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How glow-in-the-dark mice lit the way to Moderna’s Covid vaccine



When Stéphane Bancel took the top job at Moderna 10 years ago, he warned his wife the business had only a 5 per cent chance of success.

The Boston-based biotech was trying to invent a new generation of medicines based on an unproved genetic engineering technique and, instead of investing in drugs one by one, was aiming to raise record amounts of money to build a platform that would work to develop the entire class of new products.

Thanks to the biggest public health crisis in a generation, it now looks likely that Moderna will win approval for the first product created by this approach three or four years ahead of schedule, after early data published this week showed its Covid-19 vaccine to be almost 95 per cent effective

On Sunday, while Mr Bancel waited anxiously for an independent review of the results, he tried to distract himself by working on Moderna’s other vaccines. Now, he feels the positive Covid-19 data has given a boost to their prospects too. 

“There is going to be a big acceleration of growth,” Mr Bancel told the Financial Times. “While we have six vaccine today in development, why wouldn’t you want 10 or 15?” 

Moderna chief Stéphane Bancel has defended charging the US government $50 for each two-dose course, arguing it is a ‘good deal’
Moderna chief Stéphane Bancel has defended charging the US government $50 for each two-dose course, arguing it is a ‘good deal’ © Gretchen Ertl/FT

Moderna, which was founded in 2010 and is lossmaking, will hope its promising Covid-19 vaccine has vindicated its bet on messenger ribonucleic acid (mRNA), its unusual platform strategy and its decision to partner with the US government rather than a big pharma company, allowing it to pocket more of the profits. Its shares have risen more than 420 per cent since it went public in 2018 with a $7.5bn valuation, the biggest biotech initial public offering ever.

After the results were published on Monday, they rose a further 10 per cent, while its market capitalisation is hovering around the $39bn mark.

Line chart of Moderna’s soaring share price ($)

But some doubters remain: the vaccine market has always been a less profitable corner of the pharma industry; Moderna still needs to prove it can manufacture billions of doses; and its Covid-19 vaccine may end up as just one in a crowded market.

A new type of vaccine

Moderna’s vaccines are all based on messenger RNA, which is used to deliver part of the genetic code of the virus to teach the immune system to recognise it and fight it off. Alongside the Pfizer/ BioNTech vaccine, which is also based on mRNA and announced positive results last week, it is set to smash records for the fastest ever vaccine to market.

Mr Bancel describes mRNA as an “information molecule” — and says, like a tech company, Moderna can move quickly. It was able to develop a first version of the vaccine in just 42 days, without having live samples of the virus in the lab. All it needed was its genetic code, which was published online by Chinese scientists in January. 

“The only thing we need is a genetic sequence, which costs around five bucks,” Mr Bancel said. 

Infographic explaining how mRNA vaccines work

Noubar Afeyan, chief executive of Flagship Pioneering, the venture capital company that incubated Moderna, said this year was helping to prove that mRNA vaccines would work in large groups of people. The Moderna and Pfizer/ BioNTech trials combined have involved about 70,000 people. 

But the speeded-up ending has come after a long journey. “It turns out $4bn, several hundred people and 10 years later, you get to this point,” said Mr Afeyan, who is also Moderna’s chairman.

It started with glow-in-the-dark mice

Derrick Rossi, a stem cell biologist who co-founded Moderna, realised mRNA technology had promise when he used it to create glow-in-the-dark mice. He injected their thighs with the genetic code for making a luminous protein and they started to light up in the dark. The more code he injected, the more they glowed.

He became fascinated with the potential of mRNA, which translates DNA into proteins, hoping it could be used to treat rare genetic diseases. As well as vaccines, Moderna is working on mRNA therapeutics for rare diseases, heart problems and cancer. 

But Mr Rossi knew it would be hard to deliver mRNA into the body, so he recruited Robert Langer, an MIT engineering professor. He also wanted a doctor on the team, bringing in Kenneth Chien, a physician-scientist now at Sweden’s Karolinska Institute. Over breakfast at Henrietta’s Table in Harvard Square, they agreed to work together.

Dr Chien said it was clear now that mRNA was a “sleeping beauty”, whose importance had grown over time. But back then, there were serious concerns that it was unstable and expensive to produce in large amounts.

Moderna spent its early years working on these hurdles. Mr Afeyan said the company started from the premise that it would work — and then set out to prove it. The promise was mRNA could be switched in and out of cells “almost like a cassette”, delivering instructions to create different proteins, he said.

“You could imagine tens and hundreds of products, not just one drug every five to 10 years,” he said. “We ended up concluding that making a vaccine was the least difficult thing for us to do.” 

