What do Moderna and Pod Shops Have in Common?
Fragmentation, Cancer Vaccines, and the Benefit of Developing Therapeutics In-House
I’ve spent some time over the last few months talking about biotech platforms, whether that’s Illumina for sequencers, Ginkgo for synthetic biology, or Dyno Therapeutics for AAV vectors that enable gene therapy. I haven’t yet, however, devoted any space to Moderna, a name that’s become familiar to many since 2020. The advantages of mRNA therapeutics are straightforward:
mRNA can code for any protein. The traditional method of designing drugs using recombinant DNA is limited to secreted proteins (proteins that exit a cell once translated from mRNA), and can’t be used to make intracellular (proteins that exist within cells) or membrane ones (proteins that exist within a cell membrane). Given that intracellular and membrane proteins make up almost two thirds of all proteins in humans, this should mean that Moderna’s TAM can be much larger than a traditional drug company’s.1 The more proteins you can code for, the more diseases you can fix!
Therapeutics that use mRNA can be spun up very quickly and in parallel with other mRNA therapeutic ideas. When Moderna went public it had 21 drug candidates in its pipeline, an unusual amount for an earlier stage biotech company!
Lessons from designing one therapeutic can be applied to another.
The manufacturing requirements for making mRNA therapeutics are similar to one another, leading to greater economies of scale than exist with more traditional medicines.
These last two reasons explain why Moderna pitches itself as primarily a platform company. Shared manufacturing requirements, as well as the broad transferability of learnings from designing one therapeutic to others, meant it made sense to build out infrastructure such that its R&D team could test therapeutic ideas as quickly as possible. Building out this infrastructure isn’t a move that makes sense for traditional drug companies; there are limited learnings that can be applied from one drug candidate to the next, and as a result the vast majority of value exists in the drugs being developed rather than in the system used to develop them.
The downsides of mRNA therapeutics are also fairly straightforward. Historically, mRNA medicines have been hampered by the immune response they tend to elicit and the difficulties associated with getting mRNA into cells. Both of these are problems, but the second one especially so.2 Translation, the process by which information present in mRNA is used to code for proteins, can only happen inside of a cell. It doesn’t matter how much you can suppress or evade an immune response if you’re unable to breach the barriers of cell membranes. Consequently, Moderna spent a lot of time working on improving LNPs (lipid nanoparticles), an mRNA delivery system. Improved LNP design has the ancillary benefit of reducing the immune response, so you can somewhat kill two birds with one stone. Unfortunately for Moderna and its competitors, there’s not one LNP that can deliver mRNA to every type of cell. Much like with AAV vectors used in gene therapy, a different LNP is required depending on the type of cells one wishes to target. The LNP used to deliver an mRNA infectious disease vaccine to muscle cells is going to be meaningfully different from one used to deliver a potential cystic fibrosis cure to cells within the lungs. Moderna divides these different delivery systems into modalities:
“Each novel delivery system is a new application, which we call a “modality.” While the programs within a modality may target diverse diseases, they share similar mRNA characteristics and manufacturing processes to achieve shared product features. We believe that the high technological correlation within a modality allows us to rapidly accelerate the expansion of programs within that modality based on learnings from the earlier programs, while the lower technology correlation between modalities allows us to compartmentalize the technology risks. Additionally, because programs within a modality pursue diverse diseases, they often have uncorrelated biology risk. Each time we add a modality and a new product candidate to our portfolio, we create a network effect because each incremental program can help us gain additional insight into the other programs in our pipeline”3
Said differently, Moderna can share the technology costs across programs within a modality, leading to a lower cost per program than traditional drug companies. In theory the failure of one program shouldn’t mean there’s a higher risk of failure for other programs within that same modality. Importantly, while the learnings from one modality most directly benefit therapeutics within it, there’s spill over into the other modalities under the Moderna roof too. There are currently six different modalities , which for the sake of brevity I won’t get too in the weeds on:
Infectious Disease Vaccines – reasonably self-explanatory. Includes what Moderna is best known for: its Covid vaccine. There are 31 programs in this modality. Four are now at the commercial stage (three Covid vaccines and one RSV vaccine). Moderna started out by focusing on infectious disease vaccines (more specifically Flu) and for good reason:
“Our early formulations of mRNA tended to stimulate the immune system, which would present a challenge to therapeutics but was a desired feature for vaccines. In addition, many potential prophylactic vaccine antigens are well-characterized, allowing us to reduce biology risk. Lastly, the dosing regimens for vaccines require as few as one or two administrations, and generally involve relatively low doses.”4
In other words, the immune response to foreign mRNA matters less when that’s exactly what you’re trying to stimulate. There are parallels to this with adenovirus vectors, which, given the immune response they typically elicit, tend to be inferior to AAVs as a delivery mechanism for gene therapies. With vaccines, however, this immune response can be an advantage.
