Moderna, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. Moderna is a biotechnology company whose only commercial product at quarter-end was its COVID-19 vaccine, Spikevax. Its pipeline included 45 development candidates across 47 programs, with 39 in clinical studies.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $344 million | $4.749 billion | $2.206 billion | $10.815 billion |
| Product sales | $293 million | $4.531 billion | $2.121 billion | $10.456 billion |
| Operating loss / income | $(1.867) billion | $2.447 billion | $(2.233) billion | $6.674 billion |
| Net loss / income | $(1.380) billion | $2.197 billion | $(1.301) billion | $5.854 billion |
| Diluted EPS | $(3.62) | $5.24 | $(3.39) | $13.85 |
| Operating cash flow | Not presented quarterly in the supplied filing text | $(2.140) billion | $3.067 billion |
- Margins and costs: Q2 cost of sales was $731 million, or 249% of product sales; six-month cost of sales was $1.523 billion, or 72% of product sales. Q2 product sales less cost of sales resulted in a $438 million product-level loss before other revenue and other operating expenses. Inventory write-downs were $464 million in Q2 and $612 million for the first half; unutilized manufacturing capacity and firm purchase commitment losses added $135 million and $75 million in Q2, respectively.
- Expenses: Q2 research and development was $1.148 billion, up 62%; selling, general and administrative expense was $332 million, up 57%. For the first half, R&D was $2.279 billion, up 80%, and SG&A was $637 million, up 33%.
- Liquidity: At June 30, cash and cash equivalents were $3.801 billion and investments were $10.763 billion, totaling $14.564 billion, down from $18.220 billion at December 31, 2022. Working capital was $7.476 billion versus $8.508 billion. Cash, cash equivalents and restricted cash were $3.822 billion.
- Cash flow: First-half investing cash flow was positive $3.955 billion, mainly reflecting maturities and sales of marketable securities; financing cash outflow was $1.210 billion, including $1.154 billion of share repurchases. Cash, cash equivalents and restricted cash increased $605 million over the period.
- Debt and obligations: The balance sheet does not show conventional borrowings. Finance lease liabilities totaled approximately $1.030 billion, with $138 million of operating lease liabilities. Total liabilities were $4.935 billion. Non-cancelable commitments included $3.4 billion for raw materials and manufacturing and $347 million for clinical and other services; cancelable open purchase orders totaled $2.9 billion. The Moderna Science Center lease entails approximately $1.0 billion of non-cancellable rent over its initial term.
Material changes versus prior comparable periods
- Revenue fell 93% in Q2 and 80% in the first half, primarily due to substantially lower COVID-19 vaccine sales. Q2 sales were concentrated outside the United States: $231 million in the rest of world, $60 million in Europe and $2 million in the United States.
- Moderna moved from profit to net loss in both comparable periods. For Q2, operating expenses declined only 4% despite the sharp revenue contraction, as lower cost of sales was offset by higher R&D and SG&A.
- First-half operating cash flow swung from $3.067 billion provided in 2022 to $2.140 billion used in 2023. The filing attributes this mainly to lower net income and changes in deferred revenue and working capital.
- Cash and investments declined by $3.656 billion from year-end 2022. Moderna also repurchased $1.154 billion of stock in the first half, buying 8 million shares at an average $143.39 per share.
Outlook, management commentary and risks
- Management expects COVID-19 vaccine sales to decline significantly in 2023 as the market shifts to an endemic, seasonal pattern, with demand concentrated in fall and winter. The filing provides no specific full-year revenue guidance figure.
- Moderna expects cost of sales as a percentage of product sales and per-unit manufacturing costs to be higher in 2023 than in 2022, and warns of continued underutilized capacity charges and inventory write-downs. Demand changes and the move from a bivalent to monovalent XBB.1.5 vaccine rendered remaining mRNA-1273.222 inventory obsolete.
- Management expects R&D and SG&A expenses to rise in 2023, reflecting pipeline advancement, clinical trials and expansion of global commercial and operating infrastructure. Moderna said existing cash, investments and expected operating cash generation should fund projected operations, capital expenditures and repurchases for at least 12 months after issuance of the statements, while cautioning that actual cash use may exceed forecasts.
- The company submitted applications for its updated XBB.1.5 COVID-19 vaccine and initiated a rolling FDA submission for its RSV vaccine candidate, mRNA-1345. The RSV application is supported by reported efficacy of 83.7% against RSV lower respiratory tract disease in older adults. These candidates remained subject to regulatory review.
- Other pipeline commentary included initiation of a Phase 3 trial of individualized neoantigen therapy mRNA-4157 with Merck’s KEYTRUDA, an enrolled Phase 3 seasonal flu trial, and a CMV Phase 3 trial more than 80% enrolled. Reported clinical findings and development plans are not guarantees of approval or commercial success.
- Risks include uncertain COVID-19 demand and seasonality, product and inventory obsolescence, manufacturing and supply execution, clinical and regulatory outcomes, and substantial ongoing operating and contractual commitments. The filing reports ordinary-course litigation, including intellectual-property litigation referenced in the prior annual report, but no matter for which a material loss was then probable or reasonably estimable. Management reported effective disclosure controls and no material changes in internal control during the quarter.
Most important facts for investors to verify
- Whether fall 2023 COVID-19 vaccine approvals, deliveries and seasonal demand support management’s sales expectations.
- How much of the $1.7 billion in customer-related deferred revenue is recognized, and whether customer deposits or receivables replenish cash as expected.
- Whether inventory write-downs, unused capacity charges and purchase commitment losses continue, and their effect on product margins and cash flow.
- Progress, regulatory decisions and commercial prospects for RSV, flu, CMV and mRNA-4157, including the assumptions behind reported trial results.
- Cash and investment balances, operating cash burn, share repurchases, and the funding impact of lease and purchase commitments.
- Developments in intellectual-property litigation and any resulting financial exposure; the supplied filing text does not provide a clear quantified estimate of potential losses.