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Nicole Benjamin: Hey, everybody. It's Nicole Benjamin, your host here at Seeking Alpha to bring to you another episode of our series Portfolio Pulse, where, as the name suggests, we are going to be keeping a pulse to all the big financial moves happening in the market. Now, joining us today is Stephen Ayers. So, thank you so much, Stephen, for joining us.

Stephen Ayers: Thanks for having me.

NB: Absolutely. Now before we get started, Stephen, I want to ask you about your financial journey. What's your investment philosophy? How did you get on the Seeking Alpha platform? Tell us a little bit more about that.

SA: Well, I joined about 10 years ago, back when Seeking Alpha had blogs, and I submitted a blog just to share publicly on a biotechnology company. And then I learned that you can submit articles as well, which was great. So, I've been interested in biopharma simultaneously. I became a nurse during this time and I also went to college to learn more about business. So, I've taken both of those routes in my journey. So, my primary focus is on biotechnology.

NB: Well, speaking of, for today's episode, we're going to be talking about all things Moderna. Now, for my first question for you, Stephen, I wanted to ask, after the massive success of the COVID vaccine, Moderna is losing billions of dollars. So, why is it so much harder for them to make money today than it was even just three years ago?

SA: Bear with me for a moment, Nicole, and think back to 2021. People were lining up for COVID vaccines, and Moderna had one of two vaccines that were widely distributed. Moderna's COVID revenues peaked over $18 billion in 2022, and almost half of that was profit. But a few things have changed. COVID has shifted from an emergency to a seasonal nuisance. Now, Moderna still owns a lion's share of the COVID market today, but the market has shrunk because people are not getting vaccinated. Moderna's COVID revenue has dropped 90% since peak, and they haven't been able to make up for it elsewhere. And while Moderna has cut down on expenses, it's not very practical, for example, to stop a trial that is actively dosing patients. So, it turns out that R&D spend has been sticky, and Moderna is still looking for the next big thing.

NB: Now, speaking of that, Moderna has a new RSV vaccine called mRESVIA. So, with it currently losing to giants like Pfizer and GSK, why is this better technology on paper not enough to win the actual sales war?

SA: RSV was Moderna's next big thing after COVID, and, originally, many analysts expected it to become a blockbuster, but this hasn't happened for a couple of reasons. Authorities narrowed the recommended age group, and RSV is not an annual vaccine like influenza. So, once seniors get jabbed with a Pfizer or a GSK shot, it's not like they can switch to Moderna next year. Now, Moderna's vaccine was actually third to market, so both pharma giants had time to lock up contracts and build channel inventory long before Moderna arrived. And that's the thing about largely commoditized markets like COVID, influenza, and RSV.

Because these products are similar, the actual opportunity boils down to distribution and relationships. Moderna's shot fell well short last season, and I don't expect it to become a meaningful contributor.

NB: Now, you also mentioned in your article here that for Moderna to justify its current $20 billion price, almost everything in their pipeline has to be a blockbuster, like you said. So, what happens to the stock if just one or two more of these trials happen to fail?

SA: Yeah. I think there could be some downside there. Unless their fortunes in RSV and COVID reverse, Moderna will need to get their hands on blockbuster products within the next few years to justify today's valuation. After a setback on its influenza vaccine earlier this year, the FDA has since agreed to review the application, with a PDUFA date of August 5th. Moderna's flu COVID combo vaccine was just approved in Europe, but in the U.S., that program is on hold pending FDA guidance on a refiling.

Like RSV, some analysts expect both products could generate between $1 billion to $2 billion each year, but this will likely require Moderna to steal market share from entrenched competitors like Sanofi in influenza, and create demand for a [cabo] (PH) shot when the demand for the COVID vaccine itself is weak. So, I think Moderna will have to secure markets in diseases that lack treatments to declare a true victory. Norovirus is one such example, but this is pending Phase 3 data, FDA acceptance, and broad adoption.

NB: Moderna is working on a personalized cancer vaccination. How close is this actually to really helping people? And is this the reset button that the company actually needs?

SA: Yeah. Moderna's getting pretty close here, but there are some caveats to consider. A lot of people would argue that oncology is where the alpha is right now in Moderna’s stock. Phase 2 melanoma data, for example, showed a 49% reduction in recurrence and death in combination with Merck's Keytruda, and they have since advanced this to Phase 3 and Moderna expects an interim readout later this year. But outside of that in lung cancer, most of these Merck partnered trials are still early in development, and there are caveats.

For one, Merck and Moderna split costs and profits 50/50, and many analysts don't model first material commercial revenue until 2027 or 2028 at the earliest. I would also argue that melanoma is Moderna's lowest hanging fruit in oncology because melanoma is already widely known to be highly responsive in immunotherapy. This is not so much the case in other cancers. Then you also have to think about manufacturing complexities and pricing. On the first point, each dose is custom made from a patient's tumor and has to be sequence designed and synthesized. And this could take several weeks and is very costly.

NB: Now, Moderna has about $8 billion in the bank, but they're burning through their cash. So, is the clock actually ticking for them, or do they have enough time to actually find the next big thing?

SA: The clock is always ticking, Nicole, but they do have some time. Moderna's cost reduction efforts and credit facilities have pushed back fears of dilution. And I actually believe this, in large part, accounts for the stock's strength this year. So, Moderna ended last year with roughly $8 billion in cash investments, but they're burning roughly $3 billion a year. And they also closed a $1.5 billion last November. So, I think Moderna has roughly three years of cash runway.

Management believes they can achieve cash breakeven in 2028. In my opinion, and this is why I lean bearish on the stock, that will require near perfect execution. A number of things could go wrong. For instance, a major late stage trial failure, say, norovirus or continued U.S. regulatory hostility that delays approvals. So, for Moderna to justify today's valuation, it needs big clinical wins in respiratory and oncology with the full cooperation of the FDA.

NB: Now, I just want to throw one more question out there for you just considering your last response. You're fairly bearish. You gave it a Sell rating on the site. From what you've seen in terms of investor sentiment and just your entire approach to investing, what would Moderna have to do to change your mind, give it a Strong Buy rating? What would you like to see happen there?

SA: I want to see some big wins outside of its respiratory portfolio because as I mentioned, markets in RSV, influenza, and COVID, they are commoditized, and there's a lot of competition there. So, I want to see Moderna have a product that is unique and can make a huge difference, in a condition like melanoma. But as I mentioned in melanoma, you want to see some success in another indication like lung cancer, for example, because it's already well-known that melanoma is highly vulnerable to these immunotherapies. So, there has to be big wins throughout their portfolio, and one of the biggest uncertainties has been their relationship with the U.S. FDA, who has expressed doubt in mRNA technology. So, there needs to be a lot of alignment there as well.

NB: Well, we'll leave it right there. Thank you so much, Stephen for joining us today. And for everybody that's listening in, go ahead, read Stephen's article, click the follow button on his page, and see if Moderna might be right for your portfolio. And we'll see you here next time. Thanks so much.

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