The pharmaceutical space is characterized by extreme uncertainty. You never know what drugs are going to pan out. The lead time for development is extremely long. Market size is inherently unknowable. And the regulatory and pricing climate is always changing. So how does a company decide where to invest its cash? On this episode, we speak with Moderna's chief financial officer, Jamey Mock, about how he views the problem. He explains the process by which the vaccine maker chooses which bets to make, how changing fortunes within the stock market affect corporate decision making, and the role of the government in accelerating progress and de-risking investment. This transcript has been lightly edited for clarity.
Key insights from the pod:
What does Moderna do? — 2:44
What does the CFO of Moderna do? —04:48
Timelines for drug research and development — 6:39
How do you allocate capital? — 08:35
The process for allocating capital — 11:22
Internal lobbying for capital — 14:54
Moderna's funding source — 18:23
Operation Warp Speed — 21:14
What do CFOs think of share price? — 24:31
Avoiding the hype cycle in drugs — 31:26
The importance of distribution — 36:46
Similarities between aviation and pharma — 39:58
Impact of higher rates — 43:00
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Tracy Alloway (00:17):
Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.
Joe Weisenthal (00:22):
And I'm Joe Weisenthal.
Tracy (00:23):
Joe, do you know much about Moderna?
Joe (00:26):
Well, I had heard the name for maybe a few years, and then they became household names some point in 2020 when they were ahead of the race to develop a Covid vaccine. Then it became massive and then I don't know much beyond that.
Tracy (00:41):
Yeah, for me, this is a company that kind of came out of nowhere during the pandemic. And you're right, it kind of shot into household name territory. Here's my other question. Do you know what a CFO does?
Joe (00:54):
Well, that is a great question actually, because I mean I guess I would say yes, in the sense that I think they're the ones who are sort of watching the financing, helping to make capital allocation decisions. Although I imagine that the CEO also
Tracy (01:26):
To me, the thing I always think when I hear ‘CFO, I always think they’re the hard ones — or, sorry — they're the ones that answer the hard questions on the earnings calls. That's what they do.
Joe (01:38):
I love that. I think that yes, that's right. The CEO is like ‘Oh, we got these great products’ and blah, blah. And then someone asks a really technical question about, well like ‘If you're borrowing at this above SFR and margins’ and they're like ‘I'm going to bring the CFO in to answer this one.’
Tracy (01:51):
Yeah, exactly. Well, I am pleased to say today we do in fact have the perfect guest to answer the question of what is Moderna and also what does a CFO actually do? We are going to be speaking to the CFO of Moderna, Jamey Mock. Jamey, thank you so much for coming on Odd Lots.
Jamey Mock (02:09):
Hi Tracy and Joe, thank you for having me. It's a pleasure to be here with you.
Tracy (02:13):
So maybe just to begin, can you give us the sort of elevator pitch summary of what it is that Moderna does? And full disclosure, I was in Hong Kong for a few years of the pandemic, so I missed a lot of the vaccine conversation here in the US. There was a very different vaccine conversation that was happening in Hong Kong and in mainland China at the time. But what is it that you actually do and how is it that you have become a household name in a relatively few short years?
Jamey (02:44):
Well, sure. So first I found your introduction, quite entertaining. The CFO — actually, in our business because we are very much a science business, which I'll get into, it's actually our President and CEO that get the really tough questions. But I get a few of my own share as well, which we can get into. But...
Joe (03:03):
The CEO has to answer the tough biology questions and stuff like that, right?
Jamey (03:07):
Well, he's quite good at it. He's employee number one and has been here and built this business for 13 years so, and he's got a science background, so he's quite good at it. And then our President, Stephen Hoge, is a doctor by trade. So obviously they answer most of the scientific questions.
So Moderna is obviously known due to how we help the global community with Covid, but it's really much more than that. It is a platform company revolving around mRNA, which really makes the proteins in a body. And those proteins can help either fight infectious diseases and prevent against any kind of infectious disease or be a therapy. And we can get into the segments that we're in, but it can be in oncology, it can be in rare disease.
And we actually believed, that was principle belief in the company is, if this platform can work, it's going to be able, since it's part of your natural body, it's going to be able to help solve many different therapeutic areas in the body. And so that's a little bit about Moderna.
And over the last 13 years, we've built a pipeline of 45 drug candidates. Obviously, we're known for covid, but also in other respiratory diseases. We hope to launch our second drug this year, RSV, which became pretty well-known last year as it had a pretty significant spike, but also in flu and other respiratory diseases. And then then in oncology we've got an exciting cancer therapy that we are excited about, rare diseases and other latent diseases.