The pitch to investors

To make the most of this flexibility, Moderna did not want to follow the traditional biotech model of focusing on one or two products for years until they were approved. Instead, Lorence Kim joined as chief financial officer in 2014 from Goldman Sachs, to raise money to build a large portfolio of products and a high-tech manufacturing facility. 

Within his first year, he had achieved the largest ever private biotech funding round by far at $502m, attracting investors with a pitch more like a tech company: funding infrastructure that would spawn an entire pipeline of products.

“Every time you turn the crank again, it gets cheaper, faster, less risky,” said Mr Kim, who left Moderna in June to become a partner at Third Rock Ventures.

As it prepared to go public in 2018, Mr Kim took Moderna on a global roadshow, meeting hundreds of potential investors in the US, Europe and Asia. 

But one person familiar with the roadshow said the company was met with a certain amount of scepticism, with biotech specialists questioning whether there was enough data to support the valuation.

A production line at Lonza, the Swiss company where Moderna’s Covid-19 vaccine will be produced
A production line at Lonza, the Swiss company where Moderna’s Covid-19 vaccine will be produced © REUTERS

“It was a company developing the mRNA technology, with a large breadth of potential applications. But it had not drilled down on a single product yet,” the person said. 

Other biotech companies working on a vaccine have partnered with big pharma groups. BioNTech is developing its mRNA vaccine with Pfizer, and CureVac has taken investment from GlaxoSmithKline. In its early days, Moderna signed a deal with AstraZeneca, but with this vaccine, it is working alone.

Instead, it raised $1.3bn in a secondary offering after it published positive early data in May, and has taken about $2.5bn from the US government. Mr Bancel said partnering with a big group might have slowed down decision-making — and now it can keep more money from the Covid-19 vaccine to invest in the other products. 

“If you look at Pfizer/BioNTech, they are splitting profits 50:50. In our case, we’re going to keep the profit,” he said. 

Yet this reliance on taxpayer funds has raised concerns. Activists have criticised Moderna for pricing its vaccine higher than competitors. While some, like J&J, have promised that a vaccine will be sold on a not-for-profit basis during the pandemic, Moderna’s price is $25 a dose for the US government, for a two-dose course. For smaller orders, it will charge up to $37 a dose.

Mr Bancel said the US government was still getting a “good deal” — and the entire world was benefiting from its investment.

The US defence department is also probing Moderna’s patents after accusations it did not disclose government funding in the applications. Moderna had taken grants from the Defense Advanced Research Projects Agency for development of its vaccine technology.

All the while, stock sales by senior executives have raised eyebrows. Mr Bancel has sold $54m of shares, according to S&P Global, although it was on a scheduled plan and most of his net worth remains in Moderna stock.

A market disrupted by Covid

There are still vital unanswered questions about the Covid-19 vaccines under development, such as how long protection against the virus lasts, and if they prevent transmission or just stop people developing the disease.

But there are also important business questions that cannot be answered in a clinical trial. Matthew Harrison, an analyst at Morgan Stanley, said that another test for Moderna was manufacturing at scale.

Instead of relying on a large pharmaceutical company, Moderna has a deal with Swiss contract manufacturer Lonza and a very flexible goal of producing between 500m and 1bn doses next year. 

Vaccines have historically been lower margin products that provide steady revenue because of a lack of competition. But Covid-19 is likely to be different: many more companies have invested in manufacturing and new entrants such as Moderna are in the market. 

“The question mark is now, given how much investment there’s been, what sort of disruption is going to occur?” Mr Harrison said.

Mani Foroohar, an analyst at SVB Leerink, said the market might become “messy [and] competitive”, if a number of vaccines succeed. 

He thought Moderna’s share price had been boosted by “euphoria and enthusiasm” — and was not convinced that success with Covid-19 guaranteed an easy path for others. 

“No vaccine immunises [against] the law of economics,” he said. 

Additional reporting by Donato Paolo Mancini in London and David Carnevali in New York

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Square’s $29bn bet on Afterpay heralds future for ‘buy now, pay later’ trend




Jack Dorsey’s biggest gamble to date has sent ripples around the fintech and banking world, with investors betting that Square’s $29bn all-stock deal to acquire Afterpay signals the “buy now, pay later” trend has staying power.

BNPL relies on an emerging thesis that millennials and Gen Z consumers distrust traditional credit, but still want to borrow money to buy goods. Afterpay allows shoppers to split the cost of goods into four instalments with no interest — but a late fee if payments are missed.

“We think we’re in the early days of the opportunity facing us,” said Square’s chief financial officer Amrita Ahuja, speaking to the Financial Times. “From a buy now, pay later perspective, we see, with online payments alone, a large and growing opportunity representing $10tn in payments volume by 2024.”

