenue -- if it meets its goals and there's no drop in demand for its respiratory products.
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Why investors should be cautious
Moderna is beefing up its pipeline, but that doesn't guarantee success by any means. Increasing the number of phase 3 trials may increase the odds that it gets a product to market, but failure rates remain high even in late-stage trials. Candidates in clinical trials aimed at cancer, in particular, have among the lowest success rates of all drugs.
Investors should be extremely cautious with Moderna's optimistic projections as there's room for a lot to go wrong. Another issue I would be worried about is the company's expectations for its respiratory business. The company estimates the COVID-19 market will be worth $15 billion -- more than twice what it estimates the influenza market to be worth ($6 billion).
Given that rival Pfizer recently said it projects just a 24% vaccination rate (in the U.S.) for COVID this year, this also feels like an area in which Moderna's forecast may be too optimistic. By comparison, before the pandemic, approximately half of Americans got flu shots. The public seems less concerned about COVID; unless that changes significantly, investors should be careful not to be too bullish about Moderna's projections.
Investors should brace for losses
One thing I'm confident about is that Moderna is highly likely to incur steep losses over the next decade. If it invests heavily in all these costly trials, its expenses are sure to spike significantly. Between 2024 and 2028, the company plans to spend $25 billion on research and development (R&D).
This year alone, the company expects to spend $4.5 billion on R&D with full-year expenses totaling $6 billion. With COVID-related revenue projected to come in between $6 billion and $8 billion this year, the company's turning a profit in 2023 could already be a stretch. Between ramped-up R&D spending and COVID vaccination rates potentially falling further, Moderna will have an increasing struggle to stay out of the red.
Moderna remains a risky buy
Shares of Moderna have fallen more than 40% year to date as investors have grown wary of this once-hot healthcare stock. There's good reason for the bearishness -- the company effectively needs to prove itself all over again. Generating revenue from COVID, and possibly flu and RSV as well, will ensure the top line isn't bare. But it may not be enough to cover rising expenses, or to attract growth investors.
The danger for investors is that when a company sets such high projections, a huge sell-off is possible if it ends up scaling back on those targets. And with Moderna setting the bar incredibly high, I wouldn't be surprised if it needs to adjust its forecasts in the future.
Despite its already significant losses this year, there's still room for this stock, at its $40 billion valuation, to go even lower. I'd recommend avoiding Moderna right now as things could go from bad to worse for the company in the years ahead.