So that's a little bit about Moderna. We've been around since 2011. We've got almost 6,000 employees. We're based out of Cambridge, Massachusetts, but have some facilities all across the globe. And we've got quite an exciting pipeline ahead of us.
Joe (04:50):
That was excellent. All right. Now, what does the CFO or you, specifically, what is your job within the company?
Jamey (04:58):
So my CFO role is really not that different than many other CFOs. It's just, you know, in a different space. And I think there's principally four different areas. One is the foundation, which is controllership, so that's accurate books and records, that's safeguarding our assets and that's got to be foundational and an absolute given.
The second is allocating capital, and we can talk about that some more, but what is the envelope? Where are we going to spend it? How much goes into our investment in our R&D pipeline? How much goes into capital expenditure into SG&A?
The third is to support decision making across the company and train our teams to understand how to measure return on investment and how to think through decisions that are made every single day. Thousands of decisions across the company every single day. And then the last is stakeholder management, and whether it's investors, employees, the board of directors, customers, partners, suppliers, you know, that's how I think about it, which really isn't too different from my prior role as a CFO of a different company or in my opinion, many of the CFOs that are out there, how they operate every day.
Tracy (06:03):
So you mentioned that the CFO role is kind of uniform across companies, but I have to imagine there are some aspects of the pharma industry that make it a little bit different. And one of them has to be, I guess, the lead times in developing new treatments and new medicines and perhaps the risk as well. So you might spend 10 years developing this one thing and then you find out at the very end that it has an awful side effect or that the regulators aren't going to approve it. How does that aspect of the business, that uniqueness, feed into the CFO role?
Jamey (06:39):
Yeah, you're absolutely right. And maybe just to talk about that process, we call it, you know we take a drug from pure research to preclinical, which doesn't go into a human body and you're kind of testing how it works in animals. And then it gets into an IND process or a new drug candidate. And there are phase one, phase two, phase three, and you're right, I mean the probability of success from basic research all the way through, not only getting it launched with the FDA in the United States as an example, but there's healthcare regulators all across the globe and then commercial success as well. So there's a ton of risk that goes into it, and that's what we spend our time doing.
And we as a platform company believe that, you know, we’ve been studying the science of mRNA in different verticals. A vertical might be respiratory vaccines as I mentioned. And if we know that our mRNA platform can work with Covid, then we have a high conviction that it can work with RSV and a high conviction that it can work with flu and other respiratory.
And so we de-risk that throughout the process. We do it in basic research, we do it in preclinical, we do it in phase one trials, phase two trials. And all those trials are just more patients. So you might start with literally 10 to 15 patients in phase one. And then a respiratory trial, our RSV trial for phase three was 37,000 patients. And you just continue to assess what is the risk and what is the capabilities. And so that's what we spend a ton of time doing when we think about allocating capital to our pipeline and our next drug candidates.
Joe (08:09):
Talk to us a little bit more about that. I think you said you had 40 or 40 something various candidates in the pipeline? Obviously, it'd be nice to have unlimited money and work on all of them. You know, when you are thinking about capital allocation, R&D allocation, etc., like what are the factors that go into making these decisions?
Jamey (08:35):
Sure, yeah, there's a lot, but I'll summarize it into a few, which is getting back to that sense of risk and comparing it to our capabilities. So, I mentioned we have a higher conviction in respiratory vaccines, so therefore it's much easier to place bets and further dollars behind respiratory vaccines.
We are currently hoping to de-risk our latent vaccine therapeutic area. We've recently de-risked our oncology area, which we call individualized neoantigen therapy, which is a mouthful, but in essence it helps stimulate T-cells to attack cancer. And so, when we look through it, we say, “What is the mRNA capabilities? Have we de-risked this area” and therefore, every step of the way allocate more dollars, so that's number one.
Number two is we look at the size of the opportunity. So, this really isn't any different than any business case for any company in any industry. Respiratory vaccines is a very large market. We think it's a $30 billion market between flu, Covid, RSV, and there's only a few players and there's a very high barrier to entry because you have to test so many patients and those trials are quite expensive.
Third is, what's the competition and what's our commercial capabilities, will we be successful? Will we have something that differentiates our product versus another product?
And then the fourth is timing, we're still a relatively young biotech company, 13 years old is not that old in the grand scheme of things. And so therefore we have to understand, okay, what's our cash balance? How much revenue and profit are we going to be generating in the next few years? And therefore, we want to turn over the portfolio to not just be a Covid company, but to be a multi-drug company in various different areas. And so therefore we look at, well, is this going to start generating revenue in 2025, 2026? Or, some of these won't be till 2035. So, we have to kind of balance all those things to make sure that we have a sustainable company and bring the most drugs to market with the highest probability of success.
