Business context and reporting period
Moderna, Inc. is an mRNA biotechnology company. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the first quarter of 2022. Its commercial products were COVID-19 vaccines; its pipeline included 45 candidates across 47 programs, with 36 candidates in clinical studies.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $1.862 billion | $6.066 billion |
| Operating income (loss) | ($366 million) | $4.227 billion |
| Net income | $79 million | $3.657 billion |
| Diluted EPS | $0.19 | $8.58 |
| Operating cash flow | ($1.225 billion) | $2.763 billion |
- Product sales were $1.828 billion, down 69%; other revenue was $34 million, down 76%.
- Cost of sales was $792 million, equal to 43% of product sales versus 17% a year earlier. It included $148 million in inventory write-downs, $135 million for unutilized manufacturing capacity, $95 million in purchase-commitment losses and related cancellation fees, and $86 million in royalties.
- Research and development expense rose 104% to $1.131 billion; selling, general and administrative expense rose 14% to $305 million.
- The company reported a $384 million income tax benefit despite a $305 million pretax loss; its effective tax rate was 125.9%.
- At March 31, cash and cash equivalents were $3.441 billion and investments totaled $12.924 billion, for $16.365 billion in cash and investments. Working capital was $8.623 billion.
- Cash, cash equivalents and restricted cash ended the quarter at $3.461 billion. Investing activities provided $2.011 billion, primarily from investment sales and maturities; financing activities used $542 million, including $526 million for share repurchases.
- Total liabilities were $5.262 billion. The filing reports lease liabilities of approximately $1.108 billion; it does not identify conventional borrowing debt in the presented balance sheet.
Material changes versus the prior comparable period
- Revenue fell $4.204 billion, principally because of lower COVID-19 vaccine sales volume. Sales declined in every reported geography: United States sales were $1 million versus $945 million, Europe $576 million versus $2.076 billion, and rest-of-world $1.251 billion versus $2.904 billion.
- Net income decreased 98%; the company moved from $4.227 billion of operating income to an operating loss. The tax benefit substantially cushioned the effect of the pretax loss on net income.
- Operating cash flow shifted from $2.763 billion provided to $1.225 billion used, reflecting lower earnings and working-capital outflows, including an $819 million reduction in deferred revenue.
- Cash and investments declined $1.9 billion from year-end 2022. The company repurchased $526 million of shares during the quarter.
Outlook, commentary, risks and unusual items
- Management expects COVID-19 vaccine sales to decline significantly in 2023 as the market shifts to endemic, seasonal demand, with greater demand anticipated in fall and winter. It expects 2023 cost of sales to represent a higher percentage of product sales than in 2022, and warned of higher per-unit manufacturing costs, unutilized capacity charges and further inventory write-downs.
- Management expects R&D and SG&A expenses to increase in 2023 as clinical development and global commercial infrastructure expand. It believes available cash, cash equivalents and investments, together with expected operating cash generation, can fund projected operations, capital expenditures and repurchases for at least 12 months; this estimate is subject to uncertainty.
- At quarter-end, deferred revenue was $1.892 billion, including $1.816 billion related to product sales; $1.2 billion of customer-deposit deferred revenue was expected to be realized within a year. Recognition depends on delivery, manufacturing and regulatory approval timing.
- Inventory write-downs and firm-purchase-commitment losses reflected shelf-life expirations, excess inventory and raw-material commitments amid lower demand and product-mix changes. Inventory on hand was $1.6 billion. Non-cancelable commitments included $1.9 billion for raw materials and manufacturing and $192 million for clinical services and other goods and services. Subsequent to quarter-end, the company disclosed an additional $702 million of minimum non-cancelable fill-and-finish obligations.
- Pipeline developments included positive Phase 3 RSV efficacy results (83.7% vaccine efficacy against the specified lower respiratory tract disease endpoint), ongoing Phase 3 influenza and CMV programs, and plans with Merck to start a Phase 3 melanoma study of mRNA-4157 in 2023, subject to regulatory discussions. Moderna also said its influenza candidate did not meet the early-success threshold at an interim Phase 3 analysis; the trial continued.
- Other notable items: Moderna acquired OriCiro for $86 million and recorded $52 million of preliminary goodwill; it entered a Generation Bio collaboration and made a $40 million upfront payment, an $8 million research prepayment and a $36 million equity investment. The company disclosed ongoing ordinary-course claims and intellectual-property litigation, but no material loss was considered probable or reasonably estimable in the financial-statement note.
- The filing identifies risks from changing COVID-19 demand, manufacturing and supply execution, clinical and regulatory outcomes, competition, intellectual-property disputes, and significant operating and contractual commitments. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether seasonal COVID-19 demand, deliveries and approvals support management’s expectations for 2023 sales and the timing of deferred-revenue recognition.
- Whether inventory write-downs, purchase-commitment losses and unutilized capacity costs continue, and how they affect cost of sales and cash flow.
- Actual spending and cash generation against the stated 12-month liquidity outlook, including share repurchases, capital spending and newly disclosed manufacturing commitments.
- Progress and full results from key late-stage programs, particularly RSV, influenza, CMV and mRNA-4157, as well as regulatory decisions and trial safety findings.
- Developments in intellectual-property litigation and the potential financial or commercial effects of licensing obligations, royalties and contingent milestones.