"Up and down, again and again" is what revelers from all over the world are currently singing at the Oktoberfest in Munich. Moderna shareholders can easily join in when looking at the share price performance. Driven by great confidence in new mRNA-based cancer vaccines, the biotech stock initially soared by 73% until mid-May, only to then plunge almost two thirds from its high for the year. The recent setbacks were due to weak results and disappointing forecasts. Sales of the coronavirus vaccine are falling faster than expected, there are delays with the new drugs and savings have to be made on top of that. All in all, a toxic mix that is depressing investor sentiment. This raises the question: Is there no sustained growth or is the market underestimating the US biotech company's pipeline?
First, let's take a look at the current business performance. Although the company's sales fell by 37% to USD 241 million in the second quarter, the figure was somewhat higher than analysts had expected. The loss of USD 1.28 billion was also not as large as feared thanks to cost reductions. However, this actually good news was overshadowed by a lowered forecast. When the figures were presented at the beginning of August, the Executive Board lowered the target for product sales to USD 3 to 3.5 billion, compared to the previous forecast of USD 4 billion. According to CEO Stephane Bancel, there is more competition for both respiratory syncytial virus (RSV) and Covid vaccines. On the one hand, the company is suffering from a new supply agreement between competitor Pfizer and the EU for Covid vaccines. On the other hand, Moderna's second commercial product, the RSV vaccine mRESVIA, is under strong competitive pressure from the Pfizer and GSK vaccines.
When presenting the quarterly figures, Moderna's management was still confident that it would return to sales growth in 2025 and break even by 2026 with the launch of new products. In mid-September, however, the Management Board had to row back again. The goal of being in the black was postponed by two years from 2026 to 2028. To achieve this, even more savings will have to be made. The research and development budget will be cut by around a fifth over the next three years. Five of the 45 programs previously in the pipeline are to be discontinued and the pace of some late-stage studies involving the treatment of latent and rare diseases will be reduced. These measures are expected to reduce expenditure by USD 1.1 billion by 2027.
One of the reasons why the red pencil is being applied so severely is that revenue is not expanding as dynamically as hoped. As a result, the Group has lowered its sales forecast for 2025. Instead of the hoped-for growth, Moderna is now targeting sales of just USD 2.5 to 3.5 billion, compared to the average of USD 3.74 billion that analysts had predicted. Although Moderna would like to score points with new products in the medium term, it will take until 2028 to generate significant sales, according to CFO James Mock. Up to ten new products are to be approved by 2027, such as vaccines against influenza and RSV as well as cancer drugs. The first mRNA-based vaccine against tumors could receive approval as early as next year. The active substance against skin cancer, which was researched together with Merck & Co, completed phase II with good results. The drug must now pass late-stage clinical trials before an application for approval can be submitted. The company still has enough money until the new product launches. Moderna expects to have USD 6 billion in cash by the end of 2024. The new product launches between 2026 and 2028 should then lead to an average annual sales growth rate of 25%.
A well-filled pipeline and high reserves coupled with cost reductions give the company a good foundation for future success. Until then, investors can bridge the gap with a barrier reverse convertible, which promises attractive returns even when prices are trending sideways. Leonteq has launched two new soft-callable BRCs: one variant with a guaranteed coupon and one with a conditional coupon. With the first version, a coupon of 19% p.a. is guaranteed. If the barrier set at 55% of the starting value remains intact within the term of one year, the BRC achieves the maximum return.
The barrier reverse convertible with a conditional coupon even offers a return of 22% p.a. in the best-case scenario. Unlike the classic variant, however, this is not guaranteed. In order to receive the coupon pro rata, the Moderna share must be quoted above the coupon trigger level of 55% of the initial level on the quarterly observation dates. The barrier is also located at this level. However, if the coupon payment is not made on a key date, it is not lost at the same time. Due to the advanced memory mechanism, the payment can be made up for if Moderna is quoted above the coupon trigger level again on one of the following observation dates. If the barrier is breached, the final fixing determines the return. If Moderna is then at or below the strike level, holders of the product receive the underlying in their securities account. If, on the other hand, the biotech security is quoted above the strike level at maturity, Leonteq pays back the full nominal value.
In order for the two products to achieve the maximum yield in one year at the latest, no price increases are required, only the barrier must remain intact. The term can be shortened due to the built-in soft callable function. Every three months, the issuer of both BRCs has the right to early redemption at 100%.
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