Tracy (10:34):
So one thing that always interests me in these types of conversations is the decision on allocating resources. And we're talking about, okay, 13 years old, still relatively small in the grand scheme of large pharma companies, but you have a lot of people, you have a decent amount of money it seems. How do you decide where to put that money to work? And I guess how granular do those decisions actually get? Is there like a line item for R&D expenses every year and it's just a big bundle and then there are people who are specifically dedicated to dividing that up? Or would you as CFO be like ‘I'm going to give X amount to this project and Y amount to this other developmental treatment?’
Jamey (11:22):
Yeah so, at the high level, we work with the executive team and the board to understand what is the envelope of capital we'll give to R&D in that example, because we also have to give capital to SG&A, we have to give capital to capital expenditures. And historically, over the last couple years we had bought back shares, although we've stopped buying back shares at this point because we primarily want to invest in this pipeline.
So after that, so once you size the envelope in terms of ‘Okay, here's how much I'm willing to spend,’ and as an example in 2024 we think we'll spend approximately four and a half billion dollars. So, then the next step is, okay, you have 45 drug candidates, which ones,why? Which is what I just kind of talked through in terms of capabilities and the size of opportunities.
But just to maybe give a little bit more flavor, a drug is not so simple. Even Covid as an example, there’s different patient populations. So, there's the immunocompromised, there's age 60 plus, there's age 50 to 59, there's age 18 to 49. There’s, you know, I think six to 18. And then there's pediatrics as well, which all take a different level of testing and regulatory oversight because they're different types of patients and the bodies react in different ways. And the regulators want you to study different things.
So a lot of the actual details is under, okay, yes, we've said we're going to go with an RSV vaccine, where are we going to start and how much will that cost? And right now, we've said ages 60 and over, but then we might look at pediatrics because RSV is often hitting quite materially or significantly younger populations. And so that's kind of the next level of allocation, which is you size the envelope, you then pick a program, you then say which patient populations or indications are you going to go after?
Another example is oncology. So I talked about this product that we have and we're starting with adjuvant melanoma. And because adjuvant melanoma really in immuno-oncology really seems to work quite well and we are kind of bundled with immuno-oncology and stimulating it even more. And so we started there.
And right now the data that we've released is quite positive over three years and improves the life of a patient's success in terms of recurrence or death by 50%, which is outstanding, in terms of cancer. And then you got to figure out, well, there’s loads of different cancer types, where will this product work best? And that's what we try to determine every single day as we get more and more specific underneath that envelope of capital.
Joe (14:07):
What is the process by which, I mean I have to imagine that within each internal candidate, the various scientists, the various teams, they probably all want more for the specific thing that they're working on. What is the sort of internal process? Is it an internal lobbying process?
Tracy (14:30):
Yeah, like a pitch presentation?
Joe (14:32):
That's sort of what I imagine in my head where they come to you and they're like ‘Look, we believe that we can do this and if we could increase the R&D on this thing, then we believe that we can maybe get it to market or get to the next stage of trials faster than X.’ What is sort of your internal process for working with the various champions of different potential products where they make the case that they could use money in a productive way?
Jamey (14:54):
Yeah, so first thing, I tell every industry, we could certainly spend a lot more than four and a half billion dollars. And that is a wonderful thing because the minute we run out of ideas and pipelines we're in trouble and we'll stop growing. So it is definitely a hot debate, I would say, in terms of where we're going to allocate our capital.
But let me just give you maybe, I'd say the three processes that we run. So first off, we have twice a year a look at our entire portfolio and we call it, a strategy review to understand ‘Okay, let's make these decisions given the envelope of capital we have, let's prioritize these things.’ And we pull together, it's extremely cross-functional, even within R&D, there are many different functions within R&D. And we bring in all of those people that are product specialists or epidemiologists or development specialists, etc.
We bring in the finance team to obviously run the financials and understand the reward the commercial team to understand the size of the opportunity. And we debate and say ‘Okay, strategically as a company, if we want to be, we think this year we'll be 4 billion in sales. If we want to get to — I’ll just make it up, a number — say, $10 billion in sales by 2027,’ and if that's a priority, that's not the only priority, but that is a priority to say ‘Okay, let's have that lens on it.’ Number one.
Number two, here's another lens. We want to diversify our revenue stream. So we don't want to be solely a respiratory business, so we got to make sure we are investing in other latent areas, latent disease areas or oncology that we also want to bring to market, and that kind of sets the foundation.
So that's process one. That happens twice a year and we figure out which products we want to fund in theory, and that's what we start operating to. But then there's underlying research and clinical trials that are going on every single day and there's report outs. And you might get different data, different answers that actually changes that. And that is a very well-governed process that we call a stage gate process.
