Blackstone to provide Moderna USD 750M for influenza research

Lending to a company is fine; taking a piece of its most promising investments is better. With higher costs of capital making spending decisions tougher for chief executives and buyout firms simultaneously struggling to invest stockpiles of cash, the deal, opens new tab between Blackstone, opens new tab and Moderna (MRNA.O), opens new tab unveiled on Wednesday offers a crafty cure. The hard end of such bargains: surrendering value from potentially lucrative developments.

Big money managers like Blackstone have amassed a combined $3.7 trillion, according, opens new tab to consultancy McKinsey, but a prolonged deal slump indicates how hard it is to put the funds to work. The firm led by Steve Schwarzman, for example, deployed 39% less last year than it did in 2022. Corporate bosses face the opposite problem. It’s expensive to borrow, and equity markets have been equally inhospitable for drugmakers with lottery-ticket business models.

Add the dwindling demand for Covid-19 vaccines and the pressure is mounting for Moderna. The $42 billion company led by Stéphane Bancel lost, opens new tab $4.7 billion in 2023, as revenue plummeted 64% from the previous year. Its mRNA technology holds promise for novel vaccines, but they’re all works in progress. Research is the biggest operating expense, projected to hit $4.5 billion this year.

In that context, the arrangement with Blackstone is a clever one. Slashing too much from the drug development budget would have been self-defeating. Instead, accepting up to a $750 million cash injection from the private equity firm’s life sciences unit will defray the cost of flu-fighting projects. In return, Blackstone gets payments linked to certain milestones and “low-single-digit” royalties on revenue.

Take the rule of thumb that biotechnology products sell for 5 times peak annual sales and assume Blackstone’s cut is 3%. Divide the $750 million by five and again by the estimated royalty rate and the agreement implies an expected $5 billion ceiling, although the undisclosed milestone figures also will affect the math. Cowen analysts estimate only $1.5 billion of sales for Moderna’s mRNA-1010 flu vaccine candidate, but the company is also pursuing combination respiratory treatments. All told, it anticipates, opens new tab the portfolio could collectively generate as much as $15 billion in 2027.

Securing part of that upside, rather than backing the entire publicly traded company, makes sense. Other industries are also adopting similar playbooks. Brookfield, for example, signed a $30 billion deal, opens new tab with Intel, opens new tab to finance the chipmaker’s new fabrication facility, with downside risk protected. Some financial health decisions are do-or-die, too.

Context news
The life sciences unit at investment firm Blackstone said on March 27 that it had agreed to provide mRNA vaccine maker Moderna with up to $750 million in funding to help the development of its influenza research.

Under terms of the agreement, Blackstone will receive milestone payments and royalties in the “low single digits” if the program is successful. Reuters