Largest Biotech to IPO Leaves Analysts Awed at Valuation

(Bloomberg) -- Moderna Inc.'s potentially historic stock-market debut on Friday is already attracting skeptics on Wall Street.

The biotech firm has been hoping to raise as much as $600 million through a stock sale that would value the company at about $7.5 billion, a record even for a sector not always known for restrained valuations. The company, working with ten underwriters on the deal, is considering expanding the number of shares in its initial offering, Reuters reported.

Moderna's eye-popping projected market value, which would exceed the combined size of this year's three largest biotechs to IPO, is leading some analysts to question whether the company could sustain it.

“I don't understand how you get to that valuation,” analyst David Nierengarten of Wedbush, which is not involved in Moderna's offering, said in a telephone interview. “Not only are they early stage, but they're looking at pretty long and expensive development timelines.”

Moderna garnered a private valuation of about $7 billion earlier this year, around the time the Nasdaq Biotech Index was reaching its highest level since 2015. Three months of declines followed before drug-developer stocks recovered. The tumult returned in October, with biotech's worst monthly sell-off since early 2016. Another benchmark for the industry, the SPDR S&P Biotech ETF (XBI), has fallen 21 percent from its peak in June.

A spokesperson for Moderna declined to comment, citing the quiet period during the IPO process. Analysts from the underwriting banks may begin to weigh in Jan. 2, assuming Moderna debuts as scheduled Friday.

The Cambridge, Massachusetts-based company is commanding a premium for its research on messenger RNA, which carry genetic information from DNA to make the proteins required in all living cells. Moderna's experimental therapies encode fragments of genetic instruction using mRNA to instruct cells to create proteins to fight a disease or infection.

Given recent medical breakthroughs, “there's a lot of FOMO” in the industry, according to Cowen biotech analyst Ritu Baral. Three gene therapies have been approved in the U.S. over the past year after decades of work.

Moderna doesn't have any approved drugs, since most compounds are in early-stage development. But if successful, the company could create a new class of medicines that address an array of cancers, rare diseases and other conditions. The market opportunity could be enormous: Moderna says it may do better than other classes, like recombinant protein therapeutics, which generate global annual sales of over $200 billion, according to the registration filing.

The firm is leveraging the industry's findings over the past three decades to build a larger and faster platform of mRNA, Wedbush's Nierengarten said. Investors need to be patient as the company is likely to face the same challenges as other biotechs with delivering and manufacturing similar therapies, he said. Alnylam Pharmaceuticals Inc., for example, won approval for the first-ever RNA-interference drug after about 16 years of research and development.

Moderna also shares partnerships with pharmaceutical giants like AstraZeneca Plc and Merck & Co., which could be seen as a validation for its technology, but it still has a long way to go in showing that it can deliver mRNA reliably to the right cells in humans, and that the treatment is working as intended.

Collaborations are helpful, but the valuation here is “disproportionately high relative to the stage of development,” Nierengarten said.

--With assistance from Rebecca Spalding and Drew Singer.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jeremy R. Cooke, Brad Olesen

©2018 Bloomberg L.P.