And as an example, I myself have to approve whether we go to a phase three trial because those are very expensive, as I mentioned earlier. But there are gates into even before it gets into the clinic, there's gates in the research area and preclinical area and then there's gates before you go to phase one, phase two, phase three. And those, you know, we have a theory based on the strategy of what we want to invest in, but new data comes out and you have to adjust to it.
So I'd say that's kind of the second process that is highly governed. So, you have this top-level strategy, then you have actual data that's coming through that is well-governed. And then the last thing is particularly on how much we're going to spend and whether we go and spend more on these phase three trials, we actually take it to a subcommittee of the board. So, the board of directors, which, we have some scientists and doctors that are on our board and oversee it and have a lot of experience, also govern ‘Yeah, we think it's worth, we get it, it fits into our strategy, we understand the risks and we think you should move forward.’ So those are kind of three different processes in terms of how we govern our product strategy.
Tracy (17:58):
Where does the money actually come from? And I realize maybe there's some obvious answers here, you are a publicly-traded company, but this is a really capital intensive business. And I was looking on the Bloomberg Terminal earlier, it doesn't seem like you have any bonds, which is kind of unusual nowadays. Where does that like funding mix actually come from?
Jamey (18:23):
Yeah so, Tracy, I’ll answer that question in the industry, but also specific to us because we're a little bit different. So specific to us, we actually, because of Covid and how successful our vaccine was to help support the global population, we're actually sitting on $13 billion in cash. That is very unique to a biotech company. So we are quite fortunate. And as an example, we said this year we're going to actually burn through $4 billion in cash. So we believe in this platform so much that we need to advance the next set of drug candidates.
And we have a plan all the way for the next three to five years, that we're actually going to go from $13 billion to $9 billion in the year 2024 because we think it's the right thing to do. And then we said we're going to do it a little bit again, that we're going to burn another two to three billion in 2025 before breaking even in 2026 as we launch new drugs.
So that's a bit unique in the biotech world. I would say broadly though, for the sector, there are various avenues, obviously, public investors, capital markets, like you said. There are some government projects with BARDA [Biomedical Advanced Research and Development Authority]. Covid as an example, the US government helped fund some of the Covid research and development of our product. And so, there are different government agencies across the globe that you can tap into.
There are other companies, so, you know, before Covid we had no products that had ever been approved. And so we started in 2011, and in 2016 we actually went to a different company, a company called Merck. I'm sure you've heard of them. And they actually helped fund our oncology product because it is in conjunction with their product Keytruda. So that's another outlet for capital, that you can partner with a collaboration where, you know, a company like Merck gave us, I think $250 million back in 2016 to launch this product and advance the science that is now so fruitful come 2024.
And then the last one is just foundations, and we tap into foundations as well, not as much now that we have a fair amount of funding ourselves, but Bill and Melinda Gates as an example, we were working with them on certain infectious disease vaccines. So those are kind of the areas. So it's capital markets, it's the government, it's other companies and collaborations that might fund it. And then there's foundations as well.
Joe (20:36):
Let's talk about the role of the government. One of the extraordinary things, and you know, Operation Warp Speed was sort of this incredible endeavor that involved upfront money and also advance purchasing agreements so that once you got the vaccine to market that you had guaranteed sales. Talk to us just about the math of Operation Warp Speed, what it meant for Moderna, and then specifically the power of the advance purchase agreements. And whether that is a model that you see being replicated going forward as like sort of a way of de-risking the entire process.
Jamey (21:14):
Sure, yeah. As you and I spoke beforehand, Joe, I wasn't here during Covid. I joined the company at the end of 2022 in September of ‘22. So, I've been here for 18 months. So I obviously am aware of what went on, but I don't know all the intimate details.
So I'll give you my general opinion and impression. And, you know, Warp Speed, I forget the exact money, but I think it might be in the range of a billion dollars — don't quote me on that. It's in our disclosures. You can pull it up and get the exact numbers. But it was not insignificant, and I think this is an example of a terrific public-private partnership that actually did great for the world.
And to put that into perspective, and it wasn't just the funding by the way, we can get into it, there was so much help throughout the entire process in 2020 in many different areas, shipping, vendors, etc., a lot of red tape to cut through, but it actually proves that in one year, we went from Covid that came out, we identified the vaccine in two days, and we got it approved for market in 11 months.
That is unparalleled in the pharmaceutical biotech industry. And so, it shows you the art of the possible. There is good reason why things are regulated because there's safety concerns and we have to do that. But it also shows you that you can accelerate this timeline if you cut through some red tape for something that has been very powerful, very safe and effective, and really has changed the world in a very rapid way.
