Maintaining Our $266 Moderna FVE Following Q4 as Long-Term Pipeline Potential Looks Underappreciated

We’re maintaining our $266 Moderna fair value estimate following 2022 results that were in line with our forecast, with the exception of higher costs of goods sold due to a catch-up royalty payment for a new agreement with the NIH in December. In 2022, while COVID-19 vaccine sales grew 4% to $18.4 billion, net income fell 31% to $8.4 billion, as Moderna’s lower gross margin (due mostly to higher royalties and inventory write-downs given lower demand), higher operating expenses (as the firm’s pipeline and commercial capabilities advance), and more normalized tax rate all contributed to a weaker bottom line. Given several programs in late-stage development and upcoming launches, we think Moderna will report net losses in 2023 and 2024, with the potential to break even in 2025 if new launches for influenza and RSV vaccines proceed on schedule. We think Moderna is still in the process of building an economic moat, with competitive advantages potentially arising as the firm makes progress with combination respiratory vaccines (still in phase 1) as well as rare disease and cancer therapies. The market’s negative reaction to earnings appears to reflect a focus on higher cost of goods and operating expenses and continued uncertainty around the flu vaccine program but not the improving potential of the firm’s pipeline (particularly in RSV and oncology). In addition, with $18.2 billion in cash on its balance sheet at the end of 2022, the firm has plenty of flexibility for further business development deals, such as the recent collaboration with Life Edit focused on in vivo gene editing and base editing.