Moderna recently conducted its annual R&D day. The biotechnology company, which had experienced declining sales and stock prices as demand for its coronavirus vaccine lessened, appeared to be on the path to recovery. By gaining approval for its new respiratory syncytial virus (RSV) vaccine and reporting positive data from late-stage trials, the company’s shares had climbed approximately 20% in the first half of the year.
However, Moderna’s recent updates have been less promising. Last month, the company adjusted its coronavirus vaccine revenue forecasts downwards due to reduced sales. During this week’s update, significant strategic changes were announced. The company plans to reduce its annual research and development (R&D) spending by more than $1 billion starting in 2027 and terminate five programs. Additionally, Moderna pushed its breakeven forecast from 2026 to 2028.
This development raises the question: Is Moderna’s stock a buy or a sell under these circumstances?
During the annual R&D day, Moderna outlined several key points and the rationale behind its strategic decisions. The reduction in R&D expenses and the discontinuation of certain programs will lead to fewer product launches in the immediate future. Moderna now projects 10 product approvals over the next three years, significantly down from last year’s estimate of 15 new products over five years.
CEO Stéphane Bancel explained that the size of their late-stage pipeline, coupled with the challenge of launching new products, necessitates a focus on delivering the 10 products to patients, slowing the pace of new R&D investments, and building their commercial business. To support its goals of breakeven and eventual profitability, Moderna is concentrating on key programs and steering them through the final stages of development.
Part of this strategic shift includes cutting R&D investment by 20%, to $16 billion, for the period of 2025 through 2028. However, the company will continue to invest heavily in high-priority areas such as oncology, while slowing investment in others like rare-disease therapeutics.
The downside is that Moderna’s path to breakeven will take longer than initially anticipated. Shareholders, already frustrated by declining sales in recent years, may find this challenging. New investors might not view the biotech firm as an exciting growth prospect at the moment.
Nevertheless, taking a long-term view of Moderna reveals some positive aspects. It is commendable that the company is prioritizing and adjusting its strategy to achieve its goals, even if reaching breakeven is delayed. Moderna also anticipates profitable outcomes from its respiratory vaccines this year and plans to file for regulatory approval of three potential products by year’s end: a next-generation coronavirus vaccine, a combined influenza/coronavirus vaccine, and an RSV vaccine for younger high-risk adults.
Financially, Moderna is robust enough to execute this strategy without needing to raise additional equity, which is a significant advantage.
As for investment strategy, whether Moderna’s stock is a buy or sell depends on individual strategies and circumstances. Investors who have held the stock for a while and are looking to capitalize on profits might consider trimming their holdings. On the other hand, those prepared to hold on for a few more years might find this a wise decision, especially since Moderna has five respiratory vaccines with positive phase 3 data and five non-respiratory candidates in pivotal studies. This fosters optimism about the company’s product approval forecasts and its future revenue potential.
Overall, Moderna stands as a potentially strong investment for those willing to wait for these strategic changes to bear fruit.
