Moderna's mRNA Technology Looks Useful Beyond COVID-19, and the Firm Is Building a Moat

Sector Strategist

Karen Andersen

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Moderna's mRNA technology has gained rapid validation as sales of its COVID-19 vaccine soared in 2021 and 2022, but we think the firm has yet to secure a narrow economic moat around its business, largely due to uncertainties tied to an evolving virus and the changing competitive landscape for innovative vaccines.

In a record-breaking span of just 11 months, Moderna created, developed, manufactured, and got regulatory authorization for mRNA-1273, a two-dose COVID-19 vaccine that is one of the first two mRNA vaccines ever authorized (alongside Pfizer/BioNTech's BNT162b2). The pandemic accelerated Moderna's evolution into a commercial-stage biotech, and we expect that the firm's ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs. Moderna's mRNA platform, involving rapid design and similar manufacturing across programs, allows the company to pursue multiple programs in parallel. Moderna also retains full rights to most of its programs, although partnerships with Merck and Vertex help support its efforts in oncology and cystic fibrosis.

Moderna reported roughly $18 billion in COVID-19 vaccine sales in both 2021 and 2022, but with vaccine fatigue and uncertainty around the severity of COVID-19 infections in the coming season, we assume $7.2 billion in sales in 2023. We see potential for continued revenue around $4 billion annually if higher-risk populations receive annual vaccines, although there is high uncertainty around the number of long-term competitors (including new mRNA players) and pricing, particularly as the U.S. market moves from government contracts to a commercial market.

Moderna's phase 3 pipeline beyond COVID-19 is growing and includes potential 2024 launches in both RSV and influenza, with data for a vaccine for cytomegalovirus expected by 2026. We see each of these as more than $1 billion annual sales opportunities. Moderna and Merck's melanoma vaccine is also in phase 3 and has potential in a wide range of cancers in combination with Merck's Keytruda. We think mRNA technology will eventually be used in a broad spectrum of other therapeutic areas, from cancer to cardiology to rare diseases.

Business Strategy & Outlook

The stellar safety and efficacy profile of Moderna's COVID-19 vaccine has rapidly validated the firm's mRNA technology, and we expect returns on invested capital to remain above our 9% assumed cost of capital beginning in 2026. However, we see threats of major value destruction that preclude us from awarding a narrow moat rating to the firm. Moderna served a critical role in vaccinating millions of individuals during the pandemic and has several potential first-in-class vaccines in testing that could serve significant unmet needs. We think it has both the funding and the technological capabilities already in house to bring most of these programs to market. However, we see uncertainty around its defenses against other novel mRNA vaccine market entrants, and we think the firm is still in the process of building a moat, as we expect multiple new competitors in the coming years.

Despite the early lead that Moderna and BioNTech hold after developing their COVID-19 vaccines in less than a year, and their clear dominance in COVID-19 vaccine sales, the long-term COVID-19 vaccine market is mired in uncertainty. The virulence of new strains and the population's willingness to continue to get vaccinated remain key questions. We assume that most high-risk individuals in developed markets continue to get annual vaccines, although we do not assume regular vaccination for healthy adults, leading us to a roughly $5 billion annual opportunity for Moderna, well below peak sales near $18 billion annually in 2021 and 2022. Moderna continues to innovate in this space, with updated boosters as well as differentiated programs like next-generation vaccine mRNA-1283 (in phase 3), which could be more stable at refrigerated temperatures and effective at a lower dose. 

With both the efficacy/safety of the technology and the ability to scale manufacturing now largely validated, we think this lowers the risk the firm faces as it expands into other markets and also shortens timelines for further development. Moderna's ability to launch differentiated mRNA therapies beyond COVID-19, ranging from prophylactic vaccines for other respiratory diseases to cancer treatments, will be key to establishing a moat, in our opinion, and multiple competitors are lining up that could interfere with Moderna's potential to see the kind of monopoly pricing power enjoyed by other innovative vaccines (GSK's Shingrix, Pfizer's Prevnar) launched in recent years. Moderna's platform technology allows new genetic sequences to be easily inserted to create new therapies, and virtually identical, cell-free, low-volume manufacturing across programs should allow flexible manufacturing, but these characteristics—which allowed it to vault to the lead ahead of older technologies during the pandemic—could also make it more vulnerable to other competitors with similar technologies. 

Moderna's intellectual property is strong and multilayered, similar in nature to IP at other oligonucleotide-focused firms like Alnylam and Ionis, although the precise technology is different. Moderna's medicines use mRNA, which the company refers to as "the software of life," to deliver instructions for a patient's own body to produce a given protein, which can either trigger an immune reaction (prophylactic vaccines like the COVID-19 vaccine, or oncology vaccine programs) or replace a protein that is missing or faulty. Moderna's IP protection stems from the firm's broad mRNA technology (including sublicensed patents), formulation (including methods of using specific, proprietary lipid nanoparticle delivery technologies), and also the exact composition of matter (encoded antigen) for individual products. Protection extends through at least 2033 for issued patents and beyond 2041 for pending patents. Moderna gained access to valuable patents from the University of Pennsylvania covering modified mRNA technology through a nonexclusive license (via mRNA RiboTherapeutics and its affiliate, Cellscript), so other firms could also license the fundamental technology allowing mRNA to function as a therapeutic. In fact, while Moderna, CureVac, BioNTech, and GSK historically dominated mRNA vaccine patent applications, the success of COVID-19 vaccines has likely led to an explosion of patent applications for other innovators. It is possible that Moderna's experience with artificial intelligence and proprietary digital technologies could allow it to design the best mRNA sequences for protein expression, and ample cash could give it an edge in ongoing proprietary work on new delivery technologies and lipid nanoparticles. However, we're not convinced that Moderna has erected enough barriers to competitors, given the significant funding flowing into this nascent and extremely promising market where Moderna and BioNTech have laid the foundation. 

