Scottish Mortgage: Moderna added 4.5 points in the half-year but raised its Q3 cash only by borrowing

Moderna added 4.5 points to Scottish Mortgage's performance over the half-year to 30 September, when it made up 4.3% of the trust's assets. On 6 November, Moderna's third-quarter accounts showed cash, including investments, going from $6.9bn to $8.0bn thanks to $2.6bn in net proceeds from convertible notes, without which it would have fallen by about $1.5bn (Opulion calculation). The holding, for its part, grew 2.7-fold in value (Opulion calculation), despite the manager's sales.

Why it matters for Scottish Mortgage shareholders: Moderna is the fourth-largest holding of Scottish Mortgage at 30 September, 5,559,321 shares valued at £805.3m according to the portfolio valuation published on 2 November. Over the half-year, the shares delivered a total return of 269.9% in sterling (half-year report, p. 7), and the holding grew 2.7-fold in value (Opulion calculation: 805.3 / 303.0), even though the manager cut it markedly. The report reserves the 'significant reduction' flag for sales of at least 20% of the holding's value at 31 March, or at least £60.6m here (Opulion calculation: 20% × £303.0m). The holding gained its weight through its stock market value, driven by a clinical trial (Opulion reading): the accounts of 6 November measure something else, what the company takes in and spends.

The manager's report dates the jump: in August, the shares nearly tripled in a single day, when Moderna's personalised cancer vaccine succeeded in a late-stage melanoma trial (p. 4). The same text calls the size of the position taken nearly six years ago a mistake, for what was still an early-stage biotechnology company. Over five years to 30 September, Moderna took 16.1 points off the portfolio, according to Baillie Gifford's data pack of 5 November (p. 27). Our news item of 7 November found in the same half-year report trust shares reissued at a premium, at an average 1,471p, then bought back at a discount, at an average 1,461p (Opulion calculations).

On the accounts side, Moderna's cash, including investments, went from $6.9bn at 30 June to $8.0bn at 30 September. The company attributes the rise first to $2.6bn in net proceeds from convertible notes, issued in September for about $3.0bn in principal, before related capped call purchases and fees. A convertible note is a loan that its holders could, under certain conditions, exchange for shares. Moderna also cites $950m paid for a litigation settlement and the cash used by its operations. By difference, 6.9 + 2.6 − 0.95 = $8.55bn, against $8.0bn reported, or about $0.55bn used by operations and other flows (Opulion calculation, on rounded published amounts).

For Scottish Mortgage shareholders, three tests are awaited. In early December (Opulion reading: if a valuation at 31 October came out with the same lag as the one at 30 September, published on 2 November), that valuation would give the number of Moderna shares held, after 5,559,321 at 30 September, and show whether the trimming continued. Moderna's annual accounts, on a date yet to be announced, will set its year-end cash against the range of about $8.1bn to $8.3bn. The third remains undated: the results of the lung, bladder and kidney cancer trials, which the manager says are still to come (p. 4), and on which the value of this holding for the trust chiefly depends (Opulion reading).