Moderna & Biotech Trade Near 2-Year Lows.
Is the industry diseased, or has Fast Money just gone crazy with profit taking?
Let’s start with an analysis of Moderna. The company made headlines on Wednesday when it was revealed that the new CEO Jorge Gomez was canned after just one day of work (but would still receive $700,000 for a full year’s worth of salary). Gomez forfeits his signing bonus and bonus eligibility, according to CNBC.
Moderna says they had no prior knowledge of an internal investigation into accounting problems at Gomez’s former employer Dentsply Sirona. Dentsply was unable to file its quarterly report with the SEC on time. The notice of the late filing was filed on May 9, 2022, the first day of work for Gomez at Moderna.
Is the CFO Embarrassment a Problem?
Whenever a company sacks the CFO, it raises a red flag. What happened to the due diligence? Why was the former CFO leaving in the first place? As it turns out, David Meline, the former CFO, had actually come out of retirement in order to help Moderna scale up their COVID vaccine quickly. He joined Moderna in June of 2020, after his consultation period at Amgen ended. (He had retired from Amgen effective Dec. 31, 2019.) So, it’s completely understandable that after getting Moderna off to the races, Meline was ready to retire for a second time.
When the issue with the newly hired CFO came up, Meline stepped up and committed to staying on until a replacement is found. (He had already committed to a period of transition as a consultant.)
It appears that Gomez might have been a former friend of Meline from General Motors back in the day. At any rate, the departure doesn’t appear to be a red flag or a lack of due diligence on the part of Moderna. In fact, it appears that they were fortunate to learn of the news when they did. The histrionic headlines on this should fade soon.
So, now let’s look at Moderna’s business, including:
Revenue & Sales Growth
M&A & Cash on Hand
The NIH Patent Claim
Revenue & Sales Growth
Moderna’s revenue more than tripled in the 1Q of 2022, from $1.9 billion to $6.1 billion. Advance Purchase Agreements for 2022 total approximately $21 billion. This represents an increase of 13.7% over 2021, if that turns out to be the total revenue. So, the annual growth expectation is much more muted than the 1st quarter was. When you factor in the 1st quarter revenue, you are left with $14.9 billion for the remaining three quarters – or just under $5 billion per quarter. Further, 2Q is the seasonally weak quarter, which takes the expectation down to the $4.5 billion range (per the earnings call). That would be flat year over year.
With a P/E of just 3.83, the expectations for a weaker 2Q are already factored in. If the news is better than expected that might be great for investors (unless macro market weakness drags this company down with the crash).
The bulk of vaccine sales is expected in the second half of the year. The pandemic is transitioning into an endemic. The expectation is that people will be interested in vaccinating and boosting in October in anticipation of the winter seasonal surge in sicknesses. The summer season (2Q 2022) is when most people have already gotten their booster for the summer holiday.
Moderna has a footprint around the world – in Asia, Europe, Australia, Africa and Latin America. They also have a healthy pipeline of therapies for oncology, HIV, Epstein-Barr and other diseases, and a booster targeting Omicron in a Phase 2 Study.
M&A & Cash on Hand
Moderna has $19.3 billion in cash, cash equivalents and investments. That kind of cash puts the company in a great seat for mergers and acquisitions, especially as weakness continues in the biotech space. This industry has been sacked by sellers and some very attractive, compatible biotech companies might be far more affordable today than they were just a few months ago. According to the earnings call, Moderna has “never been so busy” looking at partnerships and M&A.
The company repurchased $623 million of their stock in the 1st quarter of 2022, and have a $3 billion buyback authorization from the board. This could help keep their share price more buoyant if there is continued weakness in the larger marketplace.
NIH Patent Claim
Last October 2021, it was reported that the NIH wanted to stick its hand in Moderna’s patent claims on the mRNA sequence of their vaccine. On December 17, 2021, Moderna issued a statement that they were working with the NIH to resolve the matter. (Click to read their statement.)
There haven’t been any details released on how that was resolved. However, Moderna disclosed in the 1Q 2022 earnings call that they are paying “third-party royalties.” The net income for the quarter was $3.7 billion.
Is Now a Good Time to Add a Biotech Fund to Your Wealth Plan?
Biotech funds like Ishares (symbol IBB) are trading near their three-year lows. Many profitable companies have historically low price-earnings ratios. Biotechnology is the only industry that Liz Ann Sonders, the chief investment strategist of Charles Schwab, has an overweight on. Visit YouTube.com/NataliePace to watch my entire interview with her from Jan. 30, 2022.
If you’d like to receive my Biotech Stock Report Card, simply email email@example.com.
A rising tide lifts all ships. A sinking tide can ground them. The first quarter of 2022 saw a contraction of -1.4%. If the second quarter has a contraction, we are in a recession. How likely is it that we’ll have a recession this year (or next year)? Analysts peg the likelihood at about 35%. Click to listen to my podcast, watch my webinar or read my blog on the “Warning Signs of a Recession.”
What happens in a recession? Asset prices can plunge. We’ve already seen a -16.5% correction in the S&P500 from its high of 4818.62, set on January 4,2022. In the Great Recession, the Dow Jones Industrial Average plunged -55%. During the Dot Com Recession, the NASDAQ Composite Index bottomed out with -78% losses and took 15 years to recover. In other words, now is the time to make sure that your wealth plan is properly protected and diversified, and that you know what is safe in a Debt World where bonds have interest rate, credit, duration, principal loss and liquidity risks.
Real estate prices are also a concern. The National Association of Realtors has warned that home sales are expected to contract by 10% in 2022. As interest rates rise, fewer people qualify for a mortgage or can afford the payments. Home prices in the U.S. are at all-time highs. In the most recent Financial Stability Report, the authors wrote, that home prices had “stretched valuations,” and that “a negative shock to house prices might hurt homeowners.”
Buying high in real estate and having the value fall beneath your mortgage is hard on your wealth, your wallet, your relationships and your credit score. It can take a decade or longer to recover. I’ll be discussing this in my free webinar this week. If you’d like to join us live, simply email firstname.lastname@example.org with VIDEOCON in the subject line.
I’ve noticed that Jerome Powell‘s most recent definition of a soft landing has changed. A soft landing is typically referred to as raising interest rates without triggering a recession. Powell now defines it as “Getting back to 2% inflation, while keeping the labor market strong.” When asked by Marketplace’s Kai Ryssdal to describe his priority in 5 words or less, Powell said, “Get inflation back under control” (not avoid a recession).
Could the U.S. already be in recession? This is something I’m going to be addressing in my podcast and webinar this Thursday at 5 PM Pacific. If you’re on our list you will receive the logon instructions automatically. If you’d like to join the webinar simply email email@example.com with VIDEOCON in the subject line.
Moderna has a global reach, APAs of about $21 billion and a solid pipeline. The company, along with many biotech stocks, has been beaten up by investors, and might be oversold. If you think biotech is still hot, consider adding a slice of the industry to your nest egg. Measure this against a backdrop of economic contraction in the 1st quarter and a potential recession on the horizon (if it’s not already here). Remember that a healthy wealth plan doesn’t try to market time or jump all in or all out. It’s a carefully designed (but easy!) system of proper diversification and regular (but not obsessive) rebalancing.
If you'd like to learn 21st Century time-proven investing strategies for protecting your wealth from a No. 1 stock picker, join us for our June 10-12, 2022 retreat. Email info@NataliePace.com or call 310-430-2397 to learn more and to register. Click on the banner ad below to discover the 18+ strategies you'll learn and master.
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.