The deal sees Square join an increasingly crowded space, alongside big players such as Sweden’s Klarna, Silicon Valley-based Affirm and PayPal, with Apple also exploring the market. The sector also faces a brewing regulatory battle, as legislators question an industry that lends money in an instant, often without a traditional credit check to ensure a consumer will be able to pay off their debt.

“This decade is going to be the upheaval of the banking industry,” Klarna’s chief executive Sebastian Siemiatkowski, said on CNBC on Monday. “I’m a little bit surprised to see consolidation happening this early, at this level, but at the same point in time I think this is directionally what we’re going to see.”

Column chart of By downloads (% of total) showing Top US mobile payment solution apps

BNPL has exploded in popularity over the past year thanks to the coronavirus pandemic-driven boom in online shopping, but industry executives said it had shown strong growth well before the pandemic, alongside a broader trend for more flexible financing among traditional lenders.

Leading into 2020, banks including JPMorgan Chase, American Express and Citigroup each launched flexible payment options tied to existing credit cards as an answer to point-of-sale financing.

The past 18 months have seen a meaningful uptick in the number of retailers willing to adopt the extra financing option. “There’s a little bit of FOMO setting in,” said Brendan Coughlin from Citizens Financial Group.

Afterpay was among the pioneers in BNPL. It was founded by Sydney neighbours Nick Molnar and Anthony Eisen in 2014, and today facilitates global annual sales of $15.6bn.

The company went public on the Australian Securities Exchange in 2016 at a valuation of A$165m (US$122m). In May 2020, Chinese tech giant Tencent paid about A$300m for a 5 per cent stake in the Australian group, which was by then worth about A$8bn.

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The Afterpay tie-up will enable Square to offer BNPL services to its millions of merchants, who processed payments worth $38.8bn in its most recent quarter, while also tapping into Afterpay’s clients, which include Amazon and Target.

The company will also integrate Afterpay into its Cash App, which has about 70m users and is slowly being built out as a one-stop financial services shop for payments, cryptocurrency, saving and investing.

“All of a sudden, you’ve got probably the most compelling super app outside of China,” said DA Davidson’s Chris Brendler, who is an investor in both companies.

Square’s gross payment volume

Investors appear convinced. Despite the deal coming at a 30 per cent premium to Afterpay’s most recent stock price, the news sent Square’s share price up 10 per cent by Monday’s close.

“This is certainly a bull market deal,” said Andrew Atherton, managing director at Union Square Advisors. “People are rewarding Jack Dorsey for being bold and for making a big bet.”

Square’s entry into BNPL comes as the sector is becoming increasingly competitive.

Klarna increased its valuation from $11bn in September 2020 to $46bn in June of this year, making it the most valuable standalone company in the industry.

Shares in Affirm, the US online lender led by PayPal co-founder Max Levchin, rose 15 per cent on Monday following news of the Afterpay deal. Affirm, which went public in January and is now valued at $17bn, recently expanded its partnership with Shopify to offer BNPL services to the ecommerce platform’s US merchants.

PayPal first moved into BNPL back in 2008 when its then-parent eBay bought Bill Me Later. A year ago, PayPal launched Pay in 4, a six-week instalment offering that is free for both consumers and merchants, alongside its longer-term PayPal Credit service.

Earlier this year, Apple was recruiting staff for its payments division with experience in BNPL, as it looks to expand Apple Pay and its Wallet app. Bloomberg reported last month that the iPhone maker was working with Goldman Sachs to develop an Apple Pay Later service.

Industry executives warn, however, that the more crowded market could erode the businesses’ margins, while flustered consumers may also be put off by the rapidly growing number of checkout options.

“The current state of affairs, where you have seven buttons when you go to checkout, I don’t think is a sustainable state of affairs,” said one consumer finance executive at a top US bank. “I think we are in an interim period.”

A bigger threat still is the sector’s immature and inconsistent regulatory environment.

“It’s what everyone is calling the Wild West,” said Alyson Clarke, an analyst at Forrester. “There is no onus on them to make sure that you are of financial health to be able to repay that loan.”

Some companies do a “soft” credit check that briefly examines a person’s position but “not as much as they should be doing if they are lending you money”, Clarke said. “Afterpay doesn’t do any of that.”

A survey of Australian consumers, compiled by the country’s financial regulator in 2020, suggested 21 per cent of BNPL users missed a payment in the previous 12 months. Almost half of them were aged 18 to 29. Morgan Stanley analysts have estimated Afterpay makes about $70m a year on late fees.

