BREAKINGVIEWS-Moderna would provide Merck an M&A booster

By Robert Cyran

NEW YORK, Aug 1 (Reuters Breakingviews) - Moderna MRNA.O is far less immune to a takeover than it used to be. Its Covid-19 jab sparked a wild valuation run up to $175 billion, but it’s now worth just $4 billion, excluding cash. A fatter pipeline helps make it a tempting target.

The company disclosed heavy losses in its second-quarter results. Revenue tumbled 41% from a year earlier, even as it spent more than $1 billion. Moderna is on track to chew through $3 billion this year and slashing its workforce by 10% to offset some of the pain.

At this pace, its coffers will shrink to $6 billion by the end of 2025. Assuming everything goes as planned, sales of vaccines for Covid, flu and other diseases should be sufficiently large by 2028 to support mRNA technology R&D, and bigger therapies might reach the market after that.

It’s hard to be too enthusiastic about such expectations, however, considering what’s happened over the past five years. Moderna could use more cash, or a slower burn rate. At the same time, its valuation today seems as unrealistically low as the implausibly high one it carried four years ago.

Big drugmakers are always seeking ways to beef up their labs, but also prefer to avoid overpaying and diluting themselves for more promise than revenue. At just 4 times its estimated sales next year, Moderna is valued at a third less than far-larger peer AbbVie ABBV.N. The industry also has broadly fallen out of favor, with the SPDR Biotech ETF down a quarter since 2020.

Some companies are nearing the danger zone, too. Merck MRK.N, for example, generates half its revenue from blockbuster cancer treatment Keytruda, which is due to lose patent protection in 2028. It is also an equal partner in Moderna’s intriguing personalized cancer treatment.

A trial found that in combination with Keytruda it reduced the risk of death or recurrence of melanoma by 49%, and the vaccine is being tested against multiple types of cancer. If regulators approve the collaborative effort and it were to reach $5 billion of revenue, Moderna’s stake, at 5 times revenue, would be worth more than the entire company is now.

Buyers may be scared off an unprofitable vaccine maker while Robert F. Kennedy Jr. is undermining the value of inoculations in his role overseeing U.S. healthcare policy. Moderna also can ward off unwanted suitors with its staggered board of directors. Even so, Merck could use an M&A booster.

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CONTEXT NEWS

Vaccine developer Moderna on August 1 slashed the high end of its 2025 revenue projection while reporting a 41% decline in the second quarter from the same period a year earlier, to $142 million.

The company expects its annual top line to max out at $2.2 billion instead of the previously forecast $2.5 billion, primarily because of the timing of deliveries for contracted revenue into the first quarter of 2026.

Moderna said on July 31 that it would cut roughly 10% of its workforce as part of a plan to reduce operating expenses by $1.5 billion by 2027 to offset declining revenue from Covid-19 vaccines and operating losses from research and development spending.