One of the biggest gambles in the history of the life sciences industry made it to Wall Street this evening when Moderna, a developer of messenger RNA drugs—an unproven technology with enormous potential—priced the largest biotech IPO ever.
Now, finally under the scrutiny of investors and analysts, Moderna must prove that its technology has enough substance to match the hype.
Cambridge, MA-based Moderna raised $604.3 million in a record biotech IPO on Thursday, selling more than 26 million shares at $23 apiece. That figure could climb even higher: Underwriters, which include Morgan Stanley, J.P. Morgan, and others have an option to buy up to an additional 3,941,398 shares, according to Moderna’s IPO announcement.
Moderna significantly boosted the size of its record IPO on Thursday evening. In a filing on Tuesday, Moderna projected it would sell about 21.7 million shares at $22 to $24 each. Moderna will start trading on the Nasdaq Friday morning under the symbol “MRNA.”
The IPO gives Moderna a market capitalization of more than $8 billion, which blows away the previous record for a biotech offering and represents a huge valuation for a company without much proof yet that its technology works. Cell therapy developer Allogene Therapeutics (NASDAQ: ALLO) set that record just two months ago when it raised $324 million at a $2.2 billion market cap. The previous records were held by Axovant Sciences (NASDAQ: AXON) ($315 million IPO in 2015, $1.5 billion initial market cap), a developer of neurodegenerative disease drugs; Galapagos NV (NASDAQ: GLPG) ($275 million IPO in 2015, $1.7 billion market cap), which is advancing treatments for fibrosis, arthritis, and other diseases; and Juno Therapeutics ($264 million IPO in 2014, $2.2 billion market cap), another cell therapy developer, according to IPO research firm Renaissance Capital.
All of these IPOs occurred within the past four years, symbolic of the prolonged, open window for biotech stock offerings. A recent report from the healthcare investment bank Leerink Partners found that between 2013 and 2018, biotechs that have gone public have raised $128 billion in capital via IPOs and follow-on financings. Yet the long-term returns from those IPOs have been elusive. Leerink found in its report that only 44 percent of the IPOs it tracked have generated a cumulative positive return over the long haul since going public.
Those returns, however, can be massive. Three of the four previous record holders have made out well so far. In January, Celgene (NASDAQ: CELG) bought Juno for $9 billion, or $87 per share in cash—a 262 percent return on its $24-per-share IPO, according to Renaissance. And Allogene (+74 percent as of Dec. 5) and Galapagos (+140 percent) each currently trade well above their IPO prices.
But Axovant is a reminder of just how risky investing in biotech can be. Since its then-record offering, Axovant suffered a string of clinical failures, and shares are down 88 percent from their IPO price.
Moderna, however, is unique, even among biotech’s most recent IPO record-holders. It has talked openly about becoming one of the most valuable biotechs ever, in the class of companies like Amgen (NASDAQ: AMGN), Celgene, Biogen (NASDAQ: BIIB), and Gilead Sciences (NASDAQ: GILD). Unlike a typical biotech going public, Moderna has a pipeline of 21 programs, 10 of which are in human testing.
“We’re saying we can draw a picture that articulates an outsized return over time, and that outsized return comes from not one drug singly advancing by itself to approval, but instead by a technology that is pushed forward over time,” Moderna chief financial officer Lorence Kim told Xconomy earlier this year. “The key thing for investors to wrap their arms around is: can we offer that sort of upside? We believe we can.”
After years of staying private and keeping many of its ups and downs hidden, Moderna will now put that belief to the test.
The company, formed by Flagship Pioneering in 2010, is developing synthetic messenger RNA drugs, meant to coax the body into producing disease-fighting proteins. The potential could be significant, unlocking an entirely new way to treat disease. But the method is largely unproven in humans, and Moderna isn’t the only company working on it—others like CureVac, Translate Bio (NASDAQ: TBIO), and BioNTech are as well.
Yet Moderna, unlike most every biotech out there, was able to secure $1.8 billion in venture financing, another roughly $800 million through partnerships while remaining privately held. During that time, it has invested heavily in its technology—it spent $410 million on R&D in 2017 alone and has burned through $865 million since its inception, according to its prospectus.
This has all been part of a high-stakes strategy by Moderna and its backers. It has built a massive organization of 680 employees and kept its inner workings out of sight. That’s allowed Moderna to tinker with its strategy—for example, a short run forming a group of drugmaking subsidiaries—without having every move scrutinized in the public markets. It’s also allowed the company to place several bets and amass a large pipeline, mitigating the risk of any one potential failure.
The secrecy is over now, however, and the company faces plenty of challenges. It’s unclear if mRNA drugmaking is safe and works, and the FDA has never evaluated these types of medicines before, making the regulatory path uncertain, Moderna noted in its prospectus. Additionally, while Moderna’s most advanced program is for a form of heart disease, many of its other programs are vaccines, a lower-margin business than other types of drugs. The majority of Moderna’s drugs are in either preclinical development or Phase 1 testing.
Flagship held 19.5 percent of Moderna before the IPO, followed by longtime CEO Stephane Bancel (10 percent), AstraZeneca (8.4 percent), Boston area scientific entrepreneur and investor Timothy Springer (5.7 percent) and Viking Global Investors (5.5 percent).