The UK’s financial regulator has said BNPL players should be forced to adhere to its credit rules as a “matter of urgency”. In the US, a government consumer protection agency issued guidance urging caution around “tempting” BNPL deals.

In a hint at further possible tensions, Capital One in December became the first major credit card company to block its customers from using its cards to pay off BNPL purchases, calling the practice “risky for customers and the banks that serve them”, according to Reuters.

Afterpay board member Dana Stalder said the company welcomed regulation. “Buy now, pay later is just a friendlier consumer product,” he said. “Consumers understand that, they’re not dumb. This is why they are voting with their feet.”

Additional reporting by Richard Milne

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UK pushes floating wind farms in drive to meet climate targets




In waters 15km south-east of Aberdeen, renewable energy companies are preparing to celebrate yet another landmark in the drive to end Britain’s reliance on fossil fuels.

Five wind turbines, each taller than the Gherkin building in the City of London, fixed to 3,000-tonne buoyant platforms have been towed to the UK North Sea from Rotterdam where they will form part of the Kincardine array, the world’s biggest “floating” offshore wind farm.

Wind farm developers have dabbled since the 2000s with floating technology to overcome the limitations of conventional offshore turbines. These are mounted on structures fixed to the seabed and are difficult to install beyond depths of 60m, which makes them unsuitable for waters further from shore where wind speeds are higher.

Floating projects, which are anchored to the seabed by mooring lines, are rapidly moving from the fringes to the mainstream as countries turn to the technology to help meet challenging climate targets.

Britain was the first country to install a floating offshore wind farm off the coast of Peterhead, Scotland in 2017. But existing floating projects are modest in size. The Kincardine array has an electricity generation capacity of 50MW compared to 3.6GW for the world’s largest conventional offshore wind farm.

Map showing the location of Kincardine offshore floating wind farm, offshore from Aberdeen on Scotland's east coast

Now the bigger wind developers are stepping up a gear with plans to build more schemes on a larger scale.

Denmark’s Orsted, Germany’s RWE, Norway’s Equinor along with the UK’s ScottishPower and Royal Dutch Shell are some of companies on a long list of bidders vying to build floating schemes in an auction of seabed rights for about 10GW of offshore wind projects in Scottish waters. The bidding round closed in mid-July with the winners expected to be announced in early 2022.

The UK is separately examining an auction exclusively for floating wind in the Celtic Sea, the area of the Atlantic Ocean west of the Bristol Channel and the approaches to the English Channel and south of the Republic of Ireland.

Developers expect the costs of floating projects to fall rapidly as more projects are deployed. In 2018 floating wind costs were estimated at more than €200 per megawatt hour, nearly double the cost of nuclear power in the UK.

The Offshore Renewable Energy Catapult, a UK technology and research centre, is hopeful developers will be able to build “subsidy free” floating projects at prices below forecast wholesale electricity costs in auctions as early as 2029. Conventional offshore wind developers reached this inflection point in a UK government auction in 2019.

A Norwegian flag flies from a boat near the assembly site of offshore floating wind turbines in the Hywind pilot park, operated by Equinor
Norway’s Equinor is among the companies competing to build floating turbines in Scottish waters © Carina Johansen/Bloomberg

UK prime minister Boris Johnson, who is hosting the UN’s COP26 climate summit later this year, has set a 1GW floating target out of a total 40GW offshore wind goal by 2030. He has underlined the importance of accessing the “windiest parts of our seas” as part of the UK’s goal to cut carbon emissions to net zero by 2050. 

Other countries including France, Norway, Spain, the US and Japan are pursuing the technology, which experts said would particularly appeal to countries with limited access to shallow waters, or where the geology of the seabed makes it impossible to install conventional “fixed-bottom” turbines.

WindEurope, an industry body, predicts one-third of all offshore wind turbines installed in Europe by 2050 could be floating.

Countries pursuing floating wind are interested in it “not just as an opportunity to deliver net-zero targets. It has a real potential to be a driver of economic growth as well,” said Ralph Torr, a programme manager at the Offshore Renewable Energy Catapult.

Much like how the UK supply chain has lost out to foreign companies in the construction of conventional wind offshore farms — despite Britain having more than anywhere else in the world — there are concerns the mistakes will be repeated for floating technology. Manufacturing work for the Kincardine project was carried out in Spain and Portugal and the turbines and foundations assembled in Rotterdam.

