Why Is Moderna Stock Going Down?

Down around $30 per share over the past few weeks, concerns have risen over what is going on with Moderna, Inc. (NASDAQ:MRNA).

Why is Moderna stock going down? Profit-taking appears to be the primary reason shares of Moderna fell after a 66% run-up since the start of the year.

Lots of bullish catalysts sit on the horizon. For example, a widespread bird flu H15N epidemic would likely be a boon for Moderna. So too the impending approval of its RSV, or respiratory syncytial virus, vaccine should support sales. 

But the company is something of a mixed-bag and it’s worth a closer look at how its cash reserves ballooned and what the future may hold?

What Happened to Moderna?

The biotech company relies on messenger RNA (mRNA) technology to treat and prevent diseases and illnesses.

The company’s journey started in 2010. The following year it started researching the production of mRNA medicines. Yet sales were elusive for a long time.

It wasn’t until 2019 when Moderna reached the milestone of being a clinical-stage company that enjoyed revenues beyond simply strategic collaborations and grants. Its operations were speed-tracked in 2020 when the global pandemic hit. 

Operations kicked into high gear during the rapid development of the mRNA-1273 (commonly called Spikevax) vaccine.

In December 2020, Moderna received an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) and, in the same year, had a product sale of $199.87 million.

The company also received grant funding that year to help distribute the vaccine more quickly, which included a lot of funding from the Biomedical Advanced Research and Development Authority (BARDA).

The following year vaccine sales brought further gains when Moderna was authorized in more than 70 countries and by the World Health Organization (WHO).

Moderna impressively scaled operations during this time. By June 2021, it had already delivered 200 million doses of vaccine to the U.S. government. Product sales grew 88x higher than the prior year to reach $17.68 billion.

The financial fairytale was not to last. Although it received a Biologics License Application (BLA) approval from the FDA and recognized a record $18.44 billion in product sales in 2022, cracks in the profit-and-loss statement were starting to appear.

Total operating expenses climbed by 90% from the prior year versus a mere 4% growth in product sales, which pressured its bottom line. 

Worse still, net income declined by 31% to reach $8.36 billion and the cost of sales inflated by 107% due to write-downs for excessive inventory related to the COVID-19 vaccine, among other things.

Last year, a further slide in vaccine sales was felt. Net product sales declined by 64% to $6.67 billion. Moderna also reported that it was trying to optimize the cost structure related to the Spikevax transition from a pandemic to an endemic.

Moreover, the vaccine was sold primarily to wholesalers rather than directly to healthcare providers. And operating expenses kept climbing, which led to a snap in the two-year streak of posting positive net incomes.

All in all, the pandemic led to the company to scale the highest of highs before plummeting substantially. Still, it must be said that Moderna is in a better cash-rich balance sheet position than it ever was before the COVID-19 pandemic. It now has close to $8.5 billion with cash and cash equivalents on-hand.

What Lies in Store for Moderna?

The COVID-19 gains are dissipating year by year for Moderna, which is a bleak reality for investors as it’s the only commercial-level product the company has still.

However, there are some prime candidates, like its Respiratory Syncytial Virus (RSV) vaccine candidate (mRNA-1345), which is in a phase-2/3 clinical trial. Based on positive data, the company has filed for regulatory approvals.

While the first vaccine out of Moderna was a big hit, it’s doubtful whether the next one will rival its financial success.

It is also questionable whether the new vaccine performs better than the ones already on the market. Bloomberg reported that analysts expect this vaccine to generate about $340 million in revenues this year.

Moreover, as investors await a development so that the company might be able to recoup some of its losses, the FDA has delayed the vaccine’s approval to the end of May, citing “administrative constraints.”

On a brighter note, the agency has not informed Moderna about issues related to the vaccine’s quality.

Besides COVID-19 and RSV, Moderna also uses its reliable mRNA technology to develop other treatments and vaccines, like for common flu, norovirus, and even cancer antigens.

What Should You Do with Moderna Now?

Moderna is in some ways a perplexing stock to figure out. On the one hand, gross margins are poor and sales from its flagship vaccine have been declining year-over-year.

On the other hand, management have engaged in a strong share buyback that signals confidence in the future. That may well be fortified by the massive cash hoard on hand of over $8 billion. For a $51 billion market capitalization company, the cash ratio is very high.

Clearly, the Street expects revenues to grow, a show of confidence that future products lie in wait to be commercialized. The 5-year revenue growth rate annually is forecast to come in at 12.2%.

Where concerns lie primarily is the lack of profitability. Operating income that had been in the billions each quarter during 2021 have turned starkly negative in 4 of the past 5 quarters. That’s a serious concern that even the seemingly fortress balance sheet will be whittled away with a high cash burn rate.

For now, fair value seems to be around $145 per share according to the consensus calculation of analysts. That would suggest there is some upside but not a great deal for Moderna at this time, absent an FDA approval or other major catalyst, such as widespread bird flu.

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