By Gregory Zuckerman
Moderna Inc. /zigman2/quotes/205619834/composite MRNA -3.93% was launched in 2010 by Noubar Afeyan, a Lebanese-born bioengineer running a biotech-venture firm called Flagship Pioneering. He recruited Stéphane Bancel, a Harvard Business School graduate and native of Marseilles, as Moderna’s CEO. Almost immediately, Bancel felt self-imposed pressure to raise enough money so his company could develop drugs and vaccines based on messenger RNA molecules before rivals caught up. In a few short years, he raised billions of dollars in private sales of the company’s shares and Bancel had emerged as the biotech industry’s smoothest and most effective fundraiser.
But there was something about Bancel that raised concerns in parts of the biotech and investment communities. Bancel and Moderna were super-secretive, avoiding conferences and refraining from publishing in scientific journals. Bancel wasn’t a scientist, r aising some eyebrows. Some snickered that Moderna was a “VC creation.” These skeptics suggested the company was merely an effort by its founding backers, including Afeyan, to create some hype and bring the company public before exiting with big profits.
In 2015, the Wall Street Journal began a series of investigative stories raising serious questions about a highflying blood-testing startup, Theranos Inc., and its chief executive, Elizabeth Holmes. Eventually, Theranos would be exposed as a fraud.
Soon, many on Wall Street and elsewhere were on the lookout for the next Theranos. Some pointed a finger at Bancel and Moderna. Holmes and Bancel were both smooth and telegenic salespeople who had raised shocking amounts of cash, sometimes from investors with limited scientific backgrounds. They ran secretive companies. And weirdly, Holmes and Bancel both favored turtlenecks, à la Apple founder Steve Jobs. It wasn’t a good look.
Safe and effective COVID-19 vaccines are modern science’s greatest achievement. Developed in less than a year, these shots have saved hundreds of thousands of lives and averted more than 1.25 million hospitalizations. The shots, based on revolutionary, new technologies, also represent modern finance’s most important accomplishment. Companies including BioNTech SE /zigman2/quotes/214419716/composite BNTX -0.68% , based in Germany, relied on the steadfast backing of global investors as they spent years honing vaccine approaches that finally paid off in 2020 with effective shots to protect against COVID-19.
Cambridge, Mass.–based Moderna received crucial funding from venture-capital firms, sovereign wealth funds, hedge funds and individual investors as it pursued its own work with mRNA molecules in the decade leading up to 2020. The relationship between investors and Moderna was rocky, however. By the time the new coronavirus emerged in late 2019, many on Wall Street had lost patience with the company and its chief executive. The souring investor sentiment, which occurred over a number of years, raised questions about whether Moderna could raise enough money to produce vaccines to stem the pandemic.
‘I felt so bad for him’
Back in January 2017, Moderna CEO Stéphane Bancel flew to San Francisco to speak at a megaconference hosted by JPMorgan Chase, an annual gathering that serves as the healthcare industry’s Woodstock. Money, not music, was on everyone’s mind. That week, thousands of executives and investors piled into the elegant Westin St. Francis on Union Square, with others in nearby downtown hotels, many paying more than a thousand dollars a night to hear a week of pitches from top executives of the world’s drug companies about their products and plans.
Bancel hoped to convince attendees that Moderna was making headway on mRNA vaccines, but it was dealing with challenges. Expenses were piling up. Bancel knew the company would have to sell shares in an initial public offering to have a chance of producing any vaccines or drugs, so drumming up investor interest was crucial. He gave an upbeat address, describing Moderna’s first potential products.
A day later, though, a scientific publication described “troubling safety problems” associated with a treatment Moderna was developing with biotech giant Alexion Pharmaceuticals. Later that day, in a room Moderna rented in a nearby hotel so the company could host private meetings with investors, a downcast Bancel met with biotech investor Brad Loncar. It was a business conversation, but Loncar brought a beer and a bottle opener, hoping to lift Bancel’s spirits. He accepted the drink and they shared it together.
“I felt so bad for him,” Loncar says.
‘They must be targeting the Theranos investors with slides like this’
In 2018, Moderna unveiled a new factory, one that came at an enormous expense for a company nowhere near recording any profits. Research and other costs were also surging. Bancel was still finding enough investors willing to write enormous checks to cover their costs. In February 2018, he helped raise $500 million from Geneva-based Pictet Group, the sovereign wealth fund of Abu Dhabi, and New York hedge fund Viking Global Investors, among others. But many of Moderna’s newest backers weren’t health-care specialists.
By then, skepticism of Bancel and Moderna had turned into outright derision. In March 2018, the scientific publication STAT wrote that Moderna had “baffled its peers” by placing a value of $7.5 billion on itself during its most recent fundraising effort. The article shared marketing materials Moderna had used to excite the investors, some of which pointed to “billion-dollar futures” for drugs the company had only tested in mice, predictions that investors told STAT were “pretty absurd.” The article suggested that Moderna was relying on naive or inexperienced backers who didn’t know enough to question the company’s rosy promises. It unleashed a new wave of ridicule aimed at Bancel and his company.
“They must be targeting the Theranos investors with slides like this,” one person wrote on Twitter.
By the end of 2018, Moderna had become a true battleground company, with fans and foes equally adamant about its future. Some biotech investors had become exasperated with Bancel’s big talk. They remained unconvinced the mRNA molecule could consistently make it into cells and produce enough protein to be of much value. Enough mutual funds and other investors found Bancel’s pitch persuasive, enabling Moderna to sell shares during the first week of December in the largest-ever biotech IPO. By the end of the year, however, the shares had fallen 34% and Moderna was the most-shorted biotech stock in the market, meaning it was the company that bearish “short sellers” were most convinced was overpriced and overhyped. Moderna had raised $620 million in its IPO, but Bancel knew much more would be needed to keep it going until it could bring a product to market.