Moderna (NASDAQ:MRNA) went public on Dec. 7, raising $604 million on a market cap of $7.5 billion. The IPO met the goal, but a bad day on Wall Street sent the shares plummeting. They opened Dec. 10 at $18.90, down from their IPO price of $23, a market cap of $6 billion.
Still, Friday was an important day, and not just because it was the “biggest biotech IPO ever,” as Fortune proclaimed.
It’s because Moderna represents the next wave in drug discovery.
What Moderna Does
Like Regeneron Pharmaceuticals (NASDAQ:REGN), Moderna is less a bet on particular drugs than on a method for finding them.
Regeneron’s method is a system that lets researchers see how their drugs will interact with mouse DNA, which closely resembles human DNA. Moderna’s method is in its stock symbol.
Messenger RNA translates between the instructions DNA has encoded in it, and the results that ribosomes deliver, in the form of polypeptides and proteins. Think of it as a genetic systems architect, delivering requirements between the programs of DNA and the business units of the cell.
Change what the Messenger RNA is telling the ribosomes and you change what the ribosomes are doing. That’s the theory anyway.
The theory has resulted in an impressive pipeline of candidate drugs — drugs for cancer, for heart disease, and vaccines that can keep people from getting sick at all. Until now that work has been underwritten by Merck (NYSE:MRK), which has agreements on milestones and royalties for three potential vaccines, and AstraZeneca (NYSE:AZN), which has profit-sharing or milestone agreements on three drugs.
One purpose of the IPO, then, is to give Moderna the cash it needs to create more drug candidates, and to push these candidates further down the approval funnel before passing them on to larger companies, giving it a heftier share of what those drugs earn.
Don’t Look at the Numbers
As with many companies, the reason to buy Moderna won’t be found within the numbers reported in its S-1, but in the story it’s telling the market.
The numbers show Moderna bringing in less money during the first nine months of this year, $99.6 million, than it did last year, almost $114 million. The difference lies in a sharp decrease in grant revenue of $15 million, as Moderna transitions from a pure research company into an outfit that can generate its own cash.
A lot of cash is required. Moderna has plunged almost $360 million into research so far in 2018. Its cumulative losses over the last three years come to over $750 million. The IPO delivers cash that can plug that gap. It also sets a valuation for the shares, raising the asset base from their current $1.5 billion to something it could borrow on.
The Bottom Line for MRNA Stock
Manipulating DNA, changing the biology of people and other living things, is the next wave of change in business. DNA is where PCs were 40 years ago, when I first began my life in journalism.
But betting on biotech remains risky. Only one of the dozens of PC makers that were around in 1978 are here today, and I wouldn’t exactly call Apple (NASDAQ:AAPL) a PC maker. Most of the early PC software companies also slipped under decades ago, as the technology landscape shifted.
Working with DNA also changes our approach to disease. More than half the drugs in Moderna’s pipeline are vaccines, and only one of the drugs it’s working on is even in a Phase 2 trial, a treatment for myocardial ischema on which AstraZeneca is paying for milestones and royalties.
Moderna’s whole approach may prove wrong, or it may fail to execute before regulators, or its new drugs could be destroyed by the plaintiff’s bar. Anything could happen.
But if you’re a young investor who wants to bet on the future, this is a great bet to make.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.
