But in March 2020, Moderna was little more than a biotech startup. It had never taken a product to market, and the company didn’t even have a credit rating.
In April 2020, the US government decided to invest in Moderna’s unproven, but potentially innovative, mRNA vaccine technology. This risky public-private partnership began with $483 million of government investment, which has now risen to $4.5 billion. Moderna’s subsequent success has seen its market capitalization rise as high as $67 billion, at the time of writing.
What can Moderna’s success teach us about public-private partnerships? Leading business school professors from Duke’s Fuqua School of Business, NYU Stern School of Business, ESMT Berlin, and Johns Hopkins Carey Business School reveal what they think.
1. Moonshot investments are worth it
Moderna’s innovative mRNA technology allows vaccines to be created without putting weakened or dormant germs into our bodies—the traditional method. Instead, the vaccine teaches our cells to create proteins that trigger an immune response that creates the antibodies needed to fight infection.
Both the Moderna and Pfizer/BioNTech vaccines use this technology. Pfizer’s mRNA technology was developed by BioNTech, another small biotech firm. While traditional vaccines like those created by Oxford/Astrazeneca and Johnson & Johnson had trial results showing around 70% efficacy, both mRNA vaccines were more than 90% efficient.
The success of mRNA-based vaccines is down to startups often being more innovative than established companies, thinks David Ridley (pictured above, right), professor of business and healthcare management at Duke University's Fuqua School of Business.
“So much innovation comes from smaller players,” he says, “there are so many ideas out there and we shouldn’t expect big players to have a monopoly on them.”
This reinforces a growing trend towards governments making more risky investments in ambitious, disruptive innovations coined ‘moonshots’. With moonshot investments, the potential for success and near-term profitability is low, but the potential rewards are extremely high.
The US government is ramping up its moonshot investments through initiatives like the Defense Advanced Response Projects Agency (DARPA), which searches for new disruptive technologies. Similarly, the UK government has floated plans for its own high risk investment agency. Both are looking for the next wave of disruptive tech.
Ari Ginsberg, professor of entrepreneurship and management at NYU Stern School of Business, supports governments being prepared to make more risky, moonshot investments.
“There is a risk/reward tradeoff in investment decisions and the higher the potential return, the more justifiable is the higher level of risk,” he says.
2. Governments should balance investment with incentives
Risky public-private partnerships can backfire. In 2006 the German and French governments invested in Quaero, a search engine project billed as an alternative to Google. Though after a string of issues, it was abandoned in 2013 along with $298 million of investment.
Such examples show that governments aren’t always best placed to identify disruptive technologies, says Stefan Wagner, associate professor of strategy and innovation at ESMT Berlin.
“I am skeptical that the state is the best actor to choose promising technologies,” he says.
While governments have responsibilities beyond investing in disruptive and innovative technologies, professional investors like venture capitalists and institutional investors have the training and expertise to be better placed to make these decisions, Stefan (pictured below, right) thinks.
A less risky tactic would be to offer companies incentives to engage in research and development (R&D) projects, and rewards for reaching certain targets. Offering ‘pull incentives’, rather than ‘push funding’.
“The state could say if you engage in R&D activity you get an advantage when it comes to the question of how much taxes you have to pay,” he says.
In the case of Moderna, the US government offered a combination of these approaches, providing initial investment for the company to help bring its vaccine candidate to trial, as well as pledging to buy 100 million doses of the vaccine once it was produced.
This combination of both push and pull mechanisms is the best approach for public-private partnerships, believes David from Duke Fuqua.
“I think it is absolutely the right approach for governments to fund some early-stage research and also offer prizes for successful development, both the push and the pull,” he says.
“The combination [with Moderna] yielded enormous returns for public health and the economy.”
3. Governments should support low profit research areas
Potentially innovative and important advances in healthcare are often ignored by investors and venture capitalists because of slow return on investment and high risk of failure.
It can take decades for a technology to be brought into use. Research into mRNA technology began in the early 1990s, and even before the pandemic it was unclear whether the technology would be successful. For investors, who have to provide quick returns to their shareholders, this isn’t always worth the wait.
In areas with potential public health benefits that are unattractive to investors, governments have a responsibility to provide support, says Bonnie Robeson, senior lecturer at Johns Hopkins Carey Business School.
“Pharmaceutical development and therapeutics is a very challenging, high risk area, so this is a way to share that risk,” she says.
Despite the risks of a project failing altogether, the investment is still worth it, she thinks. “There is always a risk of failure, but I don’t see any issues because the government is always looking out for the population’s health and wellbeing.”
In the case of Moderna, supporting the innovative technology has had a huge impact in the fight against the pandemic, but the potential doesn’t stop there.
mRNA can be used as a platform to fight all kinds of disease. Moderna currently has plans for 24 new mRNA vaccine candidates—13 of which are undergoing trials—for diseases ranging from heart disease to cancer. The rewards from this public-private partnership are potentially only just beginning.
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