Could the Severe Cost Reductions by Moderna Potentially Reverse its Stock's Downturn?
Moderna's (MRNA -7.31%) stock has been a rollercoaster ride for investors, with its COVID vaccine making it a hot investment during the pandemic. However, its share price has taken a nosedive, dropping by 65% in the past year. The company has responded to this decline by cutting costs, managing to decrease operating expenses by 21% in the fourth quarter.
In February, Moderna reported sales of $966 million, a significant dip compared to the $2.8 billion it made in the same period the previous year. The lack of demand for COVID vaccines has been a major challenge for the company. To combat this, Moderna has been aggressively slashing expenses, resulting in a decrease in research and development costs and selling, general, and administrative expenses. The company incurred $2.2 billion in operating expenses during the quarter, a decrease from the $2.8 billion it reported in the same quarter of 2023.
CEO Stéphane Bancel aims to eliminate close to $1 billion in costs by the end of 2025. This cost-cutting strategy is a positive sign for investors, but Moderna needs more than just cost savings to excite them. The company lacks a significant revenue-generating product, making its market capitalization of around $13 billion look inflated.
Moderna is working on an updated COVID vaccine, as well as a flu/COVID combination vaccine. However, these aren't guaranteed to be blockbusters that can drastically improve the company's financial performance. The one wild card is the personalized cancer vaccine it is developing with Merck. But the success of cancer treatments is notoriously uncertain.
Investors may be tempted by Moderna's current low share price, which has dropped significantly from its peak in 2021. But with little reason to expect things to improve for the company anytime soon, it may be too risky to invest in Moderna at this time. It's wise to keep an eye on the company and wait for positive catalysts before making any investment decisions.
Moderna's Strategies for Regaining Investor Interest
Moderna can regain investor interest by focusing on several key strategies:
1. Pipeline Advancements and Product Approvals
Moderna has made significant strides in its pipeline, with eleven programs in late-stage development across four franchises. The company expects up to ten product approvals over the next three years, which could drive revenue growth.
2. Cost Efficiency and Financial Management
Moderna aims to decrease annual research and development expenses by approximately $1.0 billion by 2027 compared to 2024. Enhancing manufacturing productivity will also help improve margins.
3. Strategic Partnerships and Funding
Continuing partnerships, like the one with Merck for oncology therapeutics, can accelerate clinical studies and share development costs. The agreement with BARDA provides significant funding, enhancing Moderna's preparedness for public health threats.
4. Market and Investor Sentiment
A short-covering rally could occur if positive catalysts emerge, such as successful product approvals or improved financial performance. An increase in institutional buying indicates a strong floor in the market, which can help stabilize the stock price and attract more investors.
5. Global Expansion and Market Access
Bringing manufacturing plants online in various countries will increase global market access for Moderna's products. Participating fully in the U.S. contracting season can also increase market share and revenue.
By executing these strategies, Moderna can improve its financial outlook, increase investor confidence, and position itself as a viable healthcare stock.
Investors might find Moderna's current low stock price appealing due to its significant drop from its 2021 peak. However, without clear indicators of improvement, it may be prudent to hold off on investing, as the situation seems too risky at present.
Moderna's strategy to regain investor interest includes focusing on pipeline advancements and product approvals, aiming to secure up to ten product approvals within the next three years. This could potentially drive revenue growth for the company.
To enhance financial management, Moderna aims to reduce annual research and development expenses by $1 billion by 2027 compared to 2024. Additionally, improving manufacturing productivity can help improve margins and stabilize the stock price.
Strategic partnerships and funding, such as the one with Merck, can accelerate clinical studies and share development costs, as well as provide significant funding, boosting Moderna's preparedness for public health threats. By executing these strategies, Moderna can improve its financial outlook, increase investor confidence, and potentially position itself as a promising investment in the healthcare sector.
