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Moderna’s highly effective Covid-19 vaccine, in addition to protecting millions, is officially a cash cow. The company disclosed during its earnings presentation on August 5 that it expects the shot to generate $20bn in sales in 2021. Now it has to figure out what to do with its windfall as it tries to justify a market valuation that has surged more than $100bn since May. That is a nice problem to have. But it is also an urgent strategic issue.

The Cambridge, Massachusetts-based biotechnology firm’s astonishing stock surge has been driven by the success of its vaccine and excitement about its underlying messenger RNA (mRNA) technology, which it is also employing in other shots and treatments in early stages of development. As of now, though, the Covid-19 jab is the company’s only approved product, and its finite future sales depend on the very uncertain trajectory of the pandemic and booster shots.

Single-product companies are usually targets rather than buyers when it comes to biotech. But Moderna is in the rare position of having the firepower to go on the hunt itself. Mergers & acquisitions make sense; it certainly is a better alternative to buying back $1bn worth of its inflated shares, which the company also plans to do. But do not expect acquisitions to solidify a valuation that has somehow surpassed that of McDonald’s and Morgan Stanley. 

Moderna has plenty of deal capacity, with $12.2bn in cash on hand and more coming in, as  well as highly valuable stock and minimal debt. But it plans to be very particular about what it buys. 

On its August 5 earnings call, Moderna CEO Stephane Bancel said the company would only invest in new areas that are complementary to mRNA, which the body uses to give cells instructions. Bancel specifically said the company is interested in gene editing and gene therapy and that it will not invest in small-molecule or antibody drugs — tried-and-true approaches that are used in most available and best-selling medicines.

This focus on newer technology rules out many targets and means investors should not expect deals to diminish the company’s risky Covid-19 sales cliff, which will arrive well before its internal drug pipeline is ready to contribute.

Alnylam Pharmaceuticals, which focuses on a different type of RNA-based therapy, is the only big near-term revenue-generating option I see that might fit Bancel’s criteria. But paying a premium over its rich $23.7bn market value may be a stretch for Moderna, which promised discipline in its deal search, especially if targets are sceptical of the run-up in its share price. 

Gene-editing companies such as Intellia Therapeutics, Crispr Therapeutics, and Beam Therapeutics are substantially more affordable and quite promising. All three aim to treat and potentially cure diseases by modifying DNA, which stores instructions that RNA delivers, and use mRNA as part of their process. On top of adding valuable expertise in genetic medicine, a deal for one of these companies would boost the ratio of treatments in Moderna’s pipeline. That might be wise, because vaccines are less profitable outside a pandemic. 

But even relatively advanced companies in that field are still in very early stages of development and they would not add sales soon or do much to improve Moderna’s risk profile. The company already plans to spend heavily on new medicines; it is working on more than 20 drugs that apply mRNA in six different ways. All are probably at least a few years away from market; several face strong competitors, and its nonvaccine projects are largely unproven. Planting a stake in another developing area of medicine, even if it is complementary, could increase the company’s cash drain and downside potential. 

Moderna’s strategy could pay off if investors are very patient, and the company certainly seems to have lots of believers in its long-term future. But their conviction and Moderna’s valuation have not really been tested yet. If the Covid-19 booster market peters out sooner than expected or Moderna has a significant pipeline hiccup, look out below.   

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