Moderna, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. Moderna is an mRNA biotechnology company whose only authorized commercial product at quarter-end was its COVID-19 vaccine, Spikevax.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1,831 | $3,364 | $4,037 | $14,179 |
| Net product sales | $1,757 | $3,120 | $3,878 | $13,576 |
| Operating expenses | $3,843 | $2,198 | $8,282 | $6,339 |
| Operating income (loss) | $(2,012) | $1,166 | $(4,245) | $7,840 |
| Net income (loss) | $(3,630) | $1,043 | $(4,931) | $6,897 |
| Diluted EPS | $(9.53) | $2.53 | $(12.89) | $16.46 |
- Revenue fell 46% in Q3 and 72% for the nine-month period, mainly because of lower COVID-19 vaccine sales. Management attributed lower sales primarily to reduced volume, partly offset by higher average selling prices.
- Cost of sales was $2.241 billion in Q3, or 128% of net product sales, versus 35% in Q3 2022. For the first nine months, it was $3.764 billion, or 97% of product sales, versus 26%. Excluding charges related to the Q3 strategic initiative, the reported cost-of-sales ratios would have been 47% for Q3 and 61% for the nine-month period.
- Research and development expense increased 41% in Q3 and 65% year to date; selling, general and administrative expense increased 59% and 43%, respectively. Higher clinical development, staffing, commercial expansion and related spending contributed.
- Q3 interest income was $105 million; nine-month interest income was $318 million. Income tax provisions were $1.672 billion and $919 million, respectively, including a $1.7 billion increase in the valuation allowance against deferred tax assets in Q3.
Liquidity, cash flow and obligations
- At September 30, cash and cash equivalents were $2.932 billion and investments were $9.914 billion, for total cash and investments of $12.846 billion, down from $18.220 billion at December 31, 2022. Working capital was $6.414 billion, compared with $8.508 billion at year-end.
- Operating cash flow was negative $3.740 billion for the first nine months of 2023, versus positive $3.319 billion in the prior-year period. Investing activities provided $4.744 billion, largely reflecting maturities and sales of securities; financing activities used $1.268 billion, including $1.153 billion of share repurchases. Cash, cash equivalents and restricted cash decreased $264 million.
- Total lease liabilities were $1.455 billion, comprising $730 million of operating and $725 million of financing lease liabilities. The filing does not identify conventional borrowings as a material debt balance in the supplied text.
- Deferred revenue totaled $1.538 billion, including $1.493 billion related to COVID-19 vaccine customer deposits. The company reported $2.1 billion of non-cancelable raw-material and manufacturing purchase commitments and $273 million of non-cancelable clinical and other commitments.
- Management stated that cash, cash equivalents, investments and expected product-sale cash flows should fund projected operations, capital expenditures and repurchases for at least 12 months from issuance of the statements, while warning that actual results could shorten that period.
Material changes and unusual items
- In Q3, Moderna began selling its updated COVID-19 vaccine in the U.S. commercial market, moving from government and organizational supply arrangements to a channel that includes wholesalers and distributors. Q3 U.S. net product sales were $913 million, compared with $985 million a year earlier. U.S. commercial sales include estimated chargebacks, discounts and returns; Q3 provisions totaled $663 million against $2.420 billion of gross product sales.
- A manufacturing-cost restructuring launched in Q3, in response to revised vaccination forecasts and the market’s shift toward endemic seasonal demand, generated approximately $1.4 billion of charges. These included $903 million of raw-material write-downs and $513 million of contract-manufacturer wind-down costs and cancellation fees. Q3 cost of sales also included $353 million of finished and semi-finished vaccine inventory write-downs and $90 million of underutilized manufacturing capacity.
- Total inventory write-downs were $1.9 billion for the first nine months, versus $1.0 billion in 2022. Management cited expired or excess inventory and a shift toward the latest variant-targeted vaccine and lower demand.
- The Q3 tax provision included a $1.7 billion valuation allowance increase following management’s assessment of negative evidence, including projected losses and lower expected COVID-19 vaccine sales.
- Moderna discontinued four pipeline programs in September: VEGF-A, IL-12, pediatric hMPV + PIV3, and its original COVID-19/flu combination candidate. Conversely, it reported progress in RSV, influenza, personalized cancer therapy and CMV programs. FDA approval or authorization for the updated XBB.1.5 COVID-19 vaccine was received in September.
Outlook, commentary and risks
- Management expected full-year 2023 COVID-19 product sales to decline significantly versus 2022 and anticipated greater seasonal concentration of demand in fall and winter. It expected cost of sales as a percentage of sales to remain elevated for 2023, but to decline in Q4 compared with earlier 2023 quarters following the manufacturing initiative.
- R&D and SG&A expenses were expected to remain higher through year-end than in 2022, reflecting clinical programs and investment in global commercial and operating infrastructure.
- Key uncertainties include COVID-19 demand and seasonality, vaccine returns and other commercial-sales estimates with limited historical data, inventory valuation and supplier commitments, regulatory approvals, clinical trial outcomes, manufacturing and supply execution, and the ability to commercialize pipeline products.
- Moderna reported no legal proceeding for which a material loss was both probable and reasonably estimable at quarter-end. In the Alnylam patent case, a U.S. district court entered a non-infringement judgment for Moderna in August 2023; Alnylam appealed.
- After quarter-end, Moderna finalized an Immatics collaboration and paid $120 million in October 2023. The filing states that accounting implications were still being evaluated.
Important facts for investors to verify
- Whether seasonal COVID-19 vaccine demand, pricing and sales returns support management’s sales outlook and the $1.493 billion of product-related deferred revenue.
- Whether the $1.4 billion restructuring and manufacturing changes reduce future unit costs as expected, and whether further inventory write-downs or supplier cancellation costs arise.
- How operating cash use and the $12.846 billion cash-and-investment balance evolve as commercial revenue declines and R&D and infrastructure spending continue.
- Whether the $1.7 billion deferred-tax valuation allowance changes as forecasts and taxable-income evidence develop.
- Progress, regulatory decisions and commercialization prospects for RSV, influenza, CMV and oncology candidates, including associated costs and trial outcomes.
- Developments in the Alnylam appeal and the accounting and financial terms of the Immatics collaboration.