Inflated Valuation Will Choke Revenue Amid Tighter Global Scrutiny

Key Takeaways

• Downward pressure on vaccine pricing and growing competition threaten profitability, market share, and long-term revenue stability.
  
• Ongoing public skepticism and regulatory scrutiny could restrict demand for mRNA products, slowing diversification and expansion of the product pipeline.
  
• Upcoming product launches, strong pipeline diversification, cost controls, AI-driven productivity, and patent protections may boost growth, stabilize earnings, and support long-term profitability.

Catalysts

A biotechnology company, provides messenger RNA medicines in the United States, Europe, and internationally.

• Intensifying global efforts to contain healthcare costs, coupled with rising government scrutiny and drug price controls in the United States and Europe, are set to put severe downward pressure on Moderna's vaccine pricing and profitability, threatening both top-line revenue growth and future net margins.
  
• Public skepticism or backlash toward mRNA technologies, amplified by misinformation and concerns around adverse events, could trigger stricter regulatory requirements and significantly limit demand for both new and existing Moderna products, impeding the expansion of its mRNA platform and constraining long-term sales.
  
• Moderna remains highly dependent on a volatile and shrinking COVID-19 vaccine market, as demonstrated by year-over-year declines in product sales and ongoing shifts in government purchasing cycles; failure to diversify into other high-revenue products could result in continued earnings volatility and long-term revenue decline.
  
• Mounting competition from both established pharmaceutical companies and biotech startups developing rival mRNA or advanced biologic platforms is likely to erode Moderna's market share, force lower prices, and compress gross margins across its respiratory and pipeline portfolios.
  
• Biotech patent expiration risks and an increasingly contested intellectual property landscape heighten the probability of future legal setbacks, larger legal expenses, or shorter exclusivity periods for key products, directly undermining Moderna's ability to protect innovation and maintain premium pricing, further risking long-term revenue streams.

Moderna Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Moderna compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Moderna's revenue will decrease by 16.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Moderna will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Moderna's profit margin will increase from -94.3% to the average US Biotechs industry of 16.3% in 3 years.
• If Moderna's profit margin were to converge on the industry average, you could expect earnings to reach $288.2 million (and earnings per share of $0.72) by about August 2028, up from $-2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 30.6x on those 2028 earnings, up from -3.8x today. This future PE is greater than the current PE for the US Biotechs industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 1.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Moderna Future Earnings Per Share Growth

Risks

• The company's robust late-stage pipeline, with up to 10 anticipated product approvals through 2028 targeting markets exceeding $30 billion in annual value, could generate significant new recurring revenues if successful, especially as products like CMV vaccine, RSV vaccine, and cancer immunotherapies come to market.
  
• Recent and upcoming FDA approvals for next-generation COVID, RSV, and flu vaccines, all with demonstrated strong efficacy, position Moderna to regain sales growth momentum and potentially expand product margins as it captures market share among aging and high-risk patient demographics.
  
• Cost discipline measures, including a halving of annual cash operating expenses from $8.9 billion in 2023 to an expected $4.2 billion in 2027, combined with accelerated adoption of AI to improve R&D and commercial productivity, provide credible pathways toward cash flow breakeven in 2028 and improved long-term net margins.
  
• The broadening of Moderna's mRNA platform into non-seasonal domains such as rare diseases and personalized cancer vaccines (in collaboration with Merck), if successfully commercialized, would diversify revenues and moderate the company's historic earnings volatility tied to COVID seasonality.
  
• Strong global patent enforcement and favorable legal decisions, such as the UK court ruling upholding Moderna's mRNA patent against Pfizer and BioNTech, could protect technology advantages, preserve pricing power, and provide additional revenue from licensing or litigation settlements.

Valuation

• The assumed bearish price target for Moderna is $18.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Moderna's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $198.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $288.2 million, and it would be trading on a PE ratio of 30.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $28.02, the bearish analyst price target of $18.0 is 55.7% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.