Cancer Vaccines and Therapeutics – seven programs in this pipeline, five of which are being developed in partnership with Merck (and two of which are used in combination with Keytruda) and involve a 50-50 profit sharing agreement. All five of the programs with Merck leverage individualized neoantigen therapy (INT), which is awe-inspiring stuff. This approach to cancer treatment is highly personalized, and begins with a doctor taking samples of a patient’s tumor and blood. The tumor cells are then analyzed against a patient’s healthy blood cells to single out the mutations and flag which neoantigens (proteins that are unique to cancer cells) are likely to best activate a patient’s immune system. Once these neoantigens are identified, Moderna then creates an mRNA cancer vaccine containing the mRNA sequences that code for those same neoantigens. The vaccine is then delivered to the patient, with the hope that it will activate an immune response that can be leveraged to better recognize and fight off the patient’s cancerous cells. Three of these cancer vaccine programs are in phase 3 trials.
Rare Disease Intracellular Therapeutics – six programs in this pipeline, none of which are in phase 3 trials. As mentioned above, one of the key advantages of mRNA is it can code for any protein, including intracellular ones. This modality aims to use intracellular proteins to treat rare genetic diseases.
Intratumoral Immuno-Oncology – one program in this pipeline and it’s in a phase 1 trial. This modality aims to activate an immune system response in those with advanced stages of cancer.
Inhaled Pulmonary Therapeutics – One program in this pipeline in a phase 1 trial. Vertex and Moderna are collaborating to develop novel treatments for those with cystic fibrosis. Interestingly, the agreement announcement emphasizes that Moderna’s value here is really around figuring out a novel LNP mechanism to deliver a gene-editing therapy to lung cells.
Systemic Secreted and Cell Surface Therapeutics – One program in this pipeline in a phase 1 trial. This modality aims to use mRNA to code for secreted or membrane-associated proteins. Traditional recombinant protein methods are already used to make secreted proteins, but Moderna aims to target either particularly complex proteins or diseases where delivering multiple mRNAs at a time can be beneficial.
The tl;dr of the above is that Moderna’s infectious disease vaccine modality has been proven out commercially, and that its cancer vaccines/therapeutics modality is getting close to that stage. Of course, the company’s decision to focus on infectious disease vaccines looks incredibly prescient given what happened in 2020. There’s perhaps no better proof of a platform concept than being able to quickly pivot into developing a vaccine for a novel disease. Moderna’s Covid vaccine has given the company, and its investors, another significant advantage: billions of dollars on the balance sheet without concurrent equity dilution. One of the biggest problems biotech platforms face is the exorbitant amounts of cash required to fully build it out. This naturally makes investors uneasy: a company that’s frequently issuing more shares has to become larger than one that isn’t in order to provide the same returns.
