BioNTech (NASDAQ:BNTX), a German biotech firm developing a wide range of drugs, has released public details about its upcoming IPO. Fierce Biotech reported that the firm has filed to raise $100 million. This is a preliminary number used to calculate filing fees, and the company had been aiming at raising $800 earlier in the year. Bloomberg reported in February that advisers had suggested a value of about $5 billion.
BioNTech is often compared with American biotech firm Moderna (NASDAQ:MRNA), which after a successful six months has fallen below its pre-IPO prices. Despite that fall, Moderna is the stronger company assuming an equal valuation. But BioNTech has some positive attributes which should encourage investors at the right valuation.
The Power of mRNA
Moderna and BioNTech, along with other companies like CureVac and Translate Bio (NASDAQ:TBIO), argue that they can use mRNA to fix a wide variety of diseases. mRNA stands for messenger RNA and produces functional proteins that are involved in everything your body does.
BioNTech’s plan as detailed in its F-1 is to develop “proprietary formats and formulations of messenger ribonucleic acid” to deliver genetic information to cells. The cells can create their own proteins to fight diseases. In fact, one could inject mRNA into a cell in advance to create vaccines. These vaccines could either be safer as vaccines would no longer need to use a weakened or dead pathogen or could be used for diseases for which there is no vaccine such as cancer.
That is what BioNTech and Moderna are promising, though the reality is much more difficult. Past tests have suggested that our bodies’ immune system will attack injected mRNA. But BioNTech is surging forward, with 12 mRNA product candidates listed on their drug pipeline. Furthermore, BioNTech has three other drug classes in antibodies, engineered cell therapies, and small molecule immunomodulators. The company thus has a well-developed pipeline that is not wholly dependent on any one candidate or even a kind of treatment, though mRNA therapies is by far its biggest asset.
A potential problem with BioNTech is that its pipeline is less advanced than Moderna’s. Out of its 12 mRNA product candidates, seven of them are preclinical and only one, iNeST, is in phase 2 to treat melanoma. Moderna by contrast has 11 treatments in Phase 1 or beyond according to its website.
It is reasonable to expect some if not all of BioNTech’s mRNA product candidates to fail, as they are early in the process and mRNA is still an experimental therapy. But the company has attracted attention and partners. BioNTech states that it has “seven pharmaceutical collaborators,” which include among others Pfizer (NYSE:PFE), Bayer (OTCMKTS: BAYRY) and Genentech. Pfizer in particular struck a $425 million deal with BioNTech last year, which included a $120 million upfront payment. And according to Crunchbase, BioNTech has raised $686.2 million in three funding rounds compared to $1.8 billion for Moderna.
In summation, the early stage of BioNTech’s drug candidates is a concern. But the company is developing multiple treatments and has many collaborators which indicates that there is something here.
An unusual facet of BioNTech’s finances is that it is a clinical-stage biotech company which has a substantial and growing revenue. BioNTech reported a revenue of €51.9 million for the first six months of 2019, up from €43.4 million over the same time period in 2018.
BioNTech emphasizes that “we have not generated any revenue from the sale of pharmaceutical products.” Instead, this revenue is derived from “the sale of diagnostic products, peptides, retroviral vectors for clinical supply, and development and manufacturing services.” BioNTech also counts the funds received from its collaborators like Pfizer as part of its revenue, and said funds make up the overwhelming majority of its total revenue.
Despite its revenue BioNTech is unprofitable like most clinical-stage IPOs, reporting an operating loss of €91.7 million in the first six months of 2019 and €53.8 million for all of 2018. Research and development expenses nearly doubled in the first half of 2019 compared to the same period in 2018, which is a good thing that shows BioNTech is progressing in its research.
But while that is all good, the biggest problem for BioNTech is that it is burning through cash rapidly. BioNTech reported having €284.9 million in cash on June 30, 2019, down from €411.5 million on December 31, 2019. The result is a net cash loss of €126.6 million. BioNTech has had a positive cash flow in previous periods as it has been able to raise cash. But net cash lost in operating activities has continuously increased since 2017. As BioNTech is years away from developing its drugs, it will likely need to raise additional funds or issue stock in the future in order to keep operating.
Looking Towards the Future
Moderna has more cash on hand, has raised more money, and has drugs further along the development pipeline compared to BioNTech, so Moderna should remain the more valuable company. Moderna has a market cap of $5.64 billion, which does indicate that BioNTech should be looking for a valuation from $4 to $5 billion which is what they reportedly intend to do.
Biotech IPOs are always risky affairs, and the mRNA treatment which is BioNTech’s trump card may be a complete dead end. There are also other concerns such as BioNTech’s rapid cash burn rate as well as its treatment’s early stage. But there is still a lot to like about this company’s potential and ability to attract partners and raise cash.
If investors can get into BioNTech when its valuation is $4 billion or lower, it could be a good hold over the long term. Otherwise, it may be better to wait until the lockout period expires or for the possibility that BioNTech may issue additional stock at some point in the future.
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.