The race for a Covid-19 vaccine isn’t over, but its first leg has finally ended. And the pharmaceutical industry hasn’t delivered just one winner: Against all odds, it’s a tie.
On Dec. 18, Moderna became the second company to have its Covid-19 vaccine receive emergency use authorization (pdf) in the US. The US Food and Drug Administration (FDA) gave it the green light a little over a week after it authorized Pfizer and BioNTech’s Covid-19 vaccine. Britain and Canada have also authorized the Pfizer/BioNTech jab, while the European Union did so on Dec. 21, signaling the beginning of the end of the Covid-19 pandemic, as these rich developed nations take on the Herculean task of vaccinating more than 800 million people.
These companies have produced vaccines with extremely high efficacy in clinical trials using the same revolutionary platform: messenger RNA, or mRNA for short, which can deliver instructions to cells to make their own target proteins for antibodies. This type of vaccine has never been deployed before—let alone on an expedited timeline. Their authorization ushers in a new era of pharmaceuticals as companies capitalize on medicines made with nucleic acids and specialized delivery systems.
How this new era of drug companies will run, however, is anyone’s guess. BioNTech and Moderna are both innovative and important players in the mRNA space, but their paths to financing, developing, and distributing their Covid-19 vaccines look different. While the former chose to partner with pharma giant Pfizer to ensure large-scale distribution of its vaccine, the latter chose to largely go it alone.
Together, they represent two possible paths forward as the pharmaceutical industry enters a new era of medicine. Luckily, for a world still fighting an uphill battle against Covid-19, their success is not mutually exclusive.
The evolution of an industry
From the 1700s to the early 1900s, what we know now as the giants of the pharmaceutical industry were mostly chemists who manufactured and sold substances found in nature—cocaine, penicillin—that were considered to have therapeutic properties.
After World War II, the US and European economies boomed and scientific and technological progress accelerated, leading to the emergence of what Matthew Gline calls “intentional biophysical chemistry.” Chemists figured out how to synthesize small molecules to interact with certain proteins in the human body. “A protein is a big thing,” says Gline, chief financial officer at Roivant Sciences, a pharmaceutical company based in New York. “Picture something the size of an airplane. What they got good at doing was synthesizing very small drugs, something the size of an airplane door, that was designed to in some way inhibit the function of the airplane.”
It was pretty hard to break in because you were competing with these giant labs.
During this time, Big Pharma—companies like Merck, Pfizer, Roche, and Eli Lilly—functioned a little bit like Big Tech does today, Gline says. In this “small molecule model,” he says, “it was pretty hard to break in because you were competing with these giant labs.”
But that competitive dynamic started to shift in the 1980s. High prices inspired an explosion of generics and the passage of legislation such as the 1984 Hatch-Waxman Act in the US, which encouraged companies to produce cheaper drugs.
While generics were good for consumers, they were terrible for pharmaceutical companies’ profit margins. These firms spend millions of dollars on research, development, and marketing, only to lose over 80% of their market share within 12 months of a generic’s development. Joanna Shepherd, vice dean of Emory University School of Law, writes that generics were one of the factors (pdf, p. 4) that upended the economic environment for pharmaceutical companies over the past four decades, along with rising R&D costs, commercial risk, and clout among pharmacy benefit managers.
With lower prices and higher costs, more companies started exploring mergers.
A new scientific age
At the same time, advances in genetic engineering between the 1970s and 1990s led to the birth of modern biotech. The first giant in the field, Genentech, launched in 1976. Thanks to technology that “democratized innovation,” says Gline, “there’s been an explosion of therapeutic modalities,” from monoclonal antibodies to nucleic acids like mRNA.
The smaller companies became, the smaller their target patient populations could be. While the giants focused their energy on manufacturing high-earning drugs for common conditions like high cholesterol or asthma, smaller biopharmaceutical startups were able to carve out a niche targeting “diseases where the patient populations are smaller, they are much sicker, and the number of physicians who can treat these diseases is much smaller,” explains Gline, whose company Roivant licenses new drugs that address these less common conditions.
Today, biotech and small pharmaceutical companies account for the vast majority of new molecules approved by the FDA. But even if the science and technology were there, the money wasn’t always easy to wrangle.
Biotech companies could try to capitalize on the boom in venture capital funding for biotech in the 1990s and early 2000s. More often, though, they found themselves needing to partner with Big Pharma to bring drugs to market. More than 70% of new drugs “are originally developed externally,” writes Shepherd, “and later obtained by a pharmaceutical company.” Biotech firms could license their drug to a bigger firm, co-develop it with them, offer them equity in exchange for funding and support through joint ventures, merge with them—or wait for the day they got acquired.
