Moderna Inc. aims to reduce its research and development budget by about 20% over the next three years as the biotech tries to find a path to profitability following disappointing vaccine sales.

COVID-19 Moderna vaccines are seen in 2021 at a vaccine center in Munich, Germany. Michaela Rehle/Bloomberg, file

The company is discontinuing five programs in its pipeline and slowing some late-stage studies of treatments for latent and rare diseases to achieve the $1.1 billion cut from its annual R&D budget by 2027, according to a statement Thursday.

The plan may appease investors who want to see the company avoid further losses. In a recent note, Jefferies analyst Michael Yee said Moderna needed to cut as much as $1 billion in expenses “to regain any investor confidence or credibility on profitability.”

Shares dropped by 7% in premarket trading in New York on Thursday. Through Wednesday’s close, Moderna’s shares have dropped about 20% this year.

The company is slowing its pace of studying new treatments in part because of recent commercial challenges. On Thursday, it also pushed back its target to break even from 2026 to 2028.

Last month, it cut sales expectations for the year after seeing low COVID-19 vaccine revenue in Europe and increased competition in the US, leading to a disappointing launch of its new RSV vaccine.

The Cambridge, Massachusetts-based company sells two products – a vaccine for COVID-19 and another for RSV. It projected sales of between $2.5 billion and $3.5 billion next year. It has said this year’s sales will range between $3 billion and $3.5 billion, down from its previous outlook of about $4 billion.

‘FINANCIAL DISCIPLINE’

“We are still dealing with a market of uncertainty,” Moderna Chief Financial Officer Jamey Mock said in an interview. “We hope that will settle out this year but we have to brace ourselves just in case vaccination rates continue to go down.”

Mock said the R&D cuts are a sign that the company “is exercising financial discipline.”

Moderna needed to reduce its R&D budget in part because its clinical trials have succeeded and later-stage studies require more funding, he said. Moderna expects 10 products to get approved over the next three years.

“We do recognize the need to pace ourselves because there is now this huge bolus of important medicines to get approved,” Moderna President Stephen Hoge said in an interview.

The company is known for spending heavily on R&D, often more than its peers as a percentage of sales. The spending has been fueled by the belief that its mRNA technology could effectively treat and prevent a range of illnesses, from flu to cancer. However, the sharp decline of its COVID vaccine business is forcing the company to rein in some of its ambitions.

One of its biggest hopes is its cancer program. Late last year, Moderna and its partner, Merck & Co., said its melanoma vaccine helped prevent the recurrence of severe skin cancer for three years.

Moderna executives have hoped to file for faster approval based on data from that mid-stage study. Moderna said initial feedback from US regulators “has not been supportive” of that, and the company and Merck are focused on its late-stage trial.

The company said it plans to increase its research and development investments in oncology.

It’s also no longer pursuing accelerated approval for its standalone flu vaccine. Instead, it will focus on filing for approval this year for its vaccine that combines flu and COVID-19 protection.

“We just think that has the chance to be a bigger product and have a larger impact,” Mock said.