Moderna is front and center in the race to develop a vaccine for Covid-19. In a press release on Monday it stated, “With today’s positive interim Phase 1 data and the positive data in the mouse challenge model, the Moderna team continues to focus on moving as fast as safely possible to start our pivotal Phase 3 study in July and, if successful, file a BLA (Biologics License Application).”
The company has also been cited by Dr. Anthony Fauci who expressed “cautious optimism” Friday about the initial results from a coronavirus vaccine trial — which were widely celebrated this week — and said it remains “conceivable” that a vaccine for the deadly pathogen could be available by the end of the year per an NPR report.[I am not in a position to offer judgment on the medical aspects of Moderna’s trial results and outlook. What I am providing are the historical financial results of the company, how the stock is valued and what it could mean for the shares.]
Historical financial results
Moderna has not sold any products to generate revenue. It has relied upon collaboration revenue from other companies and grants to fund its research. These are perfectly fine ways to generate revenue, but at some point in time the company needs to successfully develop products that can be sold. The company has 23 mRNA development candidates in its portfolio with 13 in clinical studies.
Below are 2016 to 2019 revenue, net losses and operating cash flow results.
Its revenue stream is erratic
2016: $108 million
2017: $206 million
2018: $135 million
2019: $60 million
Average the past four years: $127 million
Bottom line losses are growing
2016: $(230) million
2017: $(270) million
2018: $(402) million
2019: $(514) million
Negative operating cash flows means capital must be consistently raised
Deferred revenue between 2016 and 2017 essentially offset each other.
2016: Positive $164 million
2017: Negative $(162) million
Without the deferred revenue imbalance cash flows were
2016: Negative $(97) million
2017: Negative $(169) million
2018: Negative $(331) million
2019: Negative $(459) million
At least it doesn’t have any debt
As of December 2019 Moderna had just over $1.1 billion in cash and short-term investments and an additional $160 million in long-term investments. Its total assets were $1.6 billion versus only $415 million in total liabilities, with no debt. Its balance sheet is strong but given its large negative cash flows it needs to be.
Shares are valued at 25.6x its market cap to revenue
Since the company is losing money using a PE ratio doesn’t work, so the fallback is to use a market cap to revenue ratio.
Moderna had 353.1 million shares outstanding as of its March quarter results and 371.2 million as of April 30, per its 10-Q filing. With the stock closing at $69 on Friday its market cap is $25.6 billion.
Determining what revenue to use for the analysis is a bit challenging. In the March quarter the company only generated $8.4 million in revenue vs. $16 million a year ago. It did receive $483 million from the U.S. government’s BARDA (Biomedical Advanced Research and Development) group in April for its Covid-19 work, but expects its coronavirus expenses to essentially match the amount of this grant.
There are multiple vaccines that generate over $1 billion in sales per year and Merck’s total vaccine business generated $8.4 billion in revenue last year, according to Bernstein.
Assuming that Moderna can successfully develop and manufacture a vaccine for Covid-19 this analysis uses $1 billion in revenue per year for the company. It could be higher than this, but there could also be multiple vaccines available and Moderna may not be successful.
Using $1 billion the company’s market cap to ratio would be 25.6x.
How does this compare to other pharmaceutical companies
This is a bit of an apples to oranges comparison since Moderna is and will be much smaller but will have a higher growth rate than these large companies. However, it does provide some reference on how highly valued Moderna is. These figures are based on 2019 revenue and Friday’s market caps.
- $162 billion market cap
- $33 billion in revenue
- 4.9x market cap to revenue
- $144 billion market cap
- $24 billion in revenue
- 6.0x market cap to revenue
- $311 billion market cap
- $61 billion in revenue
- 5.1x market cap to revenue
- $193 billion market cap
- $47 billion in revenue
- 4.1x market cap to revenue
- $208 billion market cap
- $52 billion in revenue
- 4.0x market cap to revenue
These 5 companies market cap to revenue average is 4.8x.
Moderna’s share price could be 60% too high or just about right
Giving Moderna a 10x market cap to revenue ratio would be just over twice the 4.8x valuation of the five large pharmaceutical companies. At a 10x ratio and using $1 billion in revenue per year gives a $10 billion market cap. Unfortunately, at Moderna’s current share price of $69 it has a market cap of $25.6 billion or 156% higher than the calculated value.
If it was valued at 10x revenue the share price would be $27, or lower by 61%, or where it was in March. To support the current share price with a 10 times market cap to revenue ratio the company will need to consistently generate $2.6 billion in revenue per year or at least be on a path to this level.
Getting there may be doable. It could come from a higher revenue stream from a very successful Covid-19 vaccine or a combination of the other 22 mRNA development candidates in the company’s pipeline.
It does appear that the share price increase above $25 in the March timeframe is largely or entirely due to its work on its coronavirus vaccine. If that is the case the increase from $25 to $69 has added $16 billion in market cap. Working back using a 10x market cap to revenue ratio would mean that Moderna’s Covid-19 revenue will need to reach $1.6 billion in revenue per year. Of course a higher valuation multiple will lower the revenue bar, but a lower valuation multiple would raise it.