Moderna, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in millions unless stated otherwise. Moderna’s commercial business was newly driven by its authorized COVID-19 vaccine; the company also continued developing mRNA vaccines and therapeutics across multiple disease areas.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $4,354 | $67 | $6,291 | $75 |
| COVID-19 vaccine product sales | $4,197 | $0 | $5,930 | $0 |
| Operating income (loss) | $3,062 | $(122) | $4,328 | $(253) |
| Net income (loss) | $2,780 | $(117) | $4,001 | $(241) |
| Diluted EPS | $6.46 | $(0.31) | $9.30 | $(0.66) |
| Research and development expense | $421 | $152 | $822 | $267 |
| Selling, general and administrative expense | $121 | $37 | $198 | $61 |
Cost of sales was $750, or 18% of product sales, in Q2 and $943, or 16%, for the first half. The filing says first-half cost of sales would have been $1.1 billion, or 19% of sales, if all inventory sold had been valued at cost; some inventory costs had previously been expensed. Product gross margin was therefore affected by this inventory accounting timing.
Cash flow: First-half operating cash flow was $7,034, versus cash used of $130 in the prior-year period. The increase reflected earnings and a $3,433 rise in deferred revenue, partly offset by higher receivables and inventory. Investing cash outflow was $4,058, primarily purchases of marketable securities; financing cash flow was $2. Cash, cash equivalents and restricted cash increased $2,978 to $5,614.
Liquidity and obligations: Cash, cash equivalents and investments totaled $12.2 billion at June 30, 2021, versus $5.2 billion at year-end 2020. Current assets were $10,969 and current liabilities $8,840. Current liabilities included $7,302 of deferred revenue; product-supply deposits are recognized as revenue as applicable delivery and acceptance conditions are met. Financing lease liabilities totaled $487; the filing reports no material legal proceedings and no off-balance-sheet arrangements.
Changes and business developments
- Revenue increased sharply from the prior-year periods because COVID-19 vaccine sales began in December 2020. Q2 sales included approximately 126 million doses delivered to the U.S. government and 73 million to other governments; first-half deliveries were approximately 215 million and 87 million, respectively.
- Operating expenses rose with commercialization and development activity. First-half R&D increased 208%, mainly from clinical trials, including COVID-19 vaccine development; SG&A increased 225%, reflecting commercialization, marketing, personnel and outside services.
- Moderna reported $19.2 billion of signed vaccine supply agreements through 2022 and $7.2 billion of product-related deferred revenue at June 30. It expected to supply 800 million to 1 billion doses in 2021 at the 100 μg dose. Potential 2022 capacity was up to 3 billion doses if production were dedicated to 50 μg boosters, or approximately 2 billion at 100 μg; dosage and capacity remained subject to review and other conditions.
- After June 30, the company entered additional supply agreements for up to 262 million doses, subject to modifications. On August 2, its board authorized a share repurchase program of up to $1.0 billion through August 2, 2023.
Outlook, risks and unusual items
- Management anticipated completing the FDA Biologics License Application submission for the COVID-19 vaccine in August 2021. It expected continued investment in manufacturing, clinical development, variant and booster candidates, and its broader pipeline, with expenses expected to increase.
- Management expected cost of sales as a percentage of product sales to remain at a similar level in the second half of 2021. It believed available cash, cash equivalents, investments and expected operating cash flows would fund projected operations, capital expenditures and stock repurchases for at least 12 months from issuance of the financial statements.
- Key execution risks include regulatory review and approvals, vaccine demand and pricing, manufacturing scale-up and third-party performance, supply-chain availability, clinical outcomes, and the uncertain duration and impact of the pandemic. Management cautioned that forecast supply and capacity depend partly on manufacturing partners’ ramp-up and staffing.
- The company recorded a $322 income-tax provision for the first half, including a $49 million discrete benefit from releasing a valuation allowance on deferred tax assets. First-half profitability followed historical losses and depends substantially on COVID-19 vaccine sales; management warned profitability may not be sustained.
- At June 30, non-cancelable commitments included $1.5 billion for raw materials and manufacturing, expected to be paid through 2022, and $49 million for clinical and other services. Cancelable open purchase orders were $1.3 billion. Royalty expense on vaccine sales was $232 million for the first half. Moderna discontinued its OX40L program mRNA-2416 while continuing development of the related Triplet program.
- The filing stated there were no material changes to the risk factors disclosed in the 2020 Form 10-K. It reported disclosure controls effective at a reasonable assurance level. Forward-looking expectations remain subject to risks and uncertainties.
Important facts for investors to verify
- Whether contracted deliveries, regulatory milestones and customer acceptance support conversion of deferred revenue into recognized sales, and whether additional post-quarter agreements become firm commitments.
- Whether the company achieves its 2021 delivery forecast and planned manufacturing expansion, including reliance on contract manufacturers and suppliers.
- How booster dosing, variant performance, regulatory decisions and vaccine demand affect 2022 capacity, revenue and margins.
- Whether profitability and operating cash generation continue as COVID-19 sales evolve and pipeline, manufacturing and commercialization costs rise.
- The filing describes 24 development programs, 14 of which had entered the clinic, in one section, but refers to a current pipeline of 23 programs elsewhere; investors may wish to clarify the program count.