DEF: Moderna Seeks Shareholder Nod for Employee Option Exchange

Moderna is seeking shareholder approval for a one-time stock option exchange program designed to retain non-Executive Committee employees by addressing significantly underwater stock options.

Summary

• Moderna is proposing a one-time stock option exchange program for non-Executive Committee employees.
• The program aims to exchange significantly 'underwater' stock options (exercise price at or above $80.00, outstanding for at least one year) for new stock options.
• New stock options will have an exercise price equal to the fair market value on the new grant date and new vesting terms (at least one year additional vesting).
• Executive Committee members, consultants, advisors, and Board members are not eligible to participate in the program.
• Exchange ratios are tiered from 2:1 to 5:1 (surrendered to new options), meaning fewer new shares will be granted.
• Shares from surrendered options in excess of new grants will not return to the equity plan pool, reducing potential future dilution.
• The program is designed to be fair-value neutral and anti-dilutive to shareholders.
• As of September 30, 2025, 89.9% of outstanding stock options held by non-Executive Committee employees were underwater.
• The closing price of common stock on August 27, 2025, was $25.10 per share.
• Eligible stock options have a weighted average exercise price of $124.24 per share, which is more than three times the $25.10 closing price on August 27, 2025.
• Approximately 3,800 non-Executive Committee employees, representing about 80% of this group, hold eligible stock options.
• If all eligible options are exchanged, the net reduction in stock option overhang is estimated at 3,437,793 shares, representing 0.8% of the fully diluted share count (based on 435,492,735 shares outstanding as of September 30, 2025).
• The company anticipates incurring a net loss in 2025, following losses in 2023 and 2024.
• The goal is to return to breakeven on a cash cost basis by 2028.

Sentiment

Score: 4

Explanation: While the option exchange is a necessary and positive step for employee retention and is designed to be shareholder-friendly (anti-dilutive, fair-value neutral), the underlying financial performance (declining revenues, anticipated net losses through 2025, and a severely depressed stock price) indicates significant operational challenges. The program addresses a symptom (underwater options) of deeper issues, and the outlook for returning to breakeven by 2028 is a long-term goal.

Positives

• The option exchange is designed to be anti-dilutive to shareholders, as surrendered shares in excess of new grants will not return to the equity plan pool.
• The program aims to restore performance incentives and improve retention for non-Executive Committee employees in a competitive labor market.
• New vesting schedules (minimum one to two years) for replacement options enhance retention value.
• The exchange is intended to be fair-value neutral from an accounting perspective, minimizing significant additional compensation expense.
• Excluding Executive Committee members and Board members from eligibility aligns with investor policies and proxy advisor guidelines.
• The program is a more cost-effective and shareholder-friendly retention tool than issuing additional equity or increasing cash compensation.
• The company has a diverse and extensive development pipeline of 30 candidates across 39 programs, with 35 in clinical studies.
• Recent product approvals include mRESVIA (RSV vaccine, 2024) and mNEXSPIKE (new COVID-19 vaccine, May 2025), making Moderna a multi-product company.

Negatives

• 90.8% of outstanding stock options held by non-Executive Committee employees were underwater as of August 27, 2025, indicating significant past stock price decline.
• Revenues declined significantly from highs during the COVID pandemic.
• Expenses exceeded revenues in 2023 and 2024, and a net loss is anticipated again in 2025.
• The stock price traded below $24 per share as recently as September 2025, significantly below its historic high of approximately $480 per share in August 2021.
• The transition to a post-pandemic commercial model has been more complex than anticipated, impacted by lower-than-expected vaccination rates and competitive pressures.
• Uncertainty in the regulatory environment, particularly in the U.S., has exacerbated stock price pressure.

Risks

• Failure to approve the Option Exchange could make it more difficult to motivate and retain non-Executive Committee employees, potentially impacting business and results of operations.
• Competitors may offer more attractive equity incentives, leading to employee turnover.
• Evolving dynamics in the market for products, including declining demand for COVID vaccines and lower-than-expected vaccination rates, continue to present challenges.
• Uncertainty in the regulatory environment, particularly in the U.S., could further impact stock price performance.
• The company anticipates incurring a net loss again in 2025, following losses in 2023 and 2024.
• The Board reserves the right to amend, postpone, or cancel the Option Exchange even if approved by shareholders.
• The U.S. Internal Revenue Service is not precluded from adopting a contrary position regarding the non-taxable exchange treatment of the options.

