Moderna's (NASDAQ: MRNA) struggles may last a little longer than expected. The biotech company had seen both sales and its stock price plummet as demand for its coronavirus vaccine waned, but seemed to be on the road to recovery. It won approval for its new respiratory syncytial virus (RSV) vaccine, reported positive data from trials of late-stage candidates, and even saw its shares climb about 20% in the first half of the year.
But Moderna's news hasn't been as bright recently. Last month, the company revised coronavirus vaccine revenue downward due to lower sales. And in its update this week, the biotech made significant changes to its strategy. Moderna plans to cut annual research and development (R&D) spending by more than $1 billion starting in 2027 and discontinue five programs -- and it forecast that it would break even in 2028 instead of 2026.
After this shocking news, is the stock a buy, with the idea that efforts will spur growth -- or is it a sell? Let's find out.
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Why Moderna is making certain decisions
First, let's consider all of the important points Moderna talked about during its annual R&D day -- and why it's making certain decisions. Lowering its R&D expenses and slashing certain programs will result in fewer products launched in the next few years. Moderna now forecasts 10 approvals over the coming three years. This is after -- just last year -- forecasting the launch of as many as 15 new products over the next five years.
"The size of our late-stage pipeline combined with the challenge of launching products means we must now focus on delivering these 10 products to patients, slow down the pace of new R&D investment, and build our commercial business," said chief executive officer Stéphane Bancel.
Moderna was getting too big, too fast. Now, in order to support breakeven and eventual profit, the company is shifting to focus on key programs and usher them through the final stages of development.
As part of this, Moderna is cutting its R&D investment for the period of 2025 through 2028 by 20%, to $16 billion. This doesn't mean the company will neglect its high-priority programs, though -- it will actually increase its investment in oncology, for example, while slowing investment in other areas like rare-disease therapeutics.
Moderna's bad news
The bad news is that Moderna will take longer than originally expected to get to the break-even point. Shareholders who have already been disappointed by declining sales in recent years won't take this lightly. And if you haven't yet invested in Moderna, you may not see the biotech as an exciting growth player at the moment.
All of this could weigh on the future of the stock. But it's important to take a long-term view with Moderna, and also look at some of its positive points. It's good to see the company prioritizing and adjusting its strategy to reach its goals -- even if certain ones, like breakeven, won't come as soon as we'd hoped.
Moderna also should have some positive catalysts ahead. It expects its respiratory vaccines to be profitable this year and in the future. And the biotech aims to file for regulatory approval of three potential products by the end of the year -- a next-generation coronavirus vaccine, a combined influenza/coronavirus vaccine, and an RSV vaccine for younger high-risk adults.
Finally, Moderna has the financial strength to see itself through this strategy to become a multiproduct and profitable company. It has the funds necessary to reach its break-even goal without having to raise additional equity, a major plus.
Consider your investment strategy
Now, let's get back to our question. Is the stock a buy or a sell? This depends a lot on your own particular investment strategy. If you've held Moderna shares for a while, could lock in a profit if you sold, and are looking to move on to other opportunities, you might consider at least trimming your position.
But if you're ready to hold on for a few more years, it could turn out to be a wise move. (And buying the stock now, on the dip, could be a smart move too.) Moderna has five respiratory vaccines that have generated positive phase 3 data, and five non-respiratory candidates involved in pivotal studies. So there's reason to be optimistic about the company's product approval forecasts, and therefore its revenue potential down the road.
And that's why Moderna can be a great investment right now, if you don't mind sitting back and waiting for the storm to pass.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.
