Moderna

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 5/5

Moderna is a biotechnology company pioneering messenger RNA (mRNA) therapeutics and vaccines, aiming to revolutionize medicine by enabling the body to produce its own proteins to combat diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Moderna operates a complex business, focused on research and development, clinical trials, and manufacturing for a new class of medicines. They are not a traditional business. So, lets dive into the complexities.

Business Overview

Moderna is a biotechnology company at the forefront of messenger RNA (mRNA) technology. Their platform seeks to transform medicine by creating a new class of vaccines and therapeutics that are designed to harness the body’s own cellular machinery to combat various diseases. The primary focus of Moderna’s operations involves preclinical research, clinical trials, and the manufacturing of mRNA-based medicines.

  • Revenue Distribution: Moderna’s revenues are primarily driven by sales of its COVID-19 vaccine, Spikevax, along with government grants and collaborations for R&D. The distribution of their revenues is geographically focused on North America and Europe. However, they are actively working towards global expansion with various partnerships and collaborations.

Over the years Moderna has rapidly evolved from a pure research company to a commercial one with one of the fastest selling vaccines of all times. It’s revenues are therefore still largely defined by one single source – COVID vaccine.

  • Industry Trends: The pharmaceutical industry, particularly the vaccine segment, has undergone significant changes recently. These include advancements in mRNA technology, shifts in regulatory landscape, increased focus on infectious diseases, and the development of personalized medicines. It is noteworthy that more and more governments are investing in vaccine production which should be a positive tailwind for MRNA. It is also very competitive.
  • Margins: Moderna has historically maintained high gross margins due to high prices charged for the COVID-19 vaccine, but its operating margins were more volatile due to ongoing R&D expenses and fluctuations in sales. For the most recent reported quarter for example, they had gross margins of about 78.6% but operating margin were about -3.2%.
  • Competitive Landscape: Moderna operates in a highly competitive market, where they compete with larger, more established pharmaceutical giants such as Pfizer and BioNTech in the mRNA space and a variety of companies that provide treatment and vaccines for infectious diseases. Competition not only comes from the current players but also from a huge amount of future companies that would want to enter the market.
    • This shows how important having a real moat is.
  • What Makes Moderna Different: Moderna’s strength lies in its pioneering mRNA platform, which enables rapid vaccine and therapeutic development, and their mRNA medicines have demonstrated very strong efficacy. While other companies rely on traditional vaccine and medicine tech, Moderna is heavily invested in RNA technology, which has tremendous upsides with lower manufacturing costs and faster R&D than traditional methods.

Financial Analysis

Revenue:

  • The main revenue source is COVID vaccine and government funding
  • Product sales dropped from $6.1 billion to $1.8 billion compared with last year period.

This should be looked in conjunction with the fact that COVID vaccine sales was also a major revenue source last year.

  • Collaboration revenue has been increased in the recent quarters, with a jump from $559 million to $617.

Profitability

  • The gross profits are still very good at around 78%.

However, a lot of companies had high margins during COVID time, these are bound to be reduced as the pandemic subsides.

  • Operating margin was very low at around -3.2%.

The main reason behind these are that the company continues R&D and have very high personnel costs.

Balance Sheet

  • The company has cash and investments of around $11.3 billion, which is a massive cash balance.
    • A good thing when there is a slowdown is coming or ongoing.
  • They have negligible amount of short term or long term debt.
    • This makes the company a lot more stable and it also means all the value is captured by the shareholders, not lenders.
  • They have substantial amount of inventory and they also have accounts receivable. But their accounts payable are also substantial.
  • They need to maintain inventory in order to deliver supply.

Their balance sheet is very strong and is a very strong positive.

Moat Analysis - 2 / 5

  • Intangible Assets: Moderna has some strong patents around their core mRNA technology and a strong brand, especially after the COVID pandemic.

However, patents have a limited period, and thus not a durable moat. Brands are very hard to defend in such a competitive industry. While Moderna was one of the first companies to use mRNA for vaccines, other companies are also catching up pretty fast.

  • Switching Costs: There are very little to no switching costs associated with Moderna’s products for an average customer.

While MRNA is a very advanced technology that is very complicated, the end user isn’t attached to it.

  • Network Effect: The network effect does not play a substantial role in Moderna’s moat. There isn’t an advantage to using Moderna’s mRNA products because it’s what everyone uses - or vice versa.
  • Cost Advantages: Moderna is not the lowest cost producer, even among the peer companies which are also using mRNA.
    • While the use of mRNA may help in faster R&D, the costs are still high because of the complex manufacturing and testing process that the mRNA technology entails.
  • Conclusion:
    • Therefore, given the competition in the industry and low switching costs, Moderna’s moat is limited to their core technology patent, which will not be everlasting and the company will eventually need new sources of moat.

For this, Moderna only has a narrow moat with the potential to become wider in future. We are currently rating it a 2.

Risk Analysis

  • Technology Risk: Moderna is highly dependent on the success of their mRNA technology. Their products have not been used over many decades and has a lot of room to prove it. Furthermore, competitors are coming up with their own techniques of making medicines and vaccines that could outperform mRNA tech.
  • Clinical Trial Risk: Their clinical trials for various drugs may have negative or inconclusive outcomes, which will result into loss of money and time.

There have been several occasions where some of the mRNA therapeutics have failed in trials, so this is something that must be monitored.

  • Competitive Risk: The market is very competitive, and therefore there is a high possibility that competitor firms are able to develop better and more cheaper alternatives.
  • Regulatory Risk: The pharmaceutical industry is always highly regulated, so, delays in regulatory approval, change in regulations, are also a risk that should be considered by investors.
  • Commercialization Risk: Since the company has a short history of commercial success, whether their drugs/vaccines can achieve commercial dominance is yet to be determined. The COVID-19 vaccine had massive success, it remains to be seen if other products can replicate the success.
  • Over Reliance on COVID Vaccine While their vaccine was one of the fastest selling vaccines of all time, relying on a single product has high risks.
    • The COVID pandemic is subsiding, and therefore demand is expected to be lower. This will impact MRNA revenues and ability to sustain current high level of investments.

Understandability Rating - 3 / 5

Moderna is in the biotech industry, which is very difficult to comprehend, especially to the untrained. They are creating an entirely new class of medicines/vaccines and it’s very difficult to predict or understand how it will work out over the long-term. While it is not as hard to understand as AI companies, this is a fairly complex business.

Conclusion

Moderna is a fascinating company with a great technology that has revolutionized pharmaceutical and vaccine industry. It has a very strong balance sheet to support it and its future R&D. However, there are substantial risks that should be considered. And for that, even if the company may be profitable, its price has to have the suitable margins of safety to account for those risks.