Monday, 10 Dec 2018

The rich valuation of Moderna's IPOs raises the stakes for investors

Moderna Inc. could have chosen a better time to make public.

But facing a difficult market, the Cambridge, Massachusetts-based biotech company won the largest IPO in its sector on Thursday, raising more than $ 600 million for a $ 7.5 billion boost. His shares were priced at $ 23 each, halfway through the expected range.

The fact that the firm has managed to achieve this feat is an impressive demonstration of the resilience of the hype in the field of biotechnology, but this is probably not particularly good for those who do not support it early (1). Moderna's shares opened at $ 22 and fell from there. Every biotech baby is a bit of a lottery ticket, and this is especially true for Moderna. New investors pay the high price to play.

The valuation of Moderna does not come from nowhere. The company is a pioneer in a new class of messenger RNA-based drugs that can be used in vaccines, cancer, and rare diseases. If the company can truly create a new class of drugs, it could more than justify the high hopes of investors. Extensive partnerships with leading pharmaceutical companies, Merck & Co and AstraZeneca PLC, offer some validation, as well as the more than $ 2.6 billion that the company managed to obtain while it was private .

But the relationship between the big promises and the real data is pretty extreme. The company's drug candidates are at an early stage of development; many have not been tested in humans. There are still questions about the company's scientific approach, its commercial potential and the safety of its medicines. No answer is expected before a certain time.

It will be years before Moderna has a product on the market and burns tons of money all the time. Biotechs at the beginning of growth should lose money; Moderna lost $ 255.92 million in 2017 and $ 243.3 million in the first nine months of 2018.

This is more than a number of public biotechnologies for some time, many of which introduce drugs, build sales teams and conduct more expensive trials in the final phase.

This is to be expected to a certain extent. Moderna owns a large number of drugs for a start-up company and discovers drugs instead of polishing cheap external resources. However, the company may be trying to do too much and its burn rate may increase as its research progresses.

Everything will be forgiven if the drugs disappear, but biotechs that try to initiate new classes of drugs have a particularly long and bumpy road to success. Moderna has already experienced this: safety problems have slowed down its efforts to combat rare diseases and encouraged more short-term interest in prophylactic vaccines, a less interesting area of ​​concern. the commercial plan.

Alnylam Pharmaceuticals Inc. illustrates the roller coaster that could await Moderna investors. The company is a leader in a different class of RNA-based drugs. Founded in 2002, it was made public in 2004. After more than a decade of setbacks and security problems that sometimes caused sharp stock price fluctuations and caused the bankruptcy of other companies, Alnylam finally approved his first drug this year. With a number of other drugs on the verge of approval, its market capitalization is only marginally superior to Moderna's.

Alnylam strangely raised only $ 34.5 million when it went public. But the recent trend towards richer IPOs has not always been successful for retail investors. This limits returns for those who did not arrive early and leaves less room for error. Moderna takes this to the extreme.

Moderna could make its long-term doubts and justify more than anything the price investors pay today. But the road will probably be very long and the only winners are the existing shareholders.

(1) According to documents filed by ModernaSEC, they paid on average $ 6.04 per share instead of $ 23.

To contact the author of this story: Max Nisen at

To contact the editor responsible for this story: Daniel Niemi at

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is an editorialist with Bloomberg Opinion, specializing in the areas of biotechnology, the pharmaceutical industry and healthcare. He had previously written on management and business strategy for Quartz and Business Insider.

© 2018 Bloomberg L.P.


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