Pandemic darling Moderna needs a reality check

After raking in an enormous vaccine windfall during the pandemic, the cash-rich company could have chosen a conservative spending strategy to remain profitable once Covid-19 went away. Instead, the Cambridge, Mass., company, led by high-energy Frenchman Stéphane Bancel, set out to treat or prevent a vast array of conditions by doubling down on its mRNA technology.

But such unbridled ambition is coming at a cost that is now becoming too steep for shareholders to continue bearing. As Covid vaccine sales decline precipitously, Moderna’s roughly $4.5 billion in annual research-and-development spending is simply too high. For the sake of comparison, Biogen, whose $30 billion market capitalization is similar to Moderna’s, spends closer to $2.5 billion a year.

Moderna’s massive pipeline of 45 therapies and vaccines will be the focus of its R&D day next Thursday. But what investors most want to see is that program being trimmed.

Investors could just about stomach such spending when it was still unclear what trajectory Covid was going to take. But plummeting Covid sales numbers have made investors stingier. (Pfizer also has had to cut costs to placate investors). Last month, Moderna shares tumbled by the most on record after the company lowered its sales guidance due to weaker demand for its vaccine. In its guidance cut, the company cited an increasingly competitive environment in the U.S. and very low Covid-19 vaccine sales in Europe.

Moderna is now bleeding cash at a worrying pace. Last year it reported a $4.7 billion net loss, and it is now on track to lose at least another $3 billion this year, according to analyst estimates compiled by FactSet. The company has made the case that it should begin to break even by 2026. But that isn’t looking likely given the slow uptake of the company’s second product, an RSV vaccine that has struggled to gain market share against shots from Pfizer and GSK. Moderna’s stock is now down 27% for the year.

With investor confidence sinking and economic headwinds not boding well for riskier assets, a reality check is in order. It certainly is true that parts of Moderna’s pipeline, such as its cancer treatments, hold tremendous potential. But the mRNA buzz is no longer enough for the valuation premium the company once commanded. Even at such low levels, it isn’t clear the stock has found a floor just yet. In an email, a Moderna spokesperson said the company looks forward to providing business and pipeline updates next week.

The good news is that, given the size of the company’s massive pipeline, there is plenty of room to find something like $1 billion in cuts. Mani Foroohar, an analyst at Leerink Partners with an “underperform" rating on Moderna, points to the company’s rare-disease pipeline or its HIV vaccine efforts as examples of areas that are ripe for cuts.

“They are spending an egregious amount of money," he said. “Unfortunately, they need to come to grips with the fact they are no longer a growth company, despite trading at a growth valuation."

Michael Yee, a Jefferies analyst who recommends the stock, also is pleading for cuts. Yee wrote earlier this week that the company should deliver $500 million to $1 billion in cuts to regain investor confidence. He predicted such reductions are more likely to come as part of its 2025 guidance.

Moderna could yet find a way to turn investor sentiment around. The company is expected to release key data for its cytomegalovirus (CMV) vaccine later this year. Investors are also watching closely for any regulatory updates on the company’s cancer-vaccine program.

It is becoming increasingly clear, though, that nothing short of another pandemic can quickly fix Moderna’s finances. The best treatment for its ills now is a shot of financial discipline.

Write to David Wainer at david.wainer@wsj.com