Future Outlook

The company aims to return to breakeven on a cash cost basis by 2028. Strategic priorities include driving sales of current products (Spikevax, mRESVIA, mNEXSPIKE), delivering up to 10 product approvals in the coming years to diversify revenue, and achieving cost efficiency through reduced R&D, selling, general and administrative expenses, and cost of goods, including headcount reductions.

Management Comments

• We believe that it will provide a much less dilutive and more cost-effective retention and incentive tool than issuing additional equity or paying more cash compensation in order to continue to retain and motivate these employees.
• We designed the Option Exchange with the goals of restoring equity value for our non-Executive Committee employees, increasing employee retention and motivation in a competitive labor market, and better aligning our employee and shareholder interests for long-term growth.
• Our existing employees have remained dedicated and they are key to delivering on our strategic priorities, including returning the Company to breakeven on a cash cost basis by 2028.
• Retaining their know-how and services is critical to our ability to execute on our strategic plan... and the Option Exchange is designed to help retain these employees over a multiyear period.
• We believe that the Option Exchange that is being proposed provides a more cost-effective and shareholder-friendly retention and incentive tool than simply issuing additional equity awards or paying higher cash compensation.

Industry Context

The mRNA medicine field is led by Moderna, which has developed medicines at unprecedented speed, including a widely used COVID vaccine. The COVID vaccine market has shifted to an endemic, seasonal commercial market, leading to declining demand and increased competitive pressures. The company is expanding its product portfolio beyond COVID-19 with approvals for RSV and new COVID-19 vaccines, and a pipeline targeting other viruses, oncology, and rare diseases, reflecting a broader industry trend towards diversifying therapeutic areas and adapting to post-pandemic market realities.

Comparison to Industry Standards

• The company's stock price performance, trading below $24 per share in September 2025, is significantly below its August 2021 high of approximately $480 per share, reflecting challenges in the vaccine industry and company-specific issues. This contrasts with the initial 'unprecedented, early success' of its COVID vaccine, which positioned it as a leader.
• The need for an option exchange program due to 90.8% of employee options being underwater suggests a more severe impact on employee equity incentives compared to companies with more stable or appreciating stock prices.
• The exclusion of executive officers and directors from the option exchange aligns with best practices and proxy advisor guidelines, which often criticize broad-based repricing or exchanges that benefit top management.
• The company's goal to return to breakeven on a cash cost basis by 2028 indicates a longer recovery timeline compared to some peers who may have already stabilized post-pandemic.

Corporate Governance

Stakeholder Impact

• Employees (non-Executive Committee): Potential for restored equity value, increased motivation, and improved retention through the option exchange. New vesting schedules will encourage continued service.
• Shareholders: The option exchange is designed to be anti-dilutive and fair-value neutral, aiming to align employee incentives with long-term shareholder interests. Approval of the Adjournment Proposal provides flexibility for the Board to secure sufficient votes.
• Customers: Continued product development and commercialization of vaccines (COVID, RSV) and other therapies aim to deliver health impact.
• Competitors: The program aims to mitigate the risk of losing talent to competitors offering more attractive equity incentives.

Next Steps

• Shareholder vote on the Option Exchange Proposal and Adjournment Proposal at the Special Meeting on November 12, 2025.
• If approved, the Board intends to consummate the Option Exchange shortly after.
• Commencement of the Option Exchange (tender offer period of at least 20 business days).
• Filing of offer to exchange and related documents with the SEC on Schedule TO.
• Granting of new stock options and cancellation of surrendered options upon completion of the exchange.
• Continued focus on three strategic priorities: driving sales of Spikevax, mRESVIA, and mNEXSPIKE; delivering up to 10 product approvals; and achieving cost efficiency across the business.
• Goal to return to breakeven on a cash cost basis by 2028.

Key Dates

Recommendation

The proposed option exchange is a necessary step to address significant employee retention issues stemming from a severely depressed stock price and underwater options. While the program is designed to be shareholder-friendly (anti-dilutive and fair-value neutral), it primarily addresses a symptom of deeper financial challenges, including declining revenues and anticipated net losses through 2025. The company's strategic priorities and goal to return to breakeven by 2028 indicate a long and uncertain path to recovery. The approval of new products like mRESVIA and mNEXSPIKE offers some diversification, but the overall financial performance remains weak. Investors should hold, awaiting clearer signs of sustained revenue growth and profitability, and successful execution of the strategic plan, before considering further investment.

Keywords

Moderna, MRNA, stock option exchange, employee retention, equity compensation, underwater options, mRNA medicine, vaccines, COVID-19, RSV, mRESVIA, mNEXSPIKE, biotechnology, pharmaceutical, corporate governance, shareholder meeting, proxy statement