Did Moderna break the biotech IPO market?
2018 ended replete with a record-breaking round of FDA approvals and IPO cash riches for the year. But that rapacious enthusiasm soured as December ravaged stocks across the board, including some aggressively valued newly-public companies that also ended up as collateral damage, as the correction at the end of the year blurred lines into a bear market.
While the sell-side came out gunning with ambitious stock price projections early Wednesday, one prominent set of analysts sees market sentiment tipping toward an angry backlash that could have a profound impact on an industry that’s enjoyed billions in new public investments.
“If there was anything good about December it was only that it ended,” Cowen analysts wrote in a note evaluating biopharma sentiment on Wednesday. “Stock performance wasn’t just poor, but horrible by historical proportions. The equity indices had one of the the worst Decembers of the past century with both the S&P 500 and DJIA erasing not just 2018’s gains, but a portion of those from 2017. Biotech fared no better. The NBI was down 11.2% in December, closing 2018 down 9.3%. Similarly the XBI (-12.1% in December, -15.5% in 2018) has not just ended 2018 down, but has given back a large proportion of the performance since the Q1:16 lows. Following the worst performance for stocks on a Christmas Eve ever, the only mercy came via a ~5% rebound on the day after Christmas. Otherwise the performance would have been that much worse.”
IPOs raked in record sums in 2018 helped along by unicorn listings such as Moderna, Allogene and Rubius. Perhaps the most electrifying of all public listings last year was that of Moderna $MRNA, a unicorn biotech that pulled off the biggest IPO in early December with a $604 million bounty that assigned it a market cap of about $7.5 billion after selling an upsized 26.2 million shares at $23 each — the mid-point on its range. The stock, though, soon showed signs of a struggle on its first day of trading, ending the day down 20% and evaporating some $1.5 billion from its market value. With a steep drop in Moderna’s trading price in its first day out, Wall Street was showing signs of caution.
That reluctance was well timed, as the end of the year proved to be a bloodbath.
“Investors are shell shocked by the depreciation that was so quick, so dramatic, and so close to the end of the year. A handful of funds have been closed, and others have restructured, making all less secure in their jobs with a fair number heading to their holiday vacations contemplating changes in careers. Sentiment is worse than we can remember over the last five years, and in fact many investors have developed a bear market mindset,” Cowen analysts wrote.
In the biopharma world, perhaps Moderna is the straw that broke the camel’s back. The stock closed at $15.27 on Dec. 31 and a market cap of about $5 billion. On Wednesday, a slew of initiations on the mRNA company surfaced from the company’s own underwriters:
- Buy at Goldman Sachs, PT $25
- Overweight at JP Morgan, PT $22
- Overweight at Piper, PT $24
- Overweight at Morgan Stanley, PT $29
- Outperform at Oppenheimer, PT $27
- Buy at Needham, PT $28
For Cowen, a notable exception from Moderna’s list of underwriters, IPO sentiment in 2019 will be underscored by restraint and vigilance.
“Following some notable IPOs that were perceived to be aggressively valued, and that quickly broke the deal price, the mood toward IPOs has sunk below disinterest toward anger. The window may not have closed completely, but investors will be very choosy over the next several months, selectively supporting companies with strong fundamentals, pedigreed management, and attractive valuations. Nonetheless, there remains no shortage of private companies hoping to IPO during 2019,” noted the analyst team.