Moderna Had the Biggest Biotech IPO Ever. Here’s What That Says About the Industry’s Future

Amid a rocky market that’s whipsawed on a near-daily basis, Moderna Therapeutics pulled off the improbable late Thursday: An historic IPO in which it raised more than $600 million. At a price of $23 per share, Moderna sold more than 26 million shares, setting up an approximately $7.5 billion valuation (although, amid the overall market turbulence and some important questions about the company, Moderna stock still fell nearly 20% in Friday afternoon trading).

Moderna’s $604 million IPO raise is the biggest in biotech history (the firm had originally aimed for a $500 million raise before upping the ante last week). The massive $1.4 billion market value drop on its first trading day on the Nasdaq has raised some recriminations. But the more important longer-term question is: Can Moderna follow through on its ambitious drug development plans, given that it has no products on the market? And what does the case study suggest about the future of biotech IPOs generally?

On the first front: It’s certainly not rare for American biotech companies to go public before having a commercialized product on hand. In fact, money raised in public offerings is often seen as essential by the industry to fund expensive R&D and clinical trials which, admittedly, may end in failure. (I.e., high risk, high reward.)

Moderna’s pipeline is based on something called “mRNA” technology. To put it very simply, this kind of approach could essentially turn the body’s very cells into drug making factories that can then tackle a number of diseases, including cancer, infectious diseases like Zika, the flu, heart disease, and multiple other conditions. Moderna has more than 20 experimental candidates in its pipeline, with the most advanced one in phase 2 clinical trials and the others in phase 1.

The fact that the company has raised so much money, including well before its IPO, without much in the way of evidence that its proposed technology actually works has understandably fostered some criticism. But it’s also indicative of a new age in public biotech investing—one in which companies and investors alike may be more shielded from the risk of devastating clinical trial failures by experimental stage biotechs.

“It used to be that biotechs were a lottery ticket,” Jordan Saxe, head of health care listings at Nasdaq (on which Moderna and the vast majority of newly public biotechs have IPO’d), tells Fortune in an interview. “So what you’d do is buy a portfolio of these companies that are bundled up. So the investor wouldn’t necessarily feel the pain of one company’s failure, the risk was mostly on the company side.”

But the rise of what Saxe calls the “third wave” of biotech IPOs, wherein public companies’ technology has evolved to the point of providing personalized medicine backed by wide-ranging biological platforms (that is, underlying tech that can be used to produce an eclectic mix of drugs across the disease spectrum), has given both drug makers and investors more cover.

“Because of the platform company approach, these biotechs have ten or 12 different assets, not just one,” says Saxe. That means one catastrophic failure doesn’t necessarily spell doom; other products can make up for a miss—if the underlying technology platform (in Moderna’s case, mRNA therapies), actually pans out.

Whether or not that will happen is the multi-billion dollar question. But Saxe expects that public offerings my platform companies will continue to thrive in 2019.

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