On paper, these kinds of partnerships benefit both sides. Big companies have more cash on hand to fund expensive research, more experience bringing drugs to market, and better marketing capabilities. And although not all partnerships are the same, Big Pharma can often take on the financial risks of the drug (in exchange for a substantial share of future profits).
But some small biotech firms prefer to take their chances. By relying on VC or private equity investment, they could stand to keep more of the eventual profit (and all the credit) to themselves. Enter Moderna and BioNTech, two of the most promising startups in the mRNA space.
A tale of two startups
Moderna prides itself on being the disruptor of the mRNA industry, although the credit for the science goes to Hungarian biochemist Katalin Karikó and her long-time research partner Drew Weisman. They built on existing animal research to invent a way for mRNA to enter the body without triggering its immune response, which eventually led to BioNTech’s Covid-19 vaccine. (Karikó is now a senior vice president at BioNTech.)
Molecular biologist Derrick Rossi saw the potential of this research, too, and built upon it as assistant professor at Harvard Medical School in 2007. His work on mRNA and stem cells attracted the attention of Robert Langer, a renowned chemical engineer and professor at the Massachusetts Institute of Technology, and later Noubar Afeyan, CEO of the venture capital firm Flagship Pioneering. In 2010, they formed Moderna in a model of a VC-funded biotech company that was very much consistent with the industry at the time. (The relationship between the co-founders is contentious, and Rossi left Moderna in 2014, accusing Langer and Afeyan of “propagating a condescending myth that he didn’t understand his discovery’s full potential until they pointed it out to him,” according to the Boston Globe.)
Before things turned sour, Moderna hired Stéphane Bancel, a French chemical engineer and businessman, as CEO. By the following year the company had raised $40 million in financing from Flagship and other investors off of an unpublished proof-of-concept study conducted on animals. It raised millions more after that, in what one venture capitalist described to STAT as “biotech fervor to the extreme.”
When Moderna went public in 2018, it had the biggest biotech IPO to date, raising more than $600 million before bringing a single drug to market. Back then it was valued at about $7.5 billion. By July of this year, it was worth $37 billion, in a valuation JPMorgan said was “way too high.” Today, it’s worth $50 billion.
Where Moderna’s valuation may be inflated, BioNTech perhaps suffers from the opposite problem: When it went public last year, it underperformed and was valued at $3.4 billion. Now, it’s worth around $25 billion. By industry standards, it’s still tiny; last year, it made a profit of only €91 million ($111.4 million).
Based in Germany, BioNTech was formed two years before Moderna. Turkish scientists (and spouses) Uğur Şahin and Özlem Türeci created it in 2008, with the goal of developing mRNA platforms for cancer therapeutics. Prior to its IPO, BioNTech wasn’t profitable, and survived thanks to its majority owners and billionaire brothers Thomas and Andreas Struengmann. But it made money through partnerships with Genentech, Eli Lilly, and Sanofi, among others, and later raised multiple successful rounds of funding from investors like Fidelity and MiraeAsset Financial Group.
BioNTech chose the more risk-averse approach of working with the industry’s big players. In 2018, the company partnered with Pfizer to try to make a universal flu vaccine using mRNA. The startup was still relatively under the radar without a product on the market. But that was about to change.
Nucleic acids take center stage
In January, Şahin read an article in the medical journal Lancet about the novel coronavirus spreading in Wuhan, China, and he knew that BioNTech could do something about it. But while his company had the science covered, it was too small to manufacture and distribute a vaccine alone. So, once again, Şahin called up Pfizer.
When it comes to the Covid-19 vaccine, the science comes from BioNTech and the “muscle” from Pfizer, said a biotech executive who preferred not to be named. In March, the two companies announced that they’d be collaborating: Broadly, BioNTech would develop the vaccine, and Pfizer would handle the clinical trials, regulatory authorizations, manufacturing, and global distribution through an in-license agreement. “BioNTech was just not quite ready to do that, especially the US, on their own,” the biotech executive said. (In China, BioNTech has partnered instead with Fosun Pharmaceuticals to carry out the same processes.)
I still think most pharma companies dream of becoming the next Pfizer.
By now you probably know the basics. BioNTech’s Covid-19 vaccine are built out of tiny fat globules, called lipid nanoparticles, that contain mRNA. This mRNA uses our own cell’s machinery to produce the spike protein on the SARS-CoV-2 virus. The presence of this protein, which is benign, triggers immune cells to construct protective antibodies against it. When the real SARS-CoV-2 shows up, our bodies are ready to crush it.