So I'm a huge believer in the success of that. In terms of the APAs, I mean, to think about our situation, we had zero revenue, and we were asked to go invest literally hundreds and billions of dollars to get this over the hump. It was a make-or-break decision for us. I mean we were sitting there going ‘We’re a public company, you could run out of cash in a heartbeat.’
And so, we needed a partner to help take that risk and ultimately it worked out and worked very well. So, the APAs, to the second part of your question there, were very important because we had to know that if we're going to go invest all this money and, in our infrastructure, forget about the research and development, we had to bring on six different manufacturing partners across the globe. We had to go make purchase commitments for inventory in the billions of dollars to say ‘Hey, we need to make a lot of Covid doses’ — over a billion on that time period that we made, a billion doses that is.
And that was a lot of risk. We needed to know that we were going to get some return. Otherwise, you know, we were going to turn upside down. So APAs were important. I believe that the partnership can work quite well. And in this example, I think it works extremely well. I get that there needs to be regulation for many different reasons, but I think that shows you the art of the possible, both in public-private partnerships as well as what can happen when you really try to expedite the regulatory process.
Tracy (24:01):
Here's one thing I always wonder when it comes to CFOs and their sort of daily life, but Joe has a line that I think it actually came from Neil Dutta and you co-opted it, but ‘the stock market is not the economy, but it's not not the economy.’ And when share prices go up, that means there's more availability of funding for companies in general. So first of all, how closely do you watch the Moderna stock price? Is that like the first thing you look at when you come into the office every morning?
Jamey (24:31):
I mean I certainly monitor it quite a bit. Yes, I do. It's important. I mean, it's one of the key stakeholders and one that I most importantly own, which is our investors. So I have to make sure I'm watching that. And so yes, I actually watch it a fair amount.
Tracy (24:48):
And then, okay, what do you think when it starts going down? Is there like a thought process in your head that says, ‘Ah, we need to think about specific things that we could be doing to boost shares?’ Or do you start thinking ‘Well, you know, there are other things going on in the economy, interest rates are going up,’ that sort of thing. Put us inside your mind for a second as a CFO, when you look at a share price, what is happening in your head?
Jamey (25:17):
Yeah, so I try to assess for really rapid movement what is going on. Day to day, stock's going to jump all around, a little bit up, a little bit down a little, that happens all the time. So I try to assess, number one, is it a specific event for us, a news item, whether it's a regulatory update on a clinical trial or whether we gave, you know, guidance on financials or whatever it might be. Is it a specific event? Did we do it well? You know, we take that quite seriously and did we communicate it well? Were we clear and people get it, do investors get it? And even if they get it, if it's bad news, the stock may go down, but they understand it and there's a natural implication to that. Or if the stock goes up, they're clearly understanding the message of what we're trying to say.
So I try to understand, number one, is there a specific event for us? The everyday events in terms of just the global economy and interest rates worry me less. We're fortunate, as I mentioned, to have $13 billion in cash. We don't take it lightly. We try to understand what that means for us over the coming years in terms of, okay, what's going to happen from a demand perspective, or the cash in the bank, will it return interest? And so we obviously are cognizant the implications on our company.
But overall, I think we spend the most time focusing on our investors understanding the long-term opportunity for our company. And I think that's what's critical for many companies, and it is hard to have investors really look at the long term and, you know, different portfolio managers, investors have a different view on what is long term, whether that's 24 months, five years, 10 years.
And we try to make sure that people understand what is the opportunity ahead and actually if they are saying it back to us, then at least they understand it and they might make a different decision, might wait for it, you know, and we try to understand what does that mean in terms of their buying behavior. But that's what we spend the most time doing is just make sure our investors understand our long-term strategy and do they believe in where we're going.
Joe (27:33):
It does seem like for companies in some areas that when a stock is moving lower or maybe higher, but when the stock is moving lower, that there's an impulse to course correct in some way. And so, you saw this, for example, I think within big tech where we saw this pretty big sell off in 2022, and a bunch of companies seem to get the message like ‘Oh, you know what? We really need to slow our hiring, or maybe we shouldn't bet the entire company on virtual reality goggles, and we need to cut our research in this area,’ that there is this like message about something.
And then you see the layoffs and they're like ‘Look, we've done much better about reducing our cash burn, etc.’ Do you take a signal? I mean, I get there are certain things that are out of your control, that you have a long-term message that you want to tell the shareholders, but do you take a signal from larger moves in the market that say ‘Look, the investors want to see X and we need to course correct in some way or another in order to align our goals?’
Jamey (28:32):
It's a great question. So, I think if there's a big move, and we should be doing this all the time, but there's something to listen to. And so, I'll just take myself out of Moderna, I mean, if you're a CFO and your stock goes down 20%, that is a substantial amount of investors saying it is less valuable, something's going on.
