Moderna (MRNA 1.69%) brought in billions of dollars in revenue and profit from its coronavirus vaccine during most of the pandemic's height. But today, as we move toward a post-pandemic situation, things are changing drastically. Demand for vaccines has declined, and Moderna has made the move to scale back manufacturing to match the commercial opportunity.
All this resulted in Moderna reporting a billion-dollar loss in the third quarter -- and forecasting a further drop in vaccine sales next year. In fact, 2024 may be Moderna's toughest moment ever as vaccine sales reach their lowest point, and new potential products won't yet be able to compensate. Meanwhile, Moderna shares have declined more than 50% this year, even as the company has spoken of promising long-term projects. Does this mean it's time to sell this struggling biotech stock?
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Moderna's gaining market share
First, let's consider what Moderna has to say about the coronavirus vaccine, its only commercialized product right now. The good news is that the company is gaining U.S. market share, rising to 45% this vaccination season from 36% last fall. In fact, just last week, Moderna's market share rose to 51%. This shows that the company's product is able to compete successfully against the vaccine of bigger player Pfizer, and that's positive.
But Pfizer and Moderna have both spoken of declining overall demand and have made moves to reduce their manufacturing infrastructure. That's proving costly. During its earnings call this week, Moderna said it canceled commitments with third-party vendors and cut back on raw materials purchases. These and other efforts resulted in $1.6 billion in charges, taken in the third and fourth quarters.
All this has pushed Moderna's cost of sales for the year to $5 billion, up from a forecast of around $3.5 billion prior to the cost restructuring.
You might ask: Why did Moderna build out such a high level of infrastructure in the first place? It was needed in the earlier days of the pandemic, and thanks to this infrastructure, the company was able to build up market share and generate blockbuster revenue.
Until the beginning of this fall vaccination season, though, it wasn't yet clear what demand would look like -- so it was too early to cut back on manufacturing. Today, after monitoring part of the vaccination season, Moderna predicts demand for 50 million doses.
Are vaccine sales goals attainable?
Considering this, the company forecasts vaccine sales of at least $6 billion this year. There's reason to be optimistic about Moderna reaching this level, since $3.9 billion has already been recorded, and more than half of $1.1 billion in international orders have already shipped -- meaning they're not returnable.
As for next year, Moderna expects to reach a low point, with vaccine revenue of about $4 billion, and then a return to growth in 2025. That would be thanks to potential releases of a respiratory syncytial virus (RSV) vaccine next year and a combined coronavirus/flu vaccine in the following year.
Moderna's potential RSV product could be successful since it would be the only one on the market available in a pre-filled syringe, making it very easy to administer. And a combined coronavirus/flu shot could attract more people than today's COVID-only shot.
Finally, Moderna aims to break even in 2026, and the company confirms its plan of launching as many as 15 new products over the coming five years.
No pain, no gain?
Still, the next year or so won't be easy, and the shares may take a while to recover. Let's get back to our question: Is it time to sell Moderna stock? While Moderna's cost restructuring is painful in the near term, we should think of the expression "No pain, no gain." Moderna is making a move that's hurting earnings -- and the share price -- today. But, over the long term, this effort should pay off.
As annual revenue of its RSV vaccine franchise climbs, Moderna says cost of sales should decline to 20%. Write-downs and charges should be less than 10% of sales, compared to 74% year to date. Moderna has also predicted that the 15 planned launches could bring in as much as $30 billion in sales in the coming years. And the company says its current balance sheet is strong enough to fund its plans, so it won't need to raise capital by selling shares.
If you're already a Moderna shareholder, you may be getting impatient -- but as a long-term investor, the best thing you can do right now is hold on. Moderna is facing its toughest moment, but the good news is that the company has what it takes -- a solid late-stage pipeline and cash to bring products to market -- to succeed in the long run.
It's worth staying put during these tough times and betting on Moderna's next growth story -- which could be a lot bigger and longer-lasting than the first.
