Stealth Mode is the New Sweet Spot for Some Biotechs


Xconomy National — 

This post was co-authored by Sultan Meghji.

In biotech’s early days, telling a story to a wide audience used to be part of the path to success. Founders would share a compelling early narrative to potential investors, reporters, and just about anyone else who would listen. Nature papers were the coin of the realm.

But far from shouting to the rooftops, lately it seems that more and more biotechs are pursuing a different approach. Instead of keeping their technology under wraps until a first financing happens, these companies go into what we call “permanent stealth mode.” The principle here seems to be, “say no more publicly than necessary, and even then, keep it vague.” Meantime, let your actions speak for you: Raise money. Sign partnerships with pharmaceutical companies. And then, seemingly out of nowhere, hand consumers and investors a finished product or service.

In this post, we’ll share some examples of three “deep stealth” life sciences companies that chose to stay on the stealthy side well beyond the timeframe of a typical startup: Moderna Therapeutics, Kadmon, and Theranos. The first two are developing novel therapeutics, and the third is a consumer diagnostics company. We will share what little we can find out about them; offer some analysis about what has motivated the companies to stay stealthy; and ask whether they represent the beginning of a trend and, if so, what that implies for the industry.

Moderna Therapeutics

In less than four years, Moderna has raised over $400 million. It has built a platform around RNA to trigger the production of protein drugs inside the bodies of patients, thus turning the body into a protein factory. We noted back in 2012 that Moderna’s approach turns the traditional dogma of biotech on its head: instead of manipulating the DNA in the lab and then producing proteins in cells or bacteria, then selling these proteins to the patient, Moderna instead takes messenger RNA, does some fancy chemical tricks to it, and puts it into the body as RNA, letting the body’s own protein production machinery do the rest. We also noted that the company had chosen not to publish anything, even in scientific journals, leaving open the question of how the RNA would be stabilized and delivered (RNA in its native form is notoriously unstable and subject to destruction by ubiquitous enzymes), and leaving the rest of us to wonder what the platform could really do and how it does it.

Then came a news bulletin: In 2013, Moderna struck a validating deal with AstraZeneca that included an unusually rich up-front payment: $240 million plus an additional $180 million in potential milestone payments. Yet even as of today, the company has put out just a single publication.


Kadmon, founded by Sam Waksal in 2009, has grown much larger than a typical privately-held company ever does. Waksal is known both for founding ImClone Systems in 1984 and for being convicted of securities fraud in 2003. Waksal’s work with ImClone eventually led to the approval and marketing of cetuximab (Erbitux), an early and influential targeted oncology therapy. ImClone was acquired by Eli Lilly in 2008 for $6.5 billion.

Kadmon, which has been built mostly around acquisitions of later-stage technologies, is not completely in stealth mode. It does have a website that lists its clinical pipeline in some detail. Initially focused on oncology, liver disease, and metabolic and cardiovascular disease, it now sells the hepatitis C drug ribavirin. All of these pipeline products have been brought in by acquisition, beginning with the buyout of Three Rivers Pharmaceuticals for more than $100 million in 2010, according to the Wall Street Journal. That company had products on the market at the time of acquisition, especially in hepatitis C. Bloomberg reported that Kadmon had reached $25 million in annual revenue by 2012 and was targeting $40 million to $60 million in 2013. Interviewed by Maria Bartiromo on CNBC in January 2011, Waksal described a new paradigm for building a biotech company with a commercial arm that could serve as a “cash generating machine” so that “we don’t have to go to the [financial] markets to constantly raise money for drug development.”

The corollary to that is that, if it is funded by revenues, the company’s very exciting research does not have to be disclosed, even to venture capitalists and especially not to the public, in the context of fund-raising. At investor conferences, the company has described some fascinating RNA-targeting technology that could represent a new generation for gene therapy. Waksal told Bloomberg in 2013 that Kadmon was considering spinning out both a … Next Page »

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Steve Dickman is a former venture capitalist and the CEO of boutique consulting firm CBT Advisors as well as the author of the blog Boston Biotech Watch. Follow @

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5 responses to “Stealth Mode is the New Sweet Spot for Some Biotechs”

  1. bubbles says:

    Great article! Finally asking all of the right questions.

  2. Stewart LymanStewart Lyman says:

    One needs to keep in mind that stealth mode may be good for companies, but I have serious doubts about the value to the scientists at those companies. Imagine if the company gets bought out, or they let go of the scientists so that they can redirect their spending on clinical trials (this happens all the time). Now you’re an unemployed scientist looking for a job, and potential employers are going to ask what you did at your former company. It may be difficult convincing them of your stellar contributions without any published papers to back you up. Investors, too, might want to know that the work was peer reviewed. I’ve seen many company presentations where their scientific claims simply could not be backed up by the data that (eventually) gets presented. Deals don’t validate the science; they merely represent a bet that a company is making on the technology. One can find many examples of deals where acquiring companies paid big money, only to walk away and write off the investment when it doesn’t pan out. Good deal for the VC’s who may have invested early and then got out, but bad news for just about everybody else including patients and the acquiring company’s shareholders.

  3. Amarshall says:

    Perhaps the increasing secrecy is an indication that the benefits of publication (external, independent validation of scientific rigor) are overshadowed by the risks of disclosure of the details of a line of research, particularly when so many companies are looking earlier into preclincial R&D and catching up projects in early R&D is so much easier. One can at least glean something about the science in these companies by looking at the SAB and seeing where and what they have published. For example, Ken Chien has published on technology that seems relevant to Moderna, even if there was no Moderna affiliation on the paper!

  4. JesseJames says:

    I believe that Ken Chien is one of the founders of Moderna. That paper came out over 1 year ago and not too many people are using the technology. Moderna has not published any of its work or even celebrated any of its granted patents…. just saying.

  5. Beverly says:

    Moderna was reported to have some recent C-suite departures for unclear reasons: