Is Moderna in Trouble After a 13% Drop 1 Day?
On September 12, $Moderna, Inc.(MRNA)$ announced significant cost cuts, leading to a 13% drop in its stock price. Management now warns that it may take years to regain regular profitability.
Is this stock decline just a brief reaction to bad news, or is there a real risk of long-term stagnation? What does this mean for shareholders?
Decreased Earnings and R&D Cuts
Since public interest in the Moderna vaccine has sharply declined over the past two years, the company’s fortunes have taken a hit. In the last three years, quarterly revenues plummeted by 95%, with Q2 of this year falling to $241 million.
The company is no longer profitable, and while it expects $3.5 billion in sales for 2024, those figures are based on assumptions about vaccination rates that may not hold true given current sales trends.
The stock drop was triggered by the announcement that the company will cut $1.1 billion from R&D expenses starting in 2027. Over the past year, Moderna spent more than $4.8 billion on R&D. Five preclinical and early-stage projects will be halted immediately, including a candidate vaccine for respiratory syncytial virus (RSV) in infants.
Moderna has now stated it won’t be profitable until 2028. While management believes it won’t need to issue new shares to replenish cash reserves, they haven’t guaranteed against taking on new debt. Relying heavily on debt could ultimately reduce cash flow available for reinvestment and growth.
So, does Moderna's stock have problems? For now, the answer is yes.
A Good Buying Opportunity?
Despite the market sell-off and the company's significant cuts to future R&D, the long-term outlook remains promising, even if the short-term may not be as bad as investors expect.
Moderna’s R&D pipeline is productive across various disease areas, often outpacing the company's ability to commercialize these drugs. If similar research yields substantial market potential, this could bode well for the stock's long-term performance. Productivity can persist, even if it means facing temporary financial challenges after a biotech company’s initial success.
Therefore, while investors shouldn’t expect comfort in the coming years, those with a strong risk tolerance might find it wise to buy Moderna stock while the price is down due to market pessimism.
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