US biotech: Moderna’s art
Shares soar after promising but preliminary results in trial of coronavirus vaccine
Hope is the ultimate drug for both the infirm and the investor. In May, Moderna, a Boston-based biotech, announced promising but preliminary results in an early-phase trial of a coronavirus vaccine. Shares soared, sending its market capitalisation to $31bn. Heady stuff for a company that had yet to commercialise a treatment for any disease or illness. Hours after the announcement it priced a $1.3bn stock offering off its suddenly buoyant stock price.
With ordinary companies battered by an economic slowdown that has turned off revenue, many investors are happy to wager on companies whose near-term business model is, intentionally, not to have immediate revenue. Biotechs have dominated US initial public offerings. Excluding blank cheque companies, more than half of US listings in 2020 have been healthcare businesses.
Of 19 healthcare IPOs this year, 17 are trading above their IPO price. Among the 17, several have doubled or more. Gilead Sciences, whose Remdesivir has shown promise as an antiviral treatment for Covid-19, has seen its stock jump by 14 per cent this year, ahead of the Nasdaq biotech index which is up a tenth.
Still, most drugs fail to reach commercial viability. Shareholders are making hopeful but risky bets on complex technologies that are, by definition, unproven. Outside life sciences, most companies at the IPO stage need to show either real profits or galloping revenue growth. But shares in emerging healthcare companies are binary call options. Out of a portfolio of treatments, maybe one or two will hit pay dirt.
More attention is now being paid to the details of the Moderna vaccine trial. The trial had just eight participants who showed “neutralising” antibodies. Some experts were wary of drawing conclusions from the limited data Moderna released. Though its shares have tripled this year, the stock is down a quarter from its peak. Investors who bought the stock offering have made big paper losses. Testing will advance to the next stage in the weeks and months ahead.
Investment is an art, not a science. But evidence still matters. More of it is needed before backing Moderna.