And I think what you have to listen for is, do we already know that? Or is it something that we really have got to think differently about? So is our revenue line not going to be what we think it's going to be and the investors are ahead of us because they see something in the marketplace that is changing? And if that’s the case then sometimes, I mean, I take our conversations with investors as a two-way learning. I learn from them. They give me their thoughts on what they think that where the market's going, where we're positioned, how we're positioned, how successful they think we're going to be, just as much as I try to tell them our view.
And so it is a two-way learning, and especially when there's a huge market move or a significant market move, they're telling you something. And the question, what you have to sift through is ‘DDid we already know that? And therefore just stay the course on strategy, or is it something that, hey, we might need to think differently about and perhaps we're wrong on one of our assumptions.’ So that's how I deal with, particularly significant moves in the share price.
Tracy (29:47):
So in the course of prepping for this interview, I was doing, you know, some casual research into Moderna and pharma in general. And I stumbled on this article from Science, I think it was from March 2020. So right in the heart of the pandemic. And it opens with a discussion of the Gartner Hype cycle and this idea that, people get really excited about a new technology, you see share prices of these tech companies go through the roof, and then there's some adjustment process or reality kind of sets in, the shares fall, and then slowly there's a recovery as people kind of enter realistic productivity and use of these new technologies.
And looking at the Moderna share price since March of 2020, it really does look like a Gartner hype cycle. If you're going to choose a textbook example, it's kind of this. So, I guess my question is, how do you balance people getting really enthusiastic about new technological breakthroughs and all these new treatments we have in the pipeline? I mean, I don't think you're working on this specifically, but GLP-1 weight loss drugs are obviously something that's kind of burst into the public consciousness recently.
How do you balance that excitement and the hype versus the reality of putting these in production? And again, going back to the timelines that you were discussing, the idea of long-term investment, like don’t get too excited, it's going to take a while for these to enter the market, and then it's going to potentially take even longer for them to filter through in an efficient way.
Jamey (31:26):
I think in those cases, I don't know every single case but I'm a little closer to the Moderna case, let's say, I think it shows the art of the possible, and I think people understand what could be from Moderna. And to your point, maybe there's a little over exuberance at a particular period in time, and I think that's where I go to what we should be doing, which is to not tell people that that's still not a real possibility someday, but let's go through the timeline, let's go through the risks and opportunities and let's walk you through, as best to our ability, in a public way, ‘Here's what we believe and what could happen when.’ And after that, investors have to model their own cash flows. That's what a stock price is, is ultimately what they think the company's worth from a cashflow perspective.
So, I think it's a delicate balance of we still believe what Moderna can be and what it should be someday in terms of being able to solve so many therapeutic areas as a platform company that can run the same technology through a manufacturing plant. And so therefore the marginal cost of our new drugs should go down substantially. But there's a timeline for that, there are regulators and there's a timeline and there's only so much in development, it’s expensive. And so, we try to be as transparent as possible with that. And, I don’t know, I guess that's my belief, is we should always make sure people understand what could happen someday, but also give them the best assumptions possible to the best of your ability over the relative near term.
Joe (32:54):
Moderna is, according to the Bloomberg right now I'm looking at, a $37 billion company, but obviously the accelerated development of the Covid vaccine, allowing life to get back to normal in a maybe period of time that was much shorter than people expected, you know, obviously orders of magnitude more valuable to the global economy than perhaps what Moderna specifically accrued. And I guess that's why, you know, we had Operation Warp Speed. It certainly seems like in theory you could say the same thing about other vaccines, other pharma products that are in the works, I don't know how much money is lost to the flu every year, but it would be probably very great for the economy if no one got the flu anymore or colds or any other sort of sicknesses that disrupted our life.
Do you think, like I've been a little surprised, that after the Operation Warp Speed experience, we haven't seen more announcements like ‘Hey, let's do an Operation Warp Speed for X or Y?’ Or maybe there have been and I just missed the stories. Have you seen any follow up on like ‘Hey, this model did something powerful, let's do it again, let's de-risk it, let's have the government step in with this investment and guarantee purchase agreements.’ Have people taken lessons from Operation Warp Speed and applied it potentially to other areas?
Jamey (34:18):
I think you see some minor examples of that, but I also just think that Covid was such a significant event that affected the entire global population, that it warranted both, you know, resources from a time perspective as well as money perspective. And that's not to say that these other ones don't, but it was a crisis, and so.
