Vaccines and the inverted capital dilemma
By Peter Kolchinsky
Peter Kolchinsky is a founder and Managing Partner at RA Capital Management and author of The Great American Drug Deal.
Original image courtesy PA Gov Tom Wolf (via Flickr).
October 20, 2021
The vaccine business has long been a quiet and profitable game of kings. Prevnar, a shot that prevents pneumococcal infections, is a Pfizer blockbuster. Sanofi, GSK, and Merck rack up billions from pediatric vaccines, flu shots, and vaccines that prevent shingles and HPV-related cancers. These are all huge and important products.
Those small companies that did venture into this land of giants encountered challenges that made it hard to raise money. Vaccine development timelines took forever and biologic manufacturing is expensive. Clinical studies had to be massive to show a benefit and rule out even slight, hypothetical risks. Regulators were notoriously conservative. There was little chance for a nascent company to get much traction or recognition.
I can count on one hand the number of times that my team was able to justify an investment in a vaccine company during the 18-year period from when I began my career as a biotech investor until Covid hit.
Novavax inspired us to believe in the value of their RSV vaccine (it later failed). We believed Dynavax could develop a two-shot hepatitis B vaccine to dethrone Merck and GSK’s three-shot market-leading vaccines (Dynavax eventually came to market but struggled to compete). We invested in a patch-delivery company that failed. We invested in Moderna when it was still private, and it did deliver on its promise of making a novel vaccine more quickly than standard technologies (though pandemic preparedness was a secondary hypothetical aspect of our thesis, not the primary driver). Not long before Covid hit, we invested in Vaxcyte believing their pneumococcal vaccine would be best-in-class (that one’s still playing out).
That’s five pre-Covid vaccine investments over 18 years if my memory serves me well. One hand.
But Covid changed everything by flooding a fairly barren landscape with capital. And that has revealed some valuable lessons for investors, company builders, Congress, and the public. Key among them is this inverted capital dilemma. Usually we think of progress being limited by financial capital. But workers are human capital and, in the vaccine field, money is now plentiful but we don’t have enough trained workers. And those we have don’t have much experience with startup culture. It’s like stepping hard on an engine in high gear from a standstill – it’s slow to move.
The pandemic-induced migration
If a large financing doesn’t translate into a high-quality hiring spree, an early-stage company risks under-delivering on the promises that allowed it to raise that money in the first place. Even a six-month lag between money and people can frustrate progress or drive a company too fast in the wrong direction, maybe by engaging the wrong vendors and failing to catch mistakes that contract manufacturers can make when an inexperienced client simply trusts them to follow the recipe. What’s so remarkable about Moderna, BioNTech, Pfizer, AstraZeneca, JNJ, and, to some extent, Novavax, is how quickly they transformed a ton of money into huge vaccine development teams, with many workers sucked out of other comparatively stodgy respiratory vaccine incumbents.
These leading Covid vaccine companies remain eager to hire more people to scale production. They’re absorbing all the experienced vaccine talent and laying claim to a tremendous amount of biologics manufacturing capacity (and encountering shortages there, too).
Because there are only so many people with vaccine experience, these companies’ ability to grow depends in part on their ability to attract people with adjacent experience and train them in the skills needed to develop and produce vaccines. That takes time and mistakes are inevitable. Sometimes this has resulted in frustrating delays.
Ideally, newly formed and growing teams gel over time. With each passing month, the major Covid pandemic responders are getting better, learning from their mistakes, and presumably making fewer of them. Those with approved vaccines are focused on scaling them and running trials so they can be used as boosters, at least for now. Some seem to be planning on selling boosters forever after, if needed.
And yet the peacetime booster market will likely require a different approach, necessitating a second migration of expertise to new companies with different technologies. That’s not yet obvious to the thousands of people who are working with urgency on pandemic vaccines, who may understandably be too busy to lift their eyes to the horizon.
The next migration
Anyone who has gotten knocked out for 24-36 hours from their second or third mRNA vaccine shot should consider whether they would be more or less likely to get a flu shot if that’s what it felt like each year. Add in the elevated myocarditis risk in younger people, especially males, and it’s understandable why the FDA has struggled with boosters’ benefit-risk in the general population. Adenoviral vaccines also are unlikely tools for combination Covid and flu seasonal boosters since we develop immunity against the vector with each exposure, likely requiring higher doses to preserve efficacy.
