Moderna, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Moderna is a biotechnology company developing mRNA medicines; Spikevax, its COVID-19 vaccine, was its only commercial product and source of product sales.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $6.066 billion | $1.937 billion |
| Product sales | $5.925 billion | $1.733 billion |
| Operating income | $4.227 billion | $1.266 billion |
| Net income | $3.657 billion | $1.221 billion |
| Diluted EPS | $8.58 | $2.84 |
| Cash from operations | $2.763 billion | $2.971 billion |
Product sales rose 242% and total revenue rose 213% year over year, chiefly reflecting increased COVID-19 vaccine sales and manufacturing capacity. Sales shifted geographically: U.S. product sales were $945 million versus $1.358 billion; Europe and rest-of-world sales were $4.980 billion versus $375 million combined. Cost of sales was 17% of product sales, compared with 11%; operating margin was approximately 69.7% and net margin approximately 60.3%.
At March 31, cash and cash equivalents were $5.048 billion and investments were $14.238 billion, totaling $19.286 billion. Working capital was $7.112 billion. Total liabilities were $10.534 billion, including $806 million of finance-lease liabilities; the filing does not report conventional borrowings. Cash and restricted cash declined $1.800 billion during the quarter, while total cash and investments increased $1.716 billion from year-end, primarily reflecting investment portfolio purchases and classification of investments.
Changes, outlook and management commentary
- Cost of sales increased to $1.017 billion, including $207 million in royalties, $189 million of inventory write-downs and $159 million of losses on firm purchase commitments. Management expects 2022 cost of sales to be a higher percentage of product sales as the market shifts toward seasonal demand.
- R&D expense rose 38% to $554 million; SG&A rose 248% to $268 million. SG&A included a $50 million Moderna Charitable Foundation endowment. Management expects both expense categories to increase in 2022, including from pipeline development and commercial infrastructure investment.
- Management reported signed COVID-19 vaccine supply agreements of approximately $17.5 billion for future supply through 2023, based on confirmed volume and subject to modifications. Deferred revenue was $6.063 billion, including $5.5 billion expected to be realized within one year.
- Management expects COVID-19 to become endemic and anticipates greater seasonality, with 2022 sales slightly higher in the second half than the first. The filing provides no clear full-year revenue or earnings guidance. Management expects available cash, investments and operating cash generation to fund operations, capital expenditures and repurchases for at least 12 months.
- Pipeline developments included positive interim results from the pediatric COVID-19 KidCOVE study and an April 2022 EUA request for children aged 6 months to under 6 years. Initial data for the Omicron-containing bivalent booster candidate were expected in June 2022 to inform fall 2022 candidate selection.
- Moderna authorized a new $3.0 billion share repurchase program in February; $623 million of shares were repurchased during the quarter, with $2.5 billion remaining at March 31. The company also announced plans for manufacturing facilities in Kenya and Australia; the Canada collaboration was announced in April and remained subject to a final agreement.
Risks, contingencies and unusual items
- Revenue remains highly concentrated in one product. Changing demand, seasonality, vaccine mix, production capacity, supply-chain constraints, partner performance, inventory obsolescence and supplier commitments could affect results and margins.
- Arbutus/Genevant and Alnylam filed patent infringement lawsuits relating to lipid nanoparticles used in the COVID-19 vaccine. Neither plaintiffs’ complaint sought to stop marketing or sales; both sought monetary damages. Moderna said material loss was possible but not probable or not reasonably estimable.
- Non-cancelable commitments included $2.5 billion for raw materials and manufacturing and $190 million for clinical and other services. The company also reported $3.4 billion in cancelable open purchase orders, subject to contractual terms and potential termination costs, and approximately $1.1 billion in non-cancellable rent payments for the Moderna Science Center’s initial lease term.
- Available-for-sale securities had $271 million in gross unrealized losses at quarter-end; the company reported no impairment charge and said it did not intend, or expect to be required, to sell before recovery.
- Management cited risks from regulatory outcomes, clinical development, commercialization, intellectual-property disputes, manufacturing scale-up and the possibility that COVID-19 vaccine demand or supply agreements change. It also noted that the vaccine effort may divert resources from other programs.
Important facts for investors to verify
- Whether contracted COVID-19 vaccine volumes and customer deposits convert to deliveries and recognized revenue as expected, particularly in the second half of 2022.
- Whether seasonal demand, product mix and manufacturing adjustments produce the expected sales and cost-of-sales profile, including additional inventory or purchase-commitment charges.
- Progress and regulatory outcomes for COVID-19 boosters and pediatric use, and advancement of RSV, influenza and other pipeline programs.
- Developments in the Arbutus/Genevant and Alnylam litigation, including potential damages or effects on intellectual property rights.
- Cash generation and spending against repurchases, facility investments, lease obligations and disclosed purchase commitments.