The boon from Covid hasn’t lasted forever, and revenues have dropped significantly from a high of 18.4B in 2022 to an estimated 3-3.5B for this fiscal year. This drop was steeper than management had originally anticipated, and resulted in substantial inventory write-downs that meant the company reported a net loss in 2023. One of the downsides of guaranteed government contracts during a pandemic is that they’re not all that useful for predicting future revenue once those contracts expire! That said, the cash Moderna collected during the pandemic has allowed it to invest during a broader biotech slowdown, with its R&D spend continuing to increase YoY. There are additional revenue drivers for Moderna in the near-term, although excitement about them is somewhat muted. Its RSV vaccine for those 60 and over was approved in late May, but the company was third to market and emphasized that market share will be on the lower side this year. Moreover, ACIP (the Advisory Committee on Immunization Practices) recommended that people only receive a single dose of the vaccine, at odds with Moderna’s recommendation for once every two years. Additionally, the company recently received FDA approval for its updated Covid vaccine, and had a better phase 3 readout than Pfizer/BioNTech for its combo influenza and Covid shot. The combo shot presents an interesting opportunity, and it’s easy to see why patients would prefer a one and done winter shot regimen rather than two separate ones. But it’s a little hard to get excited about Moderna if it’s primarily an infectious disease vaccine business operating in competitive spaces, where earnings call questions center primarily around how frequently the RSV shot will be required and the company’s efforts to improve marketing. Things get much more compelling if its cancer vaccine/therapeutics or rare disease pipeline succeeds.
What really makes Moderna fascinating is that it’s a biotech platform that has some real advantages compared to alternative instantiations. Because it develops most of its therapeutics in-house, the company doesn’t have to haggle over IP re-use rights, which means there’s a genuine data network effect at play. The more programs Moderna runs, the better it gets at understanding mRNA medicines, the more likely it is to develop other medicines that will succeed. Developing therapeutics in-house also means the company is able to act like a pod shop. When a particular modality is proving especially fruitful, it’s easy to direct additional capital towards that modality and scale-up the number of programs. This is exactly what Moderna is doing with its cancer vaccine/therapeutics segment; given that three INT trials are now in phase III, management and Merck plan to begin new studies for additional tumor types. Equally, when a modality isn’t performing as hoped it’s straightforward to take funding from that segment and direct it towards more promising ventures. Developing therapeutics themselves gives Moderna a control over its future that I’m not sure other biotech platforms have. What Dyno is doing is undoubtedly very exciting, but if Roche decides it doesn’t want them working with any other companies that are trying to target the CNS or liver I’m not sure how much management can do.
The final point I’ll make on Moderna is the value management puts on integration over fragmentation:
“We integrate across the most critical parts of our value chain. mRNA is a complex multicomponent system and we believe it demands integration. We believe that we must be directly engaged in research, drug discovery, drug development, process and analytical development, and manufacturing to accelerate our learning, reduce our risk, and protect our critical know-how. Where appropriate, we seek out strategic collaborators that can augment our capabilities or expand our capacity in specific therapeutic areas, while being careful to resist the fragmentation of our core technology.”5
This emphasis on integration goes against the thesis some VCs have that biotech will become increasingly modular. I’m not sure I have an opinion on this either way, but, as I mentioned in my work on Dyno, it’s at least quite interesting that Moderna develops its LNPs in-house, an approach that wasn’t taken by Pfizer/BioNTech for their Covid vaccine. It’s equally interesting that BioNTech is using an internally developed LNP for its well-publicized lung cancer vaccine that just initiated phase 1 trials. This may suggest that, at least in the case of mRNA therapeutics, there’s some value created by working on both the therapeutic itself and the delivery mechanism that makes modularization an inferior option.
Disclaimer: The information in this post is not intended to be and does not constitute investment or financial advice. You should not make any decision based on the information presented without conducting independent due diligence.
There’s the third problem of off-target effects, where an mRNA therapeutic intended for liver cells ends up also translated into a protein within say muscle or neuronal cells. This same issue is present in gene therapies.
2023 Annual Report, Pg 11
Ibid, Pg 122