Every once in a while, one key understanding pushes biology forward at warp speed. Many believe that we have arrived at this point as our understanding of mRNA has matured. Several cutting edge biotech firms are now racing to establish themselves in the nascent field of Messenger RNA technology (mRNA). Each hopes to become the dominant platform for mRNA based medicine for decades to come. These three biotechs hold epic promise for investors who can tolerate risky business…
Everybody has heard of DNA, but how much do you know about RNA? Simply put, mRNA helps to decode your DNA blueprint, and this decoding process helps create the proteins that are the basic building blocks of your daily biological functions. If the mRNA decodes faulty DNA, or something goes wrong with the decoding process itself, agonizing illness if often the result. Only in the last five years have scientists started to realize that many of these illnesses can be stopped, or prevented altogether, by altering the natural process of mRNA decoding. As the team at Alnylam Pharmaceuticals explains it,
“…..we believe it may be possible to achieve a consistent and tunable level of disease protein knockdown, regardless of circulating blood levels, with the potential for disease control and intervention. By way of analogy, the….approach is akin to stopping a flood “by turning off the faucet” as compared with today’s medicines that simply “mop up the floor.”
From an investment point of view, the most critical realization is that we are not talking about the potential of just one or two new medicines. Rather, we are talking about a whole new way of doing things. We aren’t just fixated on particular agents, we are focused on new platforms. Companies are now racing to be the preferred platform for a barrage of new therapies across a wide range of categories. Another analogy might be helpful. We aren’t talking about the app on your smartphone, we are talking about the branded operating system itself. Today, almost everyone has either an Android phone, or an iPhone. Nokia, Microsoft, Motorola and Blackberry all fell by the wayside.
The three companies below are vying to be the Android operating system of mRNA therapies. All three are very early stage public companies that represent acute risks for investors. But whoever becomes the “go to” platform for this promising new class of drugs, could reap a fortune for decades to come…
1. Moderna Therapeutics ($MRNA)
Moderna has been the darling of the financial media, and the center of a whirlwind of hype. The statistics surrounding the company are impressive by any measure. The company debuted on the Nasdaq stock exchange with a market cap of $7,500,000,000, a breathtaking number for a company that is years away from revenue, let alone profit. This jumbo debut made Moderna the largest biotech IPO of all time. In 2019 $MRNA’s share price has rocketed even higher. After debuting at $17.50 per share, the name is now trading in the $27 range.
The company’s clinical statistics are no less impressive. $MRNA currently has 21 drugs in the pipeline, and 10 drugs in clinical trials across a wide range of disease states. The company’s Board of Directors and Senior Executives read like a “who’s who” of cutting edge biological science.
So, Moderna is clearly laying a powerful claim to future domination of this growing field. The thorniest problem for an investor is, “How do you value a company that has huge potential, but ONLY huge potential at the moment?”
Is Moderna’s current valuation, in excess of $9 Billion, absurd given that the company does not yet have a single revenue generating product? Or is the valuation actually cheap, given that the Total Addressable Market for Moderna’s future products is virtually unlimited? Sometimes the best investments are the results of tough judgement calls…..
2. Alnylam Pharmaceutical ($ALNY)
First, Alnylam has simply been on the public markets longer. $ALNY went public all the way back in 2004, with a similar research focus that it has today. This means that the Alnylam organization has been in the trenches of RNA drug discovery from the technology’s very inception.
Second, this much longer history means that $ALNY has an actual product that is approved for sale. ONPATTRO is an intravenous infusion mean to halt or dramatically slow hereditary ATTR amyloidosis, a rare genetic disease with devastating symptoms. Since ONPATTRO’s FDA approval in August of 2018, the medicine has gained approval from no less than 10 different insurers, and now 90% of patients who need the treatment will have access through insurance. ONPATTRO is the first approved “targeted RNA” treatment. Alnylam is still a massive cash burning machine, and initial revenue from ONPATTRO is modest. However, investors may be comforted by this critical proof of concept.
Thirdly, Alnylam has a much more focused approach to developing it’s platform. The company describes it’s zones of clinical focus:
“ …pipeline of investigational RNAi therapeutics focuses on three Strategic Therapeutic Areas (STArs): Genetic Medicines, with multiple product candidates for the treatment of rare diseases; Cardio-Metabolic Diseases, with product candidates directed toward genetically validated, liver-expressed disease targets for unmet needs in cardiovascular and metabolic diseases, and Hepatic Infectious Diseases, with product candidates designed to address the global health challenges of hepatic infectious diseases, beginning with hepatitis B and hepatitis D viral infections.”
This tri-focus strategy could be seen as management’s attempt to focus efforts towards concrete revenue streams with tangible profit potential. This approach contrasts to Moderna’s method, which is more of a “shotgun” technique. Moderna lists at least 10 clinical trials in five different therapeutic modalities. By unleashing enough ammo all at once, maybe they will hit something profitable. Alnylam is taking more of a sniper’s approach.
3. Translate Bio ($TBIO)
Toiling in the shadows of it’s more glamorous RNA cousins is Translate Bio. This team went public at around the same time as Moderna, but received none of the hype and adoration from the financial media.
Like it’s competitors, $TBIO has burned cash religiously, with operational losses intensifying dramatically for three consecutive years.
Translate Bio is a little company with a big dream: cure Cystic Fibrosis. Unlike $ALNY’s first approved offering, Translate Bio is going after a big target. According to the Cystic Fibrosis foundation, 70,000 people worldwide are living with CF; most will suffer an agonizing death by age 30.
In 2015, the FDA granted orphan drug designation for MRT 5005, Translate’s first CF drug candidate. In 2018 the company began active clinical testing in live human beings.
Although $TBIO believes that a CF cure would be just the beginning for it’s RNA platform, this small company is gunning for something that could be a transformative and lucrative product in the not too distant future. If $TBIO was able to sell it’s one time cure for $200,000 per patient, and 15,000 patients took the treatment in the US alone, that means that the company could go from $0 to $3,000,000 in revenue overnight. According to NYU’s Stern school of business, biotech companies are often valued at 10 times annual revenue, or more. So that would pencil out to a $30 Billion valuation for a Translate Bio that successfully cures Cystic Fibrosis. That would represent a roughly 8,000% return for an investor who bought shares today.
Would this kind of potential return be worth the risk to you?
Emerging RNA technologies could be just as revolutionary as the discovery of Antibiotics almost 100 years ago. Today, attempting to treat common ailments without antibiotics would be seen as stone age medicine. The same may be said for RNA medicine in just ten or fifteen years. The risks in this emerging field are many; but so are the rewards…
DISCLOSURE: The Sick Economist owns shares in $MRNA