With Massive Venture Round, Moderna Has $450M Reasons to Stay Private

Xconomy Boston — 

Investment dollars have been pouring into private and public biotechs, but nothing can quite match Moderna Therapeutics.

Cambridge, MA-based Moderna says it has raised a $450 million private investment round, the largest ever financing for a privately held biotech company. Moderna has now secured $950 million in venture cash and non-dilutive funding since its inception in 2011, and has more than $800 million in the bank. It hasn’t yet shown any clinical evidence that its completely new approach to making drugs will work, but it has already turned itself into a kind of incubator, with plans for satellite companies carved out of its main technological base.

What’s more, company officials say there’s no pressure to go public, even though the investors in the new round include “crossovers”—those who typically invest in public companies. Those new backers include Viking Global Investors, Invus, RA Capital Management, and Wellington Management. Moderna’s existing industry partners, AstraZeneca and Alexion Pharmaceuticals, also chipped in, as did other existing (and undisclosed) investors. (AstraZeneca became an equity holder at some point after their 2013 deal, and increased its investment thereafter.)

Moderna CEO Stephane Bancel (pictured above) has also put cash into each Moderna round, totalling “several million dollars” in the company, he says.

While crossover rounds often signal a company’s next step is an IPO, CFO Lorence Kim says Moderna is different. “We were clear with our investors from the get-go that we’re playing the long game,” says Kim, the former co-head of biotech investment banking at Goldman Sachs. “A typical crossover is done with an expectation that an IPO is just around the corner. And we were very clear with people that that’s not the case here.”

So why does a preclinical biotech company with more than $400 million already in the bank need to raise this much cash, and do it through another private round, rather than just going public and tapping the Wall Street ATM?

Part of the answer is secrecy. By staying private, Moderna can keep many of the details behind its technology close to the vest. Though Bancel said in an interview today, for instance, that the company has made “tremendous progress” with its technology, and has 45 separate preclinical programs—29 through its partnership with AstraZeneca, seven via its deal with Alexion, and nine of its own—it isn’t detailing specifically how it’s refined that technology, or what that progress is.

Moderna is creating injectable messenger RNA molecules that trigger the production of proteins in the body. In essence, if it works, patients will manufacture their own therapies inside their bodies. It’s a novel idea, and it’s completely unproven in humans.

Instead of testing the idea in one or two areas, Moderna is making a bet both deep and wide, tackling several disease areas at once on its own and with a variety of development partners. “We are trying to do something very unprecedented here,” Bancel says. “We have all these programs, and we felt the need to invest more, but it would have been unreasonable to invest more and increase the burn without increasing the cash balance. When you start to do the math, $400 million”—the amount, roughly, Moderna had on hand before this latest financing round—“doesn’t do it.”

Moderna is also investing in people. It has 145 employees now and is adding another 100 in the coming months. Among them will come high-priced, veteran drug developers specifically picked to lead the venture units Moderna is incubating in-house. Former Genentech executive Stephen Kelsey, for instance, was tapped to run Moderna’s first venture, Onkaido Therapeutics, in July.

The company was launched by Flagship Ventures in 2011 and stayed quiet for a few years. In a span of about 12 months, starting in late 2012, Moderna then closed deals with AstraZeneca (NYSE: AZN), Alexion (NASDAQ: ALXN), and DARPA, plus it closed a $110 million financing round. Those deals left Moderna with more than $400 million in cash, and plenty more to accrue in milestones. With the new money in, Bancel says Moderna has raised $625 million in equity funding, with the remaining roughly $325 million via non-dilutive sources.

Delivering RNA-based drugs has been a monumental challenge for the industry, and Moderna still has to prove it can without setting off an immune system attack. None of Moderna’s mRNA drugs have been tested in human clinical trials as of yet; Bancel says the he expects the company to start its first trials over the next 12 to 24 months. Yet with so much money already into Moderna, how can these investors generate meaningful returns?

“The other side of that coin is, ‘What’s the opportunity?’” Bancel responds. “Based on the breadth of the platform we have shown, based on the fact that there are 45 programs, I think people get a sense of the momentum we have and the dynamic, and see the value we can build.”

Moderna has created a certain type of structure to carry this out. As Xconomy reported in June, Moderna shifted its strategy and developed a “venture creation” unit—essentially an in-house incubator. Moderna is using it to start up a bunch of companies, hire teams for them, and hive out the mRNA drug prospects it’s developed when they’re ready to be tested. That means Moderna itself likely won’t be the entity to develop and sell the mRNA drugs it creates. Onkaido, formed around 15 cancer drug candidates, was the first. More are on the way; Bancel says the company’s goal is to create five ventures over the next couple of years.

“It puts structure around the areas in which mRNA is performing very well,” Kim says, and adds that if third parties want to buy or license parts of the portfolio, the separate structures “give us flexibility to create value with transactions.”

Indeed, flipping shares in a venture, taking one public and building its value, or otherwise, are some of the ways Moderna will try to generate those investor returns. Others could be milestone payments from its current partnerships: Bancel notes there are three separate $60 million “technical” milestones in the AstraZeneca deal that could be triggered in the coming quarters, and various “per drug” milestones in both the AstraZeneca and Alexion deals that will start to kick in when the mRNA drugs in those partnerships reach clinical trials (Bancel wouldn’t specify how much per drug Moderna could bring in).

Much of that potential value will depend on whether Moderna can finally produce real, meaningful human clinical data. That time is coming.

“The early signs in animals are quite exciting,” says Bancel. “We might be able to do a few more things with mRNA than we never even thought in our wildest dreams.”