Kendall Square has found its newest biotech incubator. Moderna Therapeutics just had no idea it’d be the one running it.
Moderna, the high-flying, privately held startup that raised more than $400 million through a string of deals and financings over the few years without even having a drug in the clinic yet, is moving into a big new headquarters today at 320 Bent Street in Cambridge, MA. That’ll add a lot more office, lab, and manufacturing space for Moderna, a company that now has some 170 employees just over three years after its inception, and plans to add another 20 to 40 more jobs by the end of the year, according to CEO Stephane Bancel.
But more importantly, Moderna is revealing what’s been a seismic shift in its strategy over the past year. Whereas Moderna’s initial plan was to create both a messenger RNA (mRNA) platform and develop its own mRNA drugs when it started up a few years ago, it has quietly changed that focus.
Now, Moderna aims to conceptualize and manufacture those drug prospects in-house, and then hive groups of them off into individual spinout companies that will leave the Moderna nest and develop the drugs—the first example being Onkaido Therapeutics, the cancer drug spinoff created in January. This will be done through what the company is calling “Moderna Venture Incubator Laboratories,” a unit that will be set up in its new headquarters with lab and office space and a small team of scientists “whose only job is to think of crazy ideas” and test them, according to Bancel.
“Moderna will most probably never develop and sell a drug,” Bancel says.
Rather, the mRNA drugs will either be licensed out to strategic partners, or turned over to incubated startups, to do the dirty work.
If you take a look at Moderna’s website, for instance, you’ll see a group of preclinical programs for inherited genetic disorders, hemophilic and blood factors, and a separate group that is being developed as part of its alliance with the Defense Advanced Research Products Agency. All of those will be funneled into startups, Bancel says.
As Xconomy readers well know, Moderna was launched by Flagship Ventures in 2010, stayed quiet for a few years, and then burst into the limelight last year by amassing a monster war chest through a string of deals with the likes of AstraZeneca (NYSE: AZN), Alexion Pharmaceuticals (NASDAQ: ALXN), and DARPA, and closing a big private financing. All told, those moves have left Moderna with $413 million in the bank right now, Bancel says, to plow forward with its audacious plan to make injectable mRNA molecules that trigger the production of protein drugs within the body—a completely new drug modality, if it works in humans.
Moderna has been using its status as a private company to keep many of the details behind its technology close to the vest, such as how it can deliver these mRNA molecules into the body without setting off alarm bells in the immune system. And Bancel has told Xconomy previously that the company wanted to make sure to optimize its technology, rather than rush into clinical trials before it was ready.
It’s also been very quiet about what its strategy is. Sure, the deals it signed with AstraZeneca and Alexion gave it over $300 million in combined up-front cash and a whole lot of work to do—the two deals cover up to 50 potential drug programs combined, and Bancel says that eight AstraZeneca programs in cancer and cardiovascular disease are underway, with 15 more in the same two fields coming at the end of June.
But that cash has given Moderna many strategic possibilities, and ultimately, forced it to make a decision on its identity. Would it use the cash, and more partnerships, to finance its own pipeline? Or would it stay out of development, and the massive financial commitments that come with it, altogether?
Bancel says he came to a realization after the company inked the AstraZeneca partnership: Moderna would stretch itself too thin if it tried to work on both its platform and its drugs. If Bancel drove his team hard on both, both would suffer. Before the AstraZeneca deal, Moderna was “mostly” working on its platform, he says, and just had a few drug programs it was kicking around, really to establish proof of concept rather than take those forward into development. Afterwards, both efforts kicked into high gear as the pressure of living up to the AstraZeneca deal set in.
“We had a lot of tension within the company—very positive tension, not a crisis—but there was a time where we were just struggling as a team,” he says. “It was really hard on everybody to have to think about those two things that are very different, very orthogonal.”
So Bancel talked it over with the board, and decided that the best approach would be to create a venture unit, use it to start up a bunch of companies, and hire some “black belt drug developers”—people who have lived and breathed drug development—to lead them, and take some Moderna drug prospects with them when they’re ready to be tested. That, in turn, would leave Moderna free to focus on making its technology platform better, and executing on its partnerships.
“If you really want to make drugs, which we do, and if you want to be the best mRNA technology platform in the world, which we do, trying to do those with the same people is almost impossible,” he says. “Those two things are very, very different from an execution and culture standpoint.”
On one hand, this means that Moderna would never reap all the financial rewards from its mRNA drug creation work. On the other hand, it can keep focused, it won’t have to pay big money to run expensive clinical trials, and it can spread out the technology risk among its ventures. And Bancel says that the company has “a lot of means” to finance itself without, say, the full revenue stream of a big mRNA drug down the road. The AstraZeneca partnership alone has three technical milestones worth $60 million apiece that aren’t related to any of the drug programs. And AstraZeneca has options to 40 programs that each come with their own set of milestones (Alexion has 10). Moderna plans to ink more partnership deals, and could theoretically flip shares in some of its ventures for cash if necessary. The new ventures would be funded by the partnerships and financing dollars Moderna has raised.
That being said, “Moderna, just by cash flow from the drugs the partners have, can be financed for many, many years,” according to Bancel.
Bancel says the venture creation unit will work through both a “top down and bottom up” approach. Sometimes Moderna’s board will take some of the things it’s learned about the technology and feed ideas to the incubator. Other times the unit’s small team of scientists will just work through a backlog of ideas to test—and if one fails, they’ll just move on to the next one. If an idea leads to a drug prospect that proves itself in vitro, then in healthy animals, and then in diseased animals, Moderna might form a company around it, hire some people, finance it, and spin it out. Scientists coming up with those ideas could stay with Moderna, or leave with the idea if they’re intrigued. Then, once the company is ready to move out, it’ll set up shop somewhere else in Kendall Square.
Moderna’s ownership plan for each spinout will evolve over time. As of today, it’s financing these startups completely, giving them each a portfolio of intellectual property. Moderna poured $20 million into Onkaido, for instance, gave it IP to some 15 programs, and owns 100 percent of the company’s stock. And it could do a variety of things with Onkaido—assuming the company progresses, of course—such as try to bring in other investors, form a partnership, sell it, take it public, or just keep ownership. Those types of decisions are fluid, and will vary from company to company, according to Bancel.
“We’re trying to stay very nimble and not lock ourselves in any model,” he says. (Onkaido, he adds, will soon announce a new president— a “very experienced oncology drug hunter” from the West Coast who Bancel declined to identify.)
Bancel wouldn’t divulge the specifics behind the spinouts, either—how many Moderna plans to reveal, for example, or which types of diseases they’d be going after. But he did say that others aside from Onkaido have already been created—just not announced yet—and that Moderna hopes to form a few more. Each one is working on things in different practice areas, different modalities, and different routes of administration; some are developing drug prospects that would be injected just under the skin, others intravenously. Further, Moderna has committed to spending about 40 percent of the $100 million it plans to invest in its technology this year on venture creation (with the rest going into the platform). The ventures will account for the majority of Moderna’s investment dollars next year, however, Bancel says.
Of course, Moderna is still a ways away from proving itself, and showing that mRNA drugs can really work. Bancel still isn’t saying, for instance, when the first Moderna drug would enter its first human clinical trial. But Moderna has already forged one of the most unusual biotech paths: from fledgling startup to company creator in the span of just over three years, all without getting a drug into the clinic.
“There’s still a long way to go,” Bancel says. “It’s only the end of the first inning, but the first inning’s not so bad. And given the talented people we have, given we have more than $413 million in the bank as we speak, I like our chances.”
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