An offshore wind turbine off the coast of Fukushima, Japan
A wind turbine off the coast of the town of Naraha in Japan’s Fukushima prefecture. Japan is one of the countries pursuing floating technology © Yoshikazu Tsuno/AFP/Getty Images

Competition with other markets was already high as they all tried to gain a “first-mover advantage”, said Torr, who warned the UK government’s 1GW floating wind target by 2030 was not “going to unlock huge investment in the supply chain or infrastructure because it’s [just] a handful of projects”.

The Offshore Renewable Energy Catapult and developers are urging the government to commit to a second target in 2040 for floating wind, which they believe would provide confidence to industry to invest in the necessary facilities in Britain.

“Because floating [wind] becomes economic in the 2030s, it’d be much better to understand what the longer term pipeline is,” said Tom Glover, UK country chair at RWE. He added that in the Scottish seabed rights auction, developers had to “provide a commitment and an ambition for Scottish content”, which should benefit the local supply chain.

Wind developers are conscious that UK suppliers need time to gear up. Christoph Harwood, director of policy and strategy at Simply Blue Energy, which is developing a 96MW floating scheme off the coast of Pembroke in Wales, said projects that were larger than the earliest floating schemes but were not yet at a full commercial scale would be important in that process.

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“If the UK supply chain is to benefit from floating wind, don’t rush into 1GW projects, take some stepping stones towards them,” he said.

Tim Cornelius, chief executive of the Global Energy Group, which carries out offshore wind assembly work at the Port of Nigg on the Cromarty Firth in north-east Scotland, said the size of floating wind turbines offered opportunities to UK suppliers. 

The floating turbines are much bigger than their conventional offshore counterparts so need to be built closer to their point of installation, which precludes using the lowest cost manufacturers in China and the Middle East.

The floating turbines require “an astonishing amount” of deepwater quayside space at ports, Cornelius explained. His company is looking at creating an artificial island for quaysides in the Cromarty Firth in Scotland, which he says would require a “material investment but is entirely justifiable as long as developers are prepared to commit”.

But he warned that “as it currently stands, the [UK] supply chain isn’t in a position to be able to support the aspirations of the [floating offshore wind] industry”.

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China tech crackdown claims ETF victims




Exchange traded funds updates

Beijing’s regulatory crackdown on some of its biggest companies in technology and education has delivered a bruising blow to highly specialised China-focused exchange traded funds.

Broad-based tech ETFs have sailed through virtually unscathed, but some narrowly focused thematic instruments have taken a beating. Among those most affected, the KraneShares CSI China Internet ETF (KWEB) has nearly halved in value since its peak in February.

Some ETF buyers are hunting specifically for targeted strategies, despite the risks. But Kenneth Lamont, senior fund analyst at Morningstar, said this highlights the potential drawbacks of tracking a narrow theme without the flexibility to shift tactics.

“The [passive thematic] strategy has no way to quickly react to bad news and will hold the stock until the next rebalance. The small number of fund holdings also means that overall returns can be influenced by the performance of handful of stocks,” Lamont said.

Line chart of Total returns, year to date (rebased) showing Narrow vs broad tech ETF

He noted that for the KraneShares ETF, one Chinese education group alone — TAL Education Group — was responsible for knocking 2.8 percentage points off performance from the end of June.

Global X Education ETF (EDUT), which has a large exposure to the Chinese online education sector, was also badly affected.

Actively managed ETFs, such as Ark Invest’s ARKK flagship Innovation fund, can react more quickly. After voicing her optimism for the prospects for China’s tech disrupters earlier this year, Cathie Wood, Ark’s chief executive, shed millions of dollars worth of shares in four China-domiciled companies.

Line chart of Number of shares held (millions) showing ARKK has been selling Chinese technology holdings

Investors in ARKK have not been rewarded as well as those who simply put their money in broadest based funds such as the Vanguard Total World Stock Index Fund ETF (VT), but they have still managed to ride out the China tech storm far better than more exposed counterparts.

Line chart of Returns, year to date (rebased) showing ARKK vs Vanguard Total World Stock ETF (VT)

Some investors insist Chinese investments can bounce back. Mark Martyrossian, chief executive of UK-based Aubrey Capital Management, said he believed many of the affected tech companies would maintain their market leadership.

“The gravy train may have slowed but you disembark at your peril,’ Martyrossian said.

Lamont said badly hit funds had suffered such losses because they were doing exactly what they had promised to do — provide narrow exposure.

More nimble active investment strategies also face their own challenges, said Elisabeth Kashner, director of global fund analytics at FactSet. “Active managers may successfully anticipate market reversals, but they can also miss them, sometimes seriously tanking returns,” she said. “Some people can be skilful and some people can be lucky and if you’re lucky and skilful in one period you might be lucky and skilful in the next, but you might not.”

Additional reporting by Steve Johnson

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