Talk Your Book: Investing in mRNA

Episode Summary

Executive Summary: The episode centers on Direction’s new mRNA ETF and why mRNA has shifted from a misunderstood, underfunded biotech concept to a validated platform after COVID-19. Michael, Ben, and Dave Mazza discuss the science, the narrow investable universe, biotech valuation swings, and why the ETF is designed as a concentrated satellite holding rather than a core portfolio allocation.

Main Topics: mRNA as a validated biotech platform (Priority: 5/5): The conversation explains how COVID-19 served as the proof point that mRNA can be used effectively as a vaccine and potentially for many other diseases, after years of skepticism from investors and scientists. Direction’s mRNA ETF structure (Priority: 5/5): Dave Mazza outlines why Direction created a targeted ETF with 21 holdings, excluding mega-cap names like Pfizer unless they are materially involved in mRNA revenue or development. Biotech’s binary risk and valuation volatility (Priority: 4/5): The hosts and guest discuss how biotech can resemble lottery tickets or call options, with huge upside potential but significant regulatory and clinical failure risk, especially for small caps. Market drawdown and macro pressure on biotech (Priority: 4/5): The segment covers the sharp pullback in biotech after 2020, noting that soaring growth valuations gave way to rate hikes, inflation concerns, and a broad rotation away from hyper-growth names. Future applications beyond COVID vaccines (Priority: 4/5): The interview explores potential uses for mRNA in flu/COVID combination shots, HIV/AIDS, Lyme disease, and cancers, emphasizing the platform’s adaptability and long-term commercial promise. Who uses thematic ETFs and how (Priority: 3/5): Mazza argues these products are mainly for retail investors and advisors as satellite positions, benefiting from ETF diversification but not meant to be large portfolio holdings.

Key Arguments: COVID-19 proved that mRNA is not just theoretically sound but commercially and medically effective, unlocking broader funding and interest. The investable mRNA universe is still small and concentrated, which justifies a narrow ETF rather than a broad biotech fund. Pfizer was excluded because it is a mega-cap pharma company whose COVID vaccine revenue is too modest relative to its total business to be considered a meaningful mRNA play. Biotech investing remains highly binary because clinical, regulatory, and financing outcomes can swing dramatically on trial results and approvals. Small and micro-cap biotech names can offer upside but also reflect higher risk, making diversification within the theme valuable. The surge in biotech and thematic investing in 2020 was partly excess enthusiasm, and the 2021-2022 reset created a more selective opportunity set. The most likely near-term catalyst for the sector is continued funding and clinical progress in adjacent indications such as HIV, Lyme disease, and oncology.

Data Points: Moderna valuation in 2018: $7.5 billion - Stat article cited by the hosts describing skepticism toward Moderna before COVID-19 Total capital raised by Moderna: $2.7 billion - Mentioned while discussing how much funding supported the company before its COVID success DARPA grant: $24 million - Grant received by Moderna in 2013, cited as early support for mRNA research AstraZeneca investment: $474 million - Referenced as an investment into the mRNA-related ecosystem Number of ETF holdings: 21 names - Current size of Direction’s mRNA ETF portfolio Pfizer revenue exposure to COVID-19 vaccine: Relatively modest - Reason given for Pfizer’s exclusion from the ETF Revenue threshold for inclusion: At least 50% of revenue - General threshold for companies materially involved in RNA or sister RNA technologies Moderna market cap: $66 billion - Used to illustrate the wide range of company sizes in the ETF Micro-cap exposure: Some companies around $100 million market cap - Shows the fund includes very small, early-stage biotech names Biotech ETF launch reference: Since 2006 - A legacy biotech ETF was cited as having its deepest drawdown ever

Pivotal Quotes: "it will never work" — unnamed hedge fund CIO (quoted from a conference anecdote): Used to illustrate how dismissed mRNA technology was before its COVID breakthrough "this technology could work" — Michael Batnick: Summarizing the original skepticism versus the eventual real-world validation of mRNA "think about biotechs as call options or think about them as, in some cases, particularly early stage ones as lottery tickets" — Dave Mazza: Describing the high-risk, high-reward nature of biotech investing

Implications: mRNA is moving from experimental science to a real investable theme, but the opportunity remains narrow and risky. For investors, the ETF offers targeted exposure to a potentially transformative platform while reminding them to treat it as a small satellite position, not a core holding.