Moderna: A $12 Billion Brand Built On Hope And mRNA – Seeking Alpha

Moderna (MRNA) put mRNA technology on the map, however, this technology has not yet proven itself convincingly in clinical trials. The concept of making your own body behave like a drug manufacturing engine is interesting, but it has its hurdles. One hurdle is the body's own immune system, which may reject the mRNA; the other is whether the technology will produce enough proteins to make a difference - with the human body, you never know what will trigger a cascade of unpredictable events that could foil the "best laid plans of men," however smart. Delivery into cells is another issue. Everything always boils down to human trials - and here, Moderna is not there yet.

Most of the biotech investing rules I follow tell me Moderna is an absolute avoid. One, a $12bn market valuation based on a pipeline of near 20 candidates. These are based on a single all-curing drug platform. Not a single drug candidate is beyond phase 2. Two, the current price of the one-year old IPO is at 52-week and all time highs based on a fear and hope around a sudden pandemic like coronavirus. Three, a corollary of point one, there is little phase 2 efficacy data anywhere, therefore the platform, however promising, is absolutely unproven. However, on the other hand, another critical business rule I also follow is "follow the cash," and this early stage biopharma has $2bn of it. This is more cash than the entire current market cap of a company like Amarin (AMRN) with an approved and blockbuster potential product.

In order to understand this anomaly, I looked into the science behind the company, because the valuation of a pre-market pre-approval stage biopharma is mostly based on the science. And the science does look promising.

First, let us understand that the company says that mRNA-based therapeutic protein synthesis is the next step to recombinant protein technology, which has spawned an industry worth over $200bn. However, recombinant technology cannot create certain major types of proteins - intracellular and membrane proteins which represent as much as two-thirds of the proteins in humans. This is a major part of what mRNA technology can do.

There are various competitive advantages to mRNA over recombinance - for one, since the proteins are made naturally, there's less chance of rejection and immunogenicity. Another advantage, as the company says, "A vast number of potential mRNA medicines can be developed, therefore, with only minor changes to the underlying chemical structure of the molecule or manufacturing processes, a significant advantage over small molecule or protein therapeutics."

Moderna was founded in 2010 and IPO-ed in late 2018. Reading through the 10-K, what struck me was that there's a huge number of programs, all of them early stages, each demonstrating, to some extent, the development of critical antibodies upon using the drug candidate. However, instead of developing any particular program to fruition, including BLA and approval, this company focuses on advancing the entire pipeline at the same time.

Here's a snapshot of the pipeline:

Source

Next, let me present a set of 6 slides, each for one of the modalities above, which shows the latest available trial data for that drug candidate:-

Source - 10-K

Now, we have multiple programs progressing through phase 2 - which is really the datapoint that first gets us interested (or not) in a company. Then, just today, we read about the company's plans to start a phase 3 trial "soon." However, like we said, we still couldn't find enough that could justify this huge $11.8bn valuation. I mean, the science is good, in theory, but this sort of high-grade technology has so many pitfalls it really doesn't make sense to have too much expectation until we see phase 3 data.

The above 6 slides basically show that in the lab and in primates and in healthy subjects, there's constructive antibody activity on dosing with these mRNA medicines. Some of the measures of these activities are promising, for example, for mRNA-1944, "participants had measured antibody levels exceeding the levels of antibody expected to be protective against chikungunya infection (> 1 g/mL) following a single dose, with the middle and high doses projected to maintain antibody levels above protective levels for at least 16 weeks." But this was a phase 1 study in healthy volunteers, and while promising, like I said, this alone does not justify the valuation.

Sometimes, companies like these justify their valuations on the basis of their founders, or the founding technology; Juno comes to mind. Again, nothing like that was clearly apparent to me on reading either the 10-K or the Corporate Presentation. Besides a lot of basic and advanced genetic science, I could not figure out who is behind the science; admittedly, though, MRNA does have a vast patent estate comprising more than 550 patents worldwide, applied for and granted.

A much better overview of the history of the science is found here. There are basically five key figures behind it; the original science was developed by University of Pennsylvania scientist Katalin Karik, but her startup didn't go anywhere directly. "Later, in 2010 Harvard University scientist Derrick Rossi used modified mRNA to encode proteins that reprogrammed adult cells into embryonic-like stem cells. Harvard cardiovascular scientist Kenneth Chien, now at the Karolinska Institute, and Massachusetts Institute of Technologys famed serial entrepreneur Robert Langer spotted mRNAs therapeutic potential and joined Rossi in pitching a stem cell company to the venture capital firm Flagship Pioneering." This led to Moderna.

In recent times, under the coronavirus pandemic, Moderna has suppressed the rest of its pipeline and is focusing almost entirely on mRNA-1273, its candidate for treating COVID-19. Although mRNA can in theory target multiple types of diseases, vaccines are still their easiest application, since "the mRNA needs to produce only a small amount of protein for the vaccine to work, and setting off the bodys RNA immune sensors a little wont hurt." The company already had multiple viral vaccine targets under development, including one on MERS-COV in the lab, so it is understandable that a little tweak could set things off in coronavirus targeting.

From its press release, the latest that is happening in this regard is

On March 27, 2020, the NIH announced that Emory University in Atlanta will begin enrolling healthy adult volunteers ages 18 to 55 years in the NIH-led Phase 1 study of mRNA-1273.

According to a PR dated 4/7/2020, Moderna will host a virtual Vaccines Day for analysts and investors on 4/14/2020. The Vaccines Day will include presentations from Stphane Bancel, Chief Executive Officer, Tal Zaks, Chief Medical Officer, and key opinion leaders with a focus on mRNA vaccines and the Companys core prophylactic vaccines modality.

According to another PR dated 4/8/2020, Lorence Kim, M.D., the company's Chief Financial Officer, will participate in the 19th Annual Needham Healthcare Conference on 4/15/2020.

Currently, everything in this $12bn behemoth hinges around producing a working vaccine for SARS-COV-2. There are pitfalls - efficacy, timeline, positioning, market - that could determine how it all works out. Success or failure here could determine what happens to the company as a whole, because the market seems to be in an over-expectant mode right now.

In 2018, when the company IPO-ed, CEO Bancel said This is a 20-year job...We believe we are just starting. It seems to this author that $12bn is just a little too much to start with for something that may be promising, but still unproven. The science looks good - although there's a lot of secrecy behind it as of now - so if these prices go down for whatever reason, I would be much more interested. The company's vast and diverse collaborations - with AstraZeneca (NYSE:AZN), Merck (NYSE:MRK) and others - does build confidence that big pharma is looking at it favorably.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own AMRN.

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Moderna: A $12 Billion Brand Built On Hope And mRNA - Seeking Alpha