Moderna, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Moderna is a clinical-stage mRNA therapeutics and vaccines company with no product-sale revenue; reported revenue came from collaborations and grants. It reported 21 development candidates across 20 programs, including 13 candidates in clinical studies.
Financial performance and liquidity
- Q2 revenue: $13.1 million, down 55% from $28.9 million in Q2 2018. Collaboration revenue was $10.0 million and grant revenue was $3.1 million.
- First-half revenue: $29.1 million, down 50% from $57.9 million. Collaboration revenue was $24.1 million and grant revenue was $5.0 million.
- Losses: Q2 operating loss was $143.9 million and net loss was $135.1 million, versus net loss of $90.6 million a year earlier. First-half operating loss was $285.8 million and net loss was $267.7 million, versus $163.0 million in first-half 2018. Basic and diluted net loss per share was $0.41 for Q2 and $0.81 for the first half.
- Expenses: Q2 R&D expense rose 23% to $128.5 million and G&A rose 33% to $28.5 million. First-half R&D rose 33% to $259.1 million and G&A rose 48% to $55.8 million. Management attributed increases mainly to expanded staffing and research, clinical, manufacturing, and public-company costs.
- Cash flow: First-half cash used in operations was $256.1 million, compared with $159.6 million in 2018. Investing used $258.7 million; financing provided $7.8 million. Cash, cash equivalents, and restricted cash fell by $507.0 million to $163.4 million.
- Liquidity and obligations: Cash, cash equivalents, and investments totaled approximately $1.44 billion at June 30, including $151.6 million cash and cash equivalents and $1.28 billion investments. Total assets were $1.69 billion; total liabilities were $346.7 million. Reported obligations included a $33.6 million lease financing obligation and $11.0 million non-current deferred lease obligation. The filing reports no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue declined while operating expenses increased, widening operating and net losses. Collaboration revenue fell, particularly from AstraZeneca and Merck; management said the decrease was driven largely by the adoption of ASC 606.
- Comparisons are affected by accounting: Moderna adopted ASC 606 on January 1, 2019 using the modified retrospective method, while prior-year figures remain under ASC 605. The company said first-half 2019 revenue would have been $55.5 million without ASC 606, rather than the reported $29.1 million; the filing attributes much of the difference to timing and allocation changes in collaboration revenue.
- First-half operating cash use increased by $96.5 million year over year. Capital expenditures were $18.2 million, versus $66.0 million in first-half 2018, when Norwood facility construction spending was higher.
Outlook, commentary, and risks
- Management expects significant expenses and operating losses for the foreseeable future, with costs likely to rise as programs advance and clinical development, manufacturing, infrastructure, and potential commercialization activities expand. It does not expect significant product revenue before successful development and regulatory approval.
- Management stated that available cash, cash equivalents, and investments were expected to fund projected operations for at least 12 months from issuance of the financial statements. It also said substantial additional funding will be needed over time and may come from equity or debt offerings, grants, and strategic arrangements.
- Funding, clinical-trial safety and efficacy, regulatory approval, manufacturing scale-up, third-party performance, collaboration-partner decisions, and intellectual-property protection are key uncertainties. If financing or favorable arrangements are unavailable, Moderna may need to delay, reduce, or discontinue programs.
- Moderna reported no material change to the risk factors in its 2018 Form 10-K and no material legal proceedings. It expects to cease being an emerging growth company as of December 31, 2019.
- Notable program updates included first dosing in clinical studies for Zika vaccine mRNA-1893 and Merck-led KRAS vaccine mRNA-5671, and planned Phase 1b testing of hMPV/PIV3 candidate mRNA-1653 in seropositive toddlers. These are development updates, not evidence of approval or commercial success.
- In May 2019, Moderna and Merck amended their RSV collaboration, including changes to exclusivity and the parties’ responsibilities; they also ended collaboration work on other viruses, including VZV candidate mRNA-1278.
Important facts for investors to verify
- Reconcile reported revenue and deferred revenue with the ASC 606 transition and assess the comparability of 2019 and 2018 collaboration revenue.
- Monitor cash use, investment balances, and the assumptions behind management’s stated 12-month funding runway.
- Track clinical progress, safety and efficacy results, trial enrollment, and regulatory milestones across the pipeline.
- Review collaboration terms and partner election or termination rights, including Merck, AstraZeneca, and Vertex arrangements, and the $243.0 million budgeted Moderna commitment for Merck cancer-vaccine work.
- Assess the effect of rising R&D and G&A costs, lease commitments, and future financing needs on dilution and program priorities.