You know, there are areas in oncology that I think there's additional funding going behind. I think people learning, okay, rare disease, I hear a lot of talk — again, I'm not a scientist, I'm not a regulator, so take it with a grain of salt. But rare disease as an example, it's rare by nature. So, it's difficult to actually get enough patients in data to progress fast because of the regulatory processes. And I think the regulators acknowledge that and say ‘Hey, if I only have — I’m going to make it up — a hundred patients in the United States, this might take 10 years, but I can already tell in two years in a phase one trial, it's making a significant impact on 15 patients, and these are life-threatening diseases, it's worth taking the risk.’
So it might not be at the same speed and emphasis as Operation Warp Speed, but I have seen a couple areas in oncology and rare disease, and that's, you know quite honestly, that's where I am personally spending time, so I see those things and maybe it's happening in other areas, but I'm just not as knowledgeable as all other therapeutic areas. But I do see it a little bit more in oncology and rare disease, again, not the same as Operation Warp Speed, but I have seen it change people's minds and perspectives a little bit.
Tracy (35:56):
I wanted to ask an operational question, which is, how important is distribution to the pharma business? And one of the reasons I ask is because we recorded an episode with the Celsius CEO, and energy drinks are clearly a very different business to pharma, but one thing maybe they have in common is that a lot of your success depends on actually getting into stores. And obviously with medicines, we are not talking about getting into stores, we're talking about getting into hospitals and pharmacies and doctors’ offices, and there I imagine you have to face some pretty stiff competition from competitors like Pfizer or a GlaxoSmithKline. So how important is that and how does that process actually work? What are the discussions like when it comes to distribution?
Jamey (36:46):
Yeah, I would say, I mean, distribution is very important. I think there are other important factors in terms of making sure that a medication reaches a patient. But distribution, I mean, when I think about it, number one, it's got to be there at the right time. So take walking into CVS and wanting a flu shot. If CVS does not have the flu shot available, there's a chance that you might not go back for it. And so the importance of having the supply in the market when a patient wants and needs it, is extremely important and distribution plays a role in that.
There's also many different things that you have to work through in terms of storage. So some products are required to be refrigerator stable, some are required to be frozen at a certain temperature, some are required to be frozen at a very cold temperature and making sure that the distribution network has that as well. So the conversation largely revolves around that. What can they do to make sure that we have the right amount of products in the right channels and by channels for our industry, that means pharmacies and/or doctor's offices. And there's other places to put it as well, you know, but that's largely what that conversation does. And I would say there's some differentiation in the marketplace from a competitive standpoint, but I wouldn't say different distribution specifically is the number one variable for differentiation between competition.
Joe (38:05):
Tracy mentioned earlier, but the hot thing it seems in pharma right now that people are really excited about is GLP-1 drugs and weight loss. And if a company has something in that category, then investors get really excited and bid up the stock. You know, I imagine things go in and out of style at various times and people are really excited about one particular category. Do you feel that pressure? That it’s like ‘Okay, this is the hot thing right now, weight loss, and we can suppress people's appetite with an injection.’ Do you feel that pressure? And does that come from investors? Like [do they say] are you playing in this space, one of your 40 products, is it going to be potentially related to this category? And I'm curious, you know, you mentioned that sort of two-way conversation. You’re telling investors about your pipeline, they're telling you what they expect. Does the sort of flavor of the month or flavor of the year when it comes to what's hot in drugs play into those conversations?
Jamey (39:05):
Not really. Not for us. Not from what I've heard from investors. I have seen it in other industries, for sure. And maybe it's just because there's a hot new product that is really core and central, that could be core and central to somebody's strategy, but they're missing it. GLP versus what we've laid out is not core and central to our strategy. And so therefore investors understand that and quite frankly, rarely ask about it. So just not as applicable to our company.
Tracy (39:33):
You worked at GE for a long time before going on to Moderna, I think there was another company in between. But one thing I'm really curious about is are there overlaps between pharma and something like the aircraft business? I have to imagine that both of those industries have really long lead times that you have to manage. And as part of that, you also have to manage investor expectations.
Jamey (39:58):
They are so similar. So let me paint the aviation business that I worked in for GE, which was I was in the commercial engines division, commercial engines and services. So, think of the 737-Max, a partnership with a company out of France and GE called CFM is the engine on that aircraft.
And so, when I was a CFO there, you're making bets on product families that will be on aircraft for literally 40 years. And these are substantial investments. We're talking two, three billion dollars for a company to invest in. And you have to make the right bet. Are you on the right aircraft? Because, you know, you could put an engine on a bad aircraft and your engine might be great, but if nobody buys the aircraft, it's irrelevant. So not only do you need to make the best engine, you need to put it on the right aircraft, people need to buy it, and then you need to obviously do everything else well, from an execution standpoint.