Moderna's mRNA platform has yielded a pipeline that can be sorted into seven different modalities, or groups that share features like delivery technology, methods of controlling immune system interactions, and manufacturing technology. Infectious disease vaccines are the key initial focus, with combination or complex vaccines as potential differentiators. With manufacturing rapidly brought to a massive scale, we think Moderna's technology platform could be applied in numerous areas but looks particularly promising and well validated in other prophylactic vaccine markets. These vaccines require a finite number of small doses of mRNA and have shown positive efficacy data (strong ability to generate neutralizing antibodies) against several different viruses beyond COVID-19, and Moderna has several such programs in clinical development. We include sales in our valuation model for the 11 programs that are most advanced in clinical trials. 

Among Moderna's infectious disease vaccine programs, endemic respiratory viruses are a key target and the lowest-risk programs, thanks to similarities to COVID-19 vaccines. For example, Moderna aims to launch its first influenza vaccine in 2024. While the $6 billion global influenza vaccine market is already crowded and has poor pricing power, Moderna's technology could allow the firm to provide higher efficacy than traditional vaccines, which in a good year are only 60% effective. With a shorter lead time due to faster manufacturing (traditional vaccines take six to nine months, but mRNA vaccines, once manufacturing and approval pathways are established, could perhaps take one to two months), Moderna should see a higher likelihood of targeting the key strains that will circulate in the upcoming season. This would also mean less time to allow for antigenic drift (accumulating mutations in the virus strains), and manufacturing outside of egg-based systems would avoid the problem of egg adaptation (the antigen code changing during manufacturing). In addition, if Moderna's vaccine is more effective, a higher percentage of individuals could opt to receive it; only about half of Americans receive a flu shot annually today. 

Beyond influenza, positive phase 3 data for the firm's RSV vaccine should allow launch in 2024, although it will be competing with vaccines from Pfizer and GSK launching in 2023. Competition could come from established vaccine firms partnering with innovative mRNA firms (GSK/CureVac and Sanofi's Translate acquisition), other mRNA firms (BioNTech), or vaccines using other technologies (including Pfizer and GSK's protein-based RSV vaccines).That said, mRNA technology theoretically allows vaccination against multiple pathogens at once, such as COVID-19/flu/RSV combinations in early-stage trials. The broader the menu of first-in-class vaccines, the more entrenched Moderna could become. Moderna is also tackling vaccines that are complex and difficult to manufacture with established methods. Moderna's CMV vaccine program includes six pieces of mRNA that create protein subunits that self-assemble inside the cell. Moderna aims to establish differentiation with its ability to target such a complex antigen, and we expect the firm could launch as early as 2026 in this nascent vaccine market. Epstein-Barr virus and HIV are other programs that are likely to be defined by their complexity, which could make it difficult for other non-mRNA vaccines to compete. 

In oncology, Moderna aims to activate a cancer patient's T-cells by administering mRNA coding for neoantigens (antigens that are unique to tumor cells). One approach, partnered with Merck, is an individualized neoantigen therapy that treats cancer by administering mRNA coding for multiple tumor neoantigens that T-cells can recognize, allowing a patient's immune system to recognize tumors more easily. Moderna and Merck have reported positive data for mRNA-4157 in a phase 2 melanoma trial, and we now assume a 60% probability of success and multi-billion-dollar sales potential, with even higher potential if successful in new indications like lung cancer. In contrast, another program targeting KRAS mutations would broadly treat patients in this category, including a significant portion of lung cancer patients harboring such mutations. KRAS mutations are seen in 22% of cancers but have been difficult to directly target with existing small-molecule and biologic drugs due to the shape of the KRAS protein itself. Intratumoral immuno-oncology therapies can be combined in an attempt to activate microenvironments to drive T-cell responses to cancer and could be combined with existing checkpoint inhibitors. Moderna is also looking at localized regenerative therapeutics for diseased or injured tissue, led by a VEGF program in heart failure, although AstraZeneca recently ended a partnership for this program.

Beyond infectious diseases and cancer, we think Moderna's pipeline risk increases. Moderna also has systemic programs for secreted proteins, which could compete with established biologic therapies including recombinant proteins and antibodies, although these are in early stage development and have had past challenges (see the former partnership with Alexion that failed in 2017) in getting dosages to levels that are both safe and effective. That said, Moderna has achieved therapeutic levels of antibody protein in its chikungunya program, which lowers overall risk in its therapeutic proteins pipeline and could allow the firm to compete in the broader $200 billion secreted therapeutic protein market.

Intracellular and membrane-associated proteins make up two thirds of all human proteins but can't be delivered using recombinant proteins (intravenously administered biologic therapies can't enter cells), making them potential targets for mRNA therapies. Moderna is focused on treating rare diseases in this modality and has one program in phase 2 dose confirmation, with early promising data. Given the early stage of development and high technological risk, we assign probabilities of approval of 35% or lower in this area. Finally, Moderna and partner Vertex are in phase 1 for an inhaled cystic fibrosis therapy, although this delivery technology is relatively unproven.

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Economic Moat

Moderna

Moderna, Inc. engages in the development of transformative medicines based on messenger ribonucleic acid (mRNA). Its product pipeline includes the following modalities: prophylactic vaccines, cancer vaccines, intratumoral immuno-oncology, localized regenerative therapeutics, systemic secreted therapeutics, and systemic intracellular therapeutics. The company was founded by Noubar B. Afeyan, Robert S. Langer, Jr., Derrick J. Rose and Kenneth R. Chien in 2010 and is headquartered in Cambridge, MA.

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