"Buy when there's blood in the streets," was something famous banker Baron Rothschild once advised, suggesting the time to invest is when everyone else is fleeing a particular asset or the market in general. And superstar investor Cathie Wood did just that last week when she added to her holding of Moderna (MRNA +11.97%), buying shares for both her flagship Ark Innovation fund and her Ark Genomic Revolution fund. Moderna stock crashed 27% in one trading session after the company lowered its full-year revenue forecast.
Wood, the CEO of Ark Invest, is known for her contrarian growth picks, snapping up future winners when they're trading at bargain levels. The idea is to get in on promising innovators before the crowd -- and reap the rewards over time. Now, Wood is betting on Moderna's ability to overcome recent challenges and become a multiproduct company delivering billion-dollar earnings down the road. Should you follow her into this bet? Let's find out.
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A biotech star
First, a bit of background on Moderna. The biotech company became an industry star in a matter of months after bringing its coronavirus vaccine to market early in the pandemic. The vaccine generated billions of dollars in revenue and net income at that time. But as demand waned later in the pandemic, revenue followed -- and investors worried about Moderna's reliance on the vaccine, its only product.
So, Moderna, a stock that had soared 400% in 2020, found itself in the doldrums. The shares fell in recent years, then gained momentum earlier this year as Moderna's new growth message resonated with investors. The company was on the path to gaining approval for its respiratory syncytial virus (RSV) vaccine and outlined a path to return to growth in 2025.
Since then, Moderna has won approval for the RSV vaccine to be sold as mRESVIA and continues to advance dozens of programs through development -- and five of these are in phase 3 trials. Last year, the company said it aims to launch as many as 15 new products over the coming five years. These products could eventually lead to as much as $30 billion in sales.
NASDAQ: MRNA
Key Data Points
But last week, Moderna disappointed investors when it cut its full-year product sales forecast to $3 billion-$3.5 billion from an earlier forecast of $4 billion. There were three reasons behind this move. First, sales of the coronavirus vaccine to the European Union are lower than expected. It's important to remember that the E.U. has a major contract with Pfizer for vaccine doses through 2026.
Second, the mRESVIA ramp-up has been slower than expected as many RSV contracts -- with rival drugmakers Pfizer and GSK -- were signed before the Moderna product was even approved. Finally, Moderna lowered guidance to prepare for potential revenue deferrals from this year to the next.
Moderna's good news
Still, Moderna delivered some good news, too. The company's effort to realign costs to match the coronavirus vaccine revenue opportunity is progressing. In the quarter, Moderna decreased operating expenses by more than $600 million compared with the year-earlier period. The company ended the quarter with $10.8 billion in cash, a positive point that should help it shepherd its late-stage products toward commercialization.
Moderna aims to file this year for the regulatory approval of its seasonal flu and next-generation coronavirus vaccine candidates. The company is also in discussions with regulators regarding the next steps for its combined coronavirus/flu vaccine candidate after it met primary endpoints in a phase 3 study.
Moderna's long-term prospects
Now, let's get back to our question: Should you follow famous investor Cathie Wood into Moderna? This biotech won't generate spectacular earnings growth immediately due to the challenges it faces in the respiratory vaccines market -- as mentioned in this quarterly earnings report. But this doesn't change the company's long-term prospects.
Yes, coronavirus vaccines won't sell nearly as much as in the early days of the pandemic. But they could offer a steady stream of significant revenue as people seek annual vaccinations -- especially if Moderna's combined flu/coronavirus vaccine makes it to market. It's also important to remember that Moderna is in the early stages of building out a broad product portfolio, so there are plenty of growth opportunities ahead. And with several of these candidates in late-stage studies, some of this revenue could be just a year or two away.
All of this means that Moderna represents a great investment opportunity for the long-term investor right now. The idea is to scoop up the shares now for a bargain -- and look for the company to deliver growth a few years from now. At that time, Cathie Wood's portfolio may reap the rewards in a big way -- and if you follow her into this innovative company now, your portfolio may, too.