That is no different here. I mean, we are making, you know, I mentioned our RSV product as an example, 37,000 patients, it's in the hundreds of millions of dollars from an investment perspective. But once it's ready and if it's there, you know, that RSV vaccine probably won't be tweaked too much. Maybe a little bit of tweaking over time, but we've just cleared a high barrier of entry whereas of right now, there's only two competitors.
And in the aviation space there's largely three competitors. So they're very similar. And so, the funding — so let's just give a specific example. When I was in aviation, you think through that three billion program, and we had what we called risk and revenue share partners, which was somebody to say ‘Hey, we can't invest in six product families times three billion each.
We're going to have to have some partners that’ll make part of the engine and they'll help invest in the technology and they can share in the commercial rewards.’
That can be very similar in pharma biotech. So I mentioned Merck and our partnership, they funded $250 million back in 2016 and additional monies since thereafter. And they own 50% of that program. So when you're thinking about pulling it together, this entire pipeline across many different therapeutic areas, and they all cost a lot of money to develop, you need partnerships and that partnership can provide more than just money. In the case of Merck, they are great from a commercial perspective. They sell the leading oncology drug on the planet.
And the same in the aviation plant world. You've got to have people that might make the best part of the engine that you're talking about to improve fuel consumption. So they're very similar models, one that I think about quite a bit. And on top of that, maybe the last thing I'd say is, they're both highly regulated. I already mentioned the biotech space, but aviation as you know, the FAA and other agencies across the globe highly regulate the aviation space to make sure that it's very safe to fly aircraft across the globe.
Joe (42:43):
I just have one last question and I get, you know, for a sort of young company, growth company, macro may not affect you as it may affect a more mature company, but I'm just curious, when the Fed raises rates dramatically, what does that mean for a company like yours?
Jamey (43:00):
Well, for us again, we're a bit unique because we have $13 billion. And maybe how I think about it for other companies that might not be fortunate to have $13 billion. $13 billion, I forget the exact number invested in bonds, but primarily invested in bonds. And so, we look at duration, we look at what is that investment portfolio want to look like? We're not there to make money on that asset. We're there to preserve capital, to invest in what is core to us, which is our R&D and everything that we've spoken about today.
But we look at ‘Okay, what's that mean? And, you know, what’s the duration we should be taking out?’ Which is a happy problem to have for us, I would say. I would say for a company that is sitting on, you know, one and a half years of cash burn and you're sitting there saying ‘Okay, I'm a biotech. I'm not revenue-generating yet. I've got one and a half years of cash burn, in terms of cash on my balance sheet, what does this mean and what do I need to do? Am I going to make it, how will interest rates affect me? Should I reposition myself? What do I need from the debt perspective?’ You know, it's just such a different animal in terms of surviving that time period in a different way.
Tracy (44:15):
All right. Jamey Mock, CFO of Moderna, thank you so much for coming on Odd Lots. That was a really interesting conversation. I feel like I understand Moderna now and also the role of CFO a little bit better.
Jamey (44:26):
Well, thank you Tracy and Joe, I really enjoyed it and it was a pleasure meeting you both.
Tracy (44:43):
So Joe, that was really interesting and kind of surprisingly thematic in a lot of ways. It seemed to touch on a bunch of recent things we've been talking about, like aviation, like...
Joe (44:55):
Yeah, I wasn't expecting that.
Tracy (44:56):
Yeah, like distribution, although I take his point that that isn't, I guess, a main source of competitive differentiation. But I'm glad I finally got the chance to ask a CFO what he thinks when he sees the share price going down. I always wanted to ask that.
Joe (45:10):
Yeah, no, I mean, I think it's really interesting. I mean, at the end of the day, any company can talk about their vision or their roadmap, etc., but when investors are selling your stock I think I appreciated his forthrightness that, like, you have to take that seriously on some level. It seems like there's only so far any company can go in terms of staying on one path if investors don't like the path.
Tracy (45:39):
Yeah. And just on that note, I also thought it was really interesting his discussion of, I guess encouraging investors to think over the long term and also the idea that everyone has a different definition of what the long term actually is, and I suspect those definitions have been getting shorter in recent years, but, you know, it can range from 24 months to like 10 years. And how do you actually convince people to stay with the company, be excited about the product offering and the pipeline, but not get too excited and expect that immediacy for things that take a particularly long time to develop?
Joe (46:18):
Totally. You know, I was not expecting him to like draw those analogies between pharma development and commercial engines. But it makes so much sense because obviously you have this huge runway — no pun intended — and then you're locked in for a long time and the product isn't going to change after that. And so you're really taking this extremely long uncertain bet. I also really liked the description of the processes that they have in place for internal capital allocation, you know, you have like 40 different processes and that like competition element between the different subject areas.
Tracy (46:56):
Yeah, absolutely. Shall we leave it there?
Joe (46:58):
Let's leave it there.