Moderna’s vaccine, by most counts, works the same way. Where the companies diverge is in their funding approach.
It’s not that BioNTech’s choice to partner with Pfizer is unique; Moderna has partnered with big-name brands like Merck, and a $240 million deal with AstraZeneca cemented Moderna’s reputation early on. Like BioNTech, Moderna hadn’t brought a product to market before the pandemic. But for its Covid-19 vaccine, Moderna decided to go it alone—or at least, as alone as one can be with billions in government funding and the eyes of the world on you.
By the time Covid-19 came along, Moderna’s focus had shifted from therapeutics to vaccines, because it realized that repeated doses of mRNA were causing bad side effects. Last December, it held 215 patents and was running 15 phase 1 and five phase 2 clinical trials, working on vaccines for HPV, Zika, CMV, and the flu among others—all of which use mRNA.
So when Covid-19 hit, Moderna didn’t have to make a huge pivot. It had everything but the SARS-CoV-2 spike protein genetic sequence in place—and it had a previously existing contract with the US government.
In fact, the US supported Moderna’s Covid-19 vaccine every step of the way. The National Institute of Allergy and Infectious Diseases (NIAID) conducted the vaccine’s initial tests and both it and the Biomedical Advanced Research and Development Authority (BARDA) funded its phase 2 and 3 trials. These agencies then financed the late-stage clinical development and large-scale manufacturing of Moderna’s vaccine, to the tune of $4.1 billion overall, in exchange for 200 million doses and the option to buy up to 300 million more.
Government funding from Operation Warp Speed, as the campaign to develop a Covid-19 vaccine in the US was called, essentially allowed Moderna to absorb the financial risks of failed clinical trials. Pfizer received $1.95 billion up front from Operation Warp Speed for pre-orders of 100 million doses, but unlike Moderna and others, it didn’t take any government funding for R&D. BioNTech received funding from the German government and a loan from the European Union.
Whether it’s backing from governments, academic institutions, private equity, VC, or Big Pharma, small biotech firms are never truly on their own.
The end game
In spite of all the differences in the two companies’ Covid-19 plans, they ultimately delivered two remarkably similar vaccines. They aren’t exactly the same, but their differences are likely minute, says Weissman, the mRNA pioneer and professor of medicine at the University of Pennsylvania. “The RNAs differ in the surrounding structures,” he explains. This means that the differences in vaccines likely come down to regions of the mRNA that don’t code for actual protein, but tell cells how much of it to make, and for how long.
And now, having taken two paths to complete vaccine development, they’re confronting the same logistical challenges—namely, how to quickly sell, ship, and distribute millions of vaccines around the world. The Pfizer/BioNTech jab faces an additional logistical hurdle in that it needs to be stored at -70° Celsius (-94° Fahrenheit) and few healthcare facilities have such cold freezers, while the Moderna vaccine is more nimble.
There are also challenges around pricing. Moderna and Pfizer/BioNTech have faced criticism for planning to make a profit off the sales of their vaccine, even though competitors like AstraZeneca and Johnson & Johnson have pledged to sell theirs at cost. Pfizer is offering three-tiered pricing depending; rich countries will pay the most, while poor countries will pay for the vaccine at cost. In the US, that translates to $19.50 per dose. “It’s like a meal—an average meal,” said Albert Bourla, the chairman and chief executive officer of Pfizer in a Dec. 8 press conference with the International Federation of Pharmaceutical Manufacturers and Associations. The process for determining exactly how much each country pays is a black box, however. European countries are paying $14.76 for each dose of Pfizer’s vaccine, perhaps because of lower shipping and subsidized development costs. (Neither Pfizer nor Moderna returned ’ request for comment.)
When we look back on this moment years from now, we might see the successes and failures of these companies (and those of their peers that will soon follow) as harbingers of larger trends in the industry. Scientifically, personalized medicine has been the promise of the future for over a decade. It started with the idea that medicine could be tailored to a person’s unique genetic code, and has evolved into the idea that it’s possible to target a person’s unique liver, or kidney.
Big legacy drug companies have a leg up in a lot of ways. But newer companies have the advantage of being hyper-focused on single types of platforms that could have myriad uses. Without the established fleets of bench scientists, financial resources, and brand-name recognition of legacy companies, it’ll be harder for them to get off the ground—but not impossible.
“I still think most pharma companies dream of becoming the next Pfizer,” says Gline, in terms of carrying out every stage of drug development and distribution in-house. It’s just not always practical for them to do so.