Pipeline Expansion Will Balance Regulatory Risks And Cost Pressures

Key Takeaways

• Moderna faces potential revenue decline due to decreasing COVID vaccination rates, increased competition, and market share loss.
  
• High R&D expenses and potential regulatory challenges could delay product launches, impacting revenue diversification and growth.
  
• Moderna's diversification into new therapies and strategic cost management could boost revenue, stability, and market positioning beyond its COVID-centric approach.

Catalysts

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

• Moderna's revenue projections for 2025 are highly uncertain, ranging from $1.5 billion to $2.5 billion, down significantly from 2024 levels. Factors contributing to this include declining COVID vaccination rates, increased competition, and lower market share, which are likely to continue affecting revenue negatively.
  
• The company anticipates further inventory write-downs and excess manufacturing capacity issues in 2025, resulting in elevated cost of sales projected at 50% of revenue. This inefficiency in production planning and resource utilization may compress net margins and impact profitability.
  
• The continued decline in operating expenses is tied to a focus on cost efficiency, yet R&D expenses are still projected to be significant at $4.1 billion in 2025. This ongoing high R&D expenditure, particularly in uncertain pipeline programs, may weigh on earnings if product launches are delayed or unsuccessful.
  
• Moderna has filed for approval of several new vaccines, but the absence of their revenue contribution in 2025 guidance highlights concerns over timely approvals and market acceptance. This uncertainty, coupled with reliance on a few products, poses risks to revenue diversification and growth.
  
• Potential regulatory challenges, as seen with the Norovirus program being placed on hold due to safety concerns and dependency on forthcoming efficacy data for the flu-COVID combo vaccine, are likely to delay product launches and impact anticipated future sales growth, thereby affecting earnings projections.

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 18.7% 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 -110.0% to the average US Biotechs industry of 17.4% in 3 years.
• If Moderna's profit margin were to converge on the industry average, you could expect earnings to reach $302.1 million (and earnings per share of $0.77) by about April 2028, up from $-3.6 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 39.4x on those 2028 earnings, up from -2.9x today. This future PE is greater than the current PE for the US Biotechs industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

Moderna Future Earnings Per Share Growth

Risks

• Moderna's pipeline expansion into diverse areas such as respiratory vaccines, oncology, and rare diseases could diversify and boost revenue streams, moving away from a COVID-centric focus and potentially leading to increased sales growth and improved financial stability.
  
• The company's strategic cost management, such as achieving $2.6 billion in cost reductions in 2024 and plans for further cost efficiencies, may enhance net margins and optimize earnings over time.
  
• With cash and investments of $9.5 billion and focusing on up to 10 product approvals over the next three years, Moderna is well-positioned to invest in R&D and commercial opportunities, which could support sustainable revenue growth.
  
• The FDA review and potential approval of new products, including next-generation COVID and combination vaccines, could lead to stronger-than-expected earnings if these vaccines capture substantial market share and achieve faster market adoption.
  
• Successful clinical trials and expansion into markets like Norovirus and oncology, with promising Phase III and II data, could drive significant revenue increases, enhancing Moderna's competitive edge and resulting in higher earnings.

Valuation

• The assumed bearish price target for Moderna is $25.0, 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 $212.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $302.1 million, and it would be trading on a PE ratio of 39.4x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $26.8, the bearish analyst price target of $25.0 is 7.2% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.