Managing Covid and flu in parallel will likely require making combination respiratory vaccines with protein-based antigen technologies, which are easier and cheaper to make and better tolerated than mRNA. They’re combinable to cover Covid and flu and even other respiratory viruses, and are effective, especially as boosters. If they need to be adjuvanted, there are now more approved adjuvants than ever. And while mRNA allows for rapid vaccine design from a new sequence, peacetime vaccine development allows for the slightly longer lead times needed for recombinant protein-based production.
But it’s one thing for those with capital to deduce that a shift towards protein-based vaccines is logical. It’s another to actually mobilize people to follow through on that vision.
For example, RA Capital recently invested in a VLP (virus-like particle) vaccine company called Icosavax that focuses on respiratory viruses, and I joined the board. VLPs are a distinct vaccine modality from mRNA or other soluble protein technologies, and historically have been incredibly hard to make at scale outside of the handful of VLPs that exist in nature. The company’s programs for RSV, hMPV (a close cousin of RSV), and Covid might someday be combined in various permutations or even all together into an annual booster including flu. The company is now well-enough capitalized to generate plenty of clinical data. But first, as with any small, growing company, they must find and attract the people to realize the vision.
Where are those people? No doubt many are working on first-generation pandemic-response vaccine programs. Gradually, Icosavax is getting the attention of the candidates it wants to hire and winning them over. This takes time but each hire opens the door to recruiting more people that new team members refer and recommend. Similarly, people take interest in a new company when they see someone they respect join it. And with each hire, the vaccine ecosystem gets a little more familiar with startup culture.
The value of a dynamic ecosystem
The fact that Moderna was already up and running when Covid struck whereas Novavax was in the process of winding down some of its development programs and manufacturing explains some of Novavax’s Covid vaccine development lag. Even still, Novavax had a core team that was able to catalyze a remarkable hiring spree, no doubt aided by strong early data.
But consider what it’s like for a startup that has just a few people. Growing the bank account is usually considerably easier than growing the team. In fact, I’m not aware of any Covid vaccine startups that have reached Phase 3. In mid-2020, some of those companies thought they would be on the market by 2022, but that doesn’t look likely. The thing about an exponential growth curve is that it’s very sensitive to where you start; the initial growth is the hardest.
The lesson for investors, Congress, and the public is that money is just a surrogate for people. And it’s sometimes a terrible surrogate. You can throw money at a problem but if there aren’t enough trained people, it’s like pushing on a string. That’s the big misunderstanding between innovators and spectators of innovation.
When it comes to scaling a technology, a company is ideally like a military force that can, with more money, scale systematically, stamping out unit after unit of productivity. With scale, companies sometimes trade off nimbleness and creativity. That’s where startups come in. If a small team of experienced, creative leaders spin out of a larger company, they can hit the ground running as a startup that expands like a rapidly growing crystal into a productive, larger company.
In time, the dynamic cycling of entrepreneurs within the ecosystem becomes an established norm. When the entire ecosystem has capital and exciting ideas to tackle, many companies deal with the chronic shortage of experienced people not just by poaching from others but also by training new generations coming out of academia or other industries. The more effectively the companies within the ecosystem can train new people, the less hiring becomes a zero-sum game.
The migration of workers from the giant vaccine incumbents to the leading pandemic-response companies was a dramatic and powerful first turn of a creaky crankshaft. Thousands of workers changed jobs within months. But compared with how revved up oncology has been for years, the vaccine engine is only just getting going. It needs more experience with startup culture and turnover to advance to the technologies that I think will enable the kind of long run peacetime boosting we need for public health.
As we transition from pandemic response to planning for peacetime, we need forward-thinking vaccine developers across all domains (preclinical, clinical, regulatory, manufacturing, etc.) to migrate to well-capitalized companies with technologies that, like Icosavax’s, are intended to be comparable to if not more effective/durable, better tolerated, likely safer, easier to store/ship, redosable, and combinable into multivalent booster panels.
And yet that doesn’t mean losing sight of the merits of pandemic-response technologies – we’ll likely need those again. The ideal company would offer peacetime production of a combination respiratory seasonal booster shot and be capable of responding rapidly to a new pandemic virus with mRNA technology.
For example, as slow as Sanofi has been in responding to Covid (its vaccine is still in Phase 3 trials), it has the spectrum of technologies to pursue this holistic vision. Arguably Pfizer does as well. But other companies are anchored to one technology or another, for now. So while the race to end the pandemic phase of Covid is well underway, and the race to develop ideal boosters is just getting started, the true finish line lies beyond, after yet another competition to offer peacetime boosters production as well as pandemic preparedness.
There are still so many problems beyond Covid that we can solve with vaccines. I look forward to a time in the not-so-distant future when talent flows to new, disruptive ideas as readily as capital flows today.
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