Moderna, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context
Moderna is a biotechnology company developing mRNA vaccines and therapeutics. Its only commercial products at period-end were its COVID-19 vaccines, including the original Spikevax and Omicron-targeting bivalent boosters. COVID-19 vaccine sales remained the main source of revenue. The company reported 48 development programs and continued advancing vaccines and therapeutics across its pipeline.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $3,364 | $4,969 | $14,179 | $11,260 |
| Product sales | $3,120 | $4,810 | $13,576 | $10,740 |
| Operating income | $1,166 | $3,558 | $7,840 | $7,886 |
| Net income | $1,043 | $3,333 | $6,897 | $7,334 |
| Diluted EPS | $2.53 | $7.70 | $16.46 | $17.00 |
| Operating cash flow | Not separately reported | Not separately reported | $3,319 | $10,310 |
Q3 revenue declined 32% year over year as product sales fell 35%, largely reflecting the timing of Omicron booster authorizations and manufacturing ramp-up. Nine-month revenue grew 26%, while net income fell 6% as operating expenses and taxes rose. Cost of sales was $1,100 million in Q3 and $3,498 million for the nine months; cost of sales equaled approximately 35% and 26% of product sales, respectively, versus 15% and 16% in the comparable 2021 periods. This implies approximate product gross margins of 65% for Q3 and 74% for the nine months, down from 85% and 84%.
At September 30, cash and cash equivalents were $3.027 billion and investments were $13.976 billion, totaling $17.003 billion, compared with $17.570 billion at year-end 2021. Working capital was $7.490 billion. Current assets were $14.297 billion and current liabilities were $6.807 billion. Total liabilities were $8.064 billion; the filing reports financing lease liabilities of $1.146 billion in total, but does not identify conventional borrowings as a material funding source.
Nine-month cash flow from operations was $3.319 billion, investing cash outflow was $4.128 billion, and financing cash outflow was $3.010 billion. Cash, cash equivalents and restricted cash decreased $3.819 billion. The company repurchased $2.927 billion of common stock during the nine months. Deferred revenue, primarily customer deposits for vaccine supply, was $4.177 billion, of which approximately $3.9 billion was expected to be recognized within one year.
Material changes versus comparable periods
- Q3 product sales declined to $3.120 billion from $4.810 billion; nine-month product sales increased to $13.576 billion from $10.740 billion.
- Q3 operating expenses rose 56% to $2.198 billion, including a 52% increase in cost of sales, 57% increase in R&D, and 65% increase in SG&A.
- For the nine months, operating cash flow fell 68% from $10.310 billion. The company cited lower deferred-revenue inflows relative to revenue recognized and higher income-tax payments.
- Inventory write-downs were $333 million in Q3 and $1.0 billion for the nine months; losses on firm purchase commitments were $7 million and $349 million, respectively. These costs reflected excess or obsolete COVID-19 vaccine inventory, unused manufacturing capacity, and demand shifts to updated boosters.
- Investments in securities increased while cash balances declined; unrealized losses on available-for-sale securities contributed to accumulated other comprehensive loss of $351 million at quarter-end.
Outlook, management commentary, risks and unusual items
- Management expected Q4 2022 product sales to exceed Q3, primarily due to timing of authorizations and release of Omicron-targeting boosters. Based on signed 2022 supply agreements and its supply-chain forecast, it expected second-half 2022 COVID-19 vaccine sales to be slightly below the first half, partly because deliveries were deferred into Q1 2023.
- Management expected 2022 cost of sales to be a higher percentage of product sales than in 2021 as the vaccine market shifted from pandemic conditions toward a seasonal market. R&D and SG&A expenses were also expected to increase versus 2021.
- Moderna said its cash, cash equivalents, investments and expected operating cash generation should fund projected operations, capital expenditures and share repurchases for at least 12 months from issuance of the statements. This estimate is subject to business and forecast risks.
- AstraZeneca terminated collaborations covering VEGF-A and IL-12, effective November 21, 2022. Moderna recognized $76 million of remaining deferred revenue as Q3 collaboration revenue; program rights reverted to Moderna.
- Merck elected to jointly develop and commercialize personalized cancer vaccine mRNA-4157. Moderna recorded a $250 million receivable and matching current liability pending receipt of the participation payment and agreement on a joint plan and budget.
- As of September 30, the company had $3.0 billion of non-cancelable raw-material and manufacturing purchase commitments and $178 million of other non-cancelable commitments, generally payable through 2026. It also disclosed $2.9 billion of cancelable open purchase orders, which are not equivalent to non-cancelable obligations.
- Moderna initiated patent infringement actions against Pfizer and BioNTech in the U.S. and several European jurisdictions. The filing describes the proceedings as uncertain; it reported no legal proceeding with a material loss that was both probable and reasonably estimable at the time.
- Clinical and regulatory outcomes, vaccine demand, manufacturing and supplier performance, inventory obsolescence, pricing, and intellectual-property disputes are key uncertainties. The company stated that its previously disclosed risk factors had no material changes other than those reported in its March 2022 quarterly filing.
Important facts for investors to verify
- Whether booster demand, authorizations and delivery deferrals supported the Q4 outlook and affected 2023 sales timing.
- Subsequent inventory write-downs, purchase-commitment losses, and the trajectory of cost of sales as a share of product revenue.
- Conversion of the $4.1 billion customer-deposit deferred revenue balance into recognized sales and cash collections.
- Cash generation after share repurchases, capital spending, taxes and the company’s expanding clinical and manufacturing commitments.
- Progress and clinical results for RSV, influenza, CMV and other pipeline programs, as well as the terms and economics of the Merck collaboration.
- Developments in the Pfizer/BioNTech patent litigation and any resulting financial or operational exposure.