Three Longs & Three Shorts

Vaccicorns: An improbable rescue mission

Author: Anand Sridharan
Source: Buggy Human blog (

Over the past decade we have learnt a lot from watching the good folks at Nalanda Capital invest. In this blog one of their team members, Anand Sridharan, writing in his personal capacity provides some great insights into why two pharma businesses which none of us had heard about 18 months ago – Moderna and Biontech – were able to create the Covid vaccine in record time. Anand says that this phenomena should be of particular interest to Indian investors because Indian pharma companies (including our homegrown vaccine makers) are as different to Moderna and Biontech as chalk from cheese. Anand begins by setting the scene: “Let’s rewind to early-2020…Look at four leading protagonists of the story about to play out: Moderna, Novovax from USA and Biontech, Curevac from Europe. I chose them as, over 2020, these four received nearly $5 billion from US and German governments. Company filings from early-2020, which discussed 2019 performance, said the following about these four companies (mild paraphrasing):
·       We are clinical-stage bio-tech companies.
·       No medicines using our approach have ever been approved by FDA or anyone else.
·       We have never commercialized any pharmaceutical products whatsoever.
·       We have no marketing or sales organization. No commercial manufacturing either.
·       We have incurred net losses in each year since our inception (1987 for Novovax, between 2000 and 2010 for other three).
·       Our accumulated losses are massive.
·       We have financed our operations primarily through equity securities and strategic alliances.”
Anand says that the first thing to note about the aforementioned bullets is that there is nothing untoward about them i.e. this is the way things should be: “Above aspects are features, not bugs, of an established business model. These are R&D companies at the cutting edge of their respective bio-tech niches, with hundreds of pioneering scientists working on long-gestation projects that could transform the face of healthcare. They use specialized expertise to function as an extended product development arms of Pharma giants through strategic alliances. They’re meant to incur R&D expenses well in excess of revenue for over a decade, to be recouped if a few products fructify. While they’re initially funded by venture capital and private equity, all four became publicly listed companies well ahead commercialization. Short-termist markets financed their moon-shots.”
When Covid hit and governments and Europe and America started funding these companies, the rest of us got a chance to watch a ‘natural experiment’ in which these minnows competed with giants like Merck, Sanofi, GSK, AstraZeneca and J&J. What as the outcome of that race? “Every giant failed or struggled with timing or scaling. Two minnows, who had never made product or profit, ended up making over 2 billion doses and $30 billion revenue in the following year (one of whom admittedly partnered with a giant). And, ended up saving the world, starting with the West. This is the most improbable, high-risk, serendipitous rescue mission I’ve ever come across…”
So, what can we in India learn from this? Anand gives his takeaways under 3 headings ‘ecosystem’, ‘disclosure’ and ‘backing’: “It’s impossible for a group of scientists stepping out an R&D division in India to get funded for an entrepreneurial journey requiring two decades of financial support with no assurance of success. Western ecosystem, across private & public markets, government grants and charitable foundations, funded them and how. Three of above four were valued at roughly $10 billion well before covid prospects were baked in. Cumulative funds raised was over $7 billion. Implausibly, short-termist markets made their peace with quarterly filings that read like scientific papers. Supporting bio-tech unicorns at scale feels like society paying option premiums every year, for a windfall gain in an occasional crisis. That this was mostly done by free markets and not government is noteworthy….
Picture Indian government punting a few billion dollars on bio-tech start-ups with no history of commercialized vaccines in mid-2020. Half the companies thus funded in the West have little to show for it. Other half assure supplies to their home markets, but charge a price that implies near-50% pre-tax margins despite all capital/research expenditures having been funded upfront by government. There’s no moronic ‘profiteer’ tag or accusations of Trump doing favouritism. A long time after 1991, we struggle to appreciate and back private businesses and their profits.”