Pharmaceutical giant Moderna - widely known for its successful Covid-19 vaccine - has captured the attention of many investors as the prospect of Covid-19 booster shots becomes more likely.
Markets are starting to digest the opportunity that the NASDAQ-listed biotech company has in proving to the world that its messenger RNA technology could work for more than just a Covid-19 vaccine.
Since the company’s initial public offering (IPO) in 2018, its share price has gone up more than 20-fold, and it has more than tripled in just a few months - a rapid acceleration of growth that is somewhat reminiscent of Tesla’s rally in 2020.
Yet in December of 2020, despite a more than 500% rally in Moderna’s share price, Baillie Gifford’s flagship £19bn Scottish Mortgage Investment Trust, took a bold bet and purchased almost £1bn worth of shares.
Moderna share price since IPO
Source: Google Finance
By the end of March 2021, the company’s stake was down 22%, but the trust withstood the initial volatility, and the stock has almost tripled in value since.
Explaining the investment rationale, manager Tom Slater told investors that he thinks Modern’s RNA technology’s potential is far wider than just the Covid-19 vaccine.
“Moderna bears resemblance to a software company,” he said. “It writes RNA code to programme human cells and enjoys an attendant scalability in its business model. Its success with coronavirus helps to de-risk other drugs in its vaccine pipeline.”
He added: “The company is seeking to address a much broader swathe of diseases and its transition from a clinical to a commercial-stage company improves the odds of success.”
But Scottish Mortgage was not the first fund at Baillie Gifford to have invested in Moderna. The £3bn Baillie Gifford Positive Change fund, invested in Moderna at IPO in 2018.
This investment came after the firm spent two years getting to know the company whilst it was still private.
Catherine Flockhart, director of the Positive Change fund praised the innovative nature of the company by noting how it set up a rapid response team and became the first company to start trialling a vaccine just 42 days after the coronavirus genome was first sequenced.
“Moderna’s heavy investment in research and development, and its ability to harness new tools such as cloud computing and machine learning, have enabled this unprecedented speed and we believe the company’s technology could be used to treat a wide range of conditions in future,” she said.
“Moderna is a great example of the types of companies we look to invest in – it is run with purpose and we believe will have superior growth opportunities as a result of providing solutions to major global challenges.”
The Baillie Gifford Health Innovation Strategy, the recently launched UK open-ended investment company (OEIC) equivalent of the Baillie Gifford Worldwide Health Innovation fund, was another to invest in Moderna at IPO back in 2018.
Julia Angeles, a portfolio manager of the fund, said Moderna was one of “the most important and exciting companies in the world.”
“Never in history has any company been able to develop a vaccine ready for human testing in just 42 days from receiving the genetic blueprint of a virus, a process that usually takes years with traditional technologies,” she said.
“It was precisely Moderna’s bold vision of building a different type of biotech based on an entirely novel technology platform capable of producing dozens of drugs over the years in a highly efficient and automated manner that caught our attention.”
She pointed out that several big pharmaceutical companies gave up on trying to deliver messenger RNA into human cells in the early years, but Moderna persevered and invested more than $500m (£360m) to advance its technology.
“That was a testament to the team’s ambition and commitment to patients,” she continued. “This approach requires a lot of capital and patience from both management and shareholders; however, the outcome can be astounding.
“Not only is Moderna leading the race to develop vaccines against Covid-19, its 20 other drug programmes, spanning across a host of different diseases, also offer potential to bring substantial benefits to patients.”
Moderna’s recent share price rally has caused it to swell up to almost 10% of the portfolios for both the Baillie Gifford Health Innovation fund and the Baillie Gifford Positive Change fund.
Yet despite Moderna’s recent stellar rally, Baillie Gifford appears to be still one of the few who are still heavily backing the company.
According to data from FE Analytics, out of the 4,833 funds in the entire UK’s Investment Association universe, just nine funds have Moderna in the top-10, four of which are run by Baillie Gifford.
When it comes to investment trusts, in the AIC’s Investment Companies universe of 490 closed-ended funds, FE Analytics data shows that only three hold Moderna in the top-10.
Unsurprisingly, all three are Baillie Gifford funds: Scottish Mortgage Investment Trust (which has 5.6% of the portfolio invested), Keystone Positive Change Investment Trust (9%) and Baillie Gifford US Growth Trust (3.7%).
A Baillie Gifford spokesperson said Moderna was one of the most exciting companies in the Baillie Gifford portfolios, and conviction remains strong but that funds may need to sell if its share price rises quickly.
To comply with rules that limit the size of an individual holding, funds must trim positions if they are more than 10% of the total value of the portfolio.