Meet The Investor Behind The Early COVID-19 Vaccine Success

It’s a sign of the times: Eight human bodies produced immune responses to an experimental COVID-19 vaccine, and all over the world, people took a deep breath of hope.

The results of early trials are usually just a footnote to the news. But in this case, the Dow surged. Moderna, the company working on the vaccine said it planned a bigger trial with 600 people. And the White House announced Operation Warp Speed to hasten the pace of vaccine development.

Cambridge, Mass.-based Moderna, is one of more than 100 companies that venture firm Flagship Pioneering says have grown out of its unique process. I interviewed founder Noubar Afeyan a few years ago, and wrote a short piece for Forbes.com. I’m publishing an extended piece today based on the interview.

I was fascinated with Afeyan’s expansive approach, because it was subtly and yet importantly different than investing in high-tech entrepreneurship, which places a premium on speed and growth. In Afeyan’s world, complications represent opportunity, because they open up other avenues for exploration.

In the next few years, we’ll likely see a huge surge in biotech investing on top of record-breaking years of investor cash flowing into the sector. Silicon Valley VC firm Andreessen Horowitz, for instance, has announced another biotech fund.

Financial returns have been good in the public markets and elsewhere: Returns from health care IPOs hit records in 2018, according to Silicon Valley Bank. They continued to be strong in 2019.

The coronavirus vaccine will be a big test of whether the modern biotech industry can produce equitable social good as well as financial returns. It’s clear that it won’t be a winner-take-all model, because no single company can produce billions of vaccine doses for global distribution. As The New York Times noted:

Dozens of companies and universities are rushing to create coronavirus vaccines, and human trials have already started for several manufacturers, including Pfizer and its German partner BioNTech, the Chinese company CanSino and the University of Oxford, which is working with AstraZeneca.

Afeyan and I covered three areas in the interview: Armenia, and his philanthropy there; entrepreneurship; and biotech investing.  Born in Lebanon, Afeyan is the grandson of an Armenian refugee who landed in Lebanon after he was saved during the genocide by German officers. Afeyan’s father was an entrepreneur, with a small import/export business. But when the civil war in Lebanon came, the family moved to Canada.

The Legacy Of Armenia

Afeyan is one of three founders of a major philanthropic initiative that seeks to honor people who helped Armenians during the genocide in 1915. The other two are Vartan Gregorian, president of the Carnegie Corporation, and Ruben Vardanyan, an Amermian who made a fortune in Russian banking.

Afeyan realized that his own healing came out of the recognition that there weren’t only two categories of people involved in the horror of the genocide. There were victims, perpetrators, and there were also people who helped; Afeyan had an example in his own family.

Borrowing an idea from the world of physics, Afeyan recognized that moving on from the genocide was a “three-body problem, not a two-body problem.”

If Armenians could redefine themselves as people acting in gratitude, as the children of survivors, he thought, they could overcome some of the trauma of the past.

The founders committed to giving away $1 million a year to a humanitarian at work in the world today. Previous recipients have been Dr. Tom Catena, the only surgeon working in Sudan, in an area of 1.3 million people; and Marguerite Barankitse, who founded community centers to care for orphans in Burundi and Rwanda.

The humanitarian in turn designates projects around the world for aid. So far, those number 28, in 16 countries, according to the Aurora organization. The Initiative also sponsored the Aurora Dialogues, bringing thought leaders around the world to come up with solutions to humanitarian crises. (Disclosure: They invited me as a journalist and covered my travel expenses in 2016.)

To be a survivor is almost by definition to be a paranoid optimist. To Afeyan, “paranoid optimism” is one of the hallmarks of a successful entrepreneur.

Entrepreneurs should always be worried about what could go wrong, and yet believe that in the long run thing will go right. “You need a gas pedal and a brake pedal,” Afeyan said.

A Formula For Entrepreneurship

Afeyan got a degree in chemical engineering from MIT. There by chance, at a National Science Foundation meeting, he met an electrical engineer in his 50s, who described to him how he had built a company that supplied tools to the new and burgeoning field of electrical engineers. That man? David Packard.

Noodling on the idea of building tools for biomedical engineering, Afeyan went on to found PerSeptive Biosystems, which was acquired. After that, Afeyan turned to his passion, which is startups — not founding individual companies, but creating a process for startups.

“I became interested in figuring out out whether I could start companies for a living, professionally,” he said.

At Flagship Ventures, which has more than 3,000 employees, teams of scientists explore companies through four phases, from idea (which focuses on building a product from the start), through to market. The successful ones are spun out into companies. The firm says it produces six-eight a year.

Here’s how Afeyan wrote out his formula for me in an email — or at least, his suggestion for the way to think about the process of entrepreneurship.

I would say it this way – first envision several possible future states where in each case some combination of new science or technology can deliver value by addressing an unmet need.  From among those, chose the one future state you want to pursue by trading off likelihood of reaching that state as well as the impact and value created by doing so. Then evaluate various paths to reach that future state. Keep in mind that the future states you envision will necessarily seem unreasonable at first (given that the technology/science and need are not yet clearly established). An entrepreneur’s goal is to define incremental steps from the present to that envisioned future each of which may seem reasonable but which in combination can take us to a place that initially seemed unreasonable to aspire to.

Afeyan suggests entrepreneurs follow a process of variation-selection-iteration. One of the key insights here is that it’s not just products. Silicon Valley is very focused on products, but in the biotech space, you can also use this process with hypotheses, jobs or marketing messages in your company, among many other things. “The pace of the variation is only limited by the resources you can deploy,” said Afeyan.

Recognize what creates value. Your company is not necessarily a product-building engine; it is a value-creation engine. Your ideas have value, too. “You sell the idea to gain credibility and trade in credibility to get money. The more you build stuff from your ideas, the more credibility you have,” Afeyan said.

What Can We Learn About Biotech Investing

When I interviewed Afeyan in 2016, I was struck by how different the process was that he was describing. Though it bears some similarities to venture capital – Flagship raises funds, for instance – its approach keeps the entrepreneurs/scientists employed until an idea is fully developed. Flagship retains a majority stake in the companies that it spins out.

Biotech investing has been riskier than traditional venture investing, which is often focused on software companies, because there were fewer exits in biotech. That may be changing now. The changing landscape for returns could put Flagship in a good position. It seems to have found a low-cost way to invest in many biotech ideas, by focusing scientists on product and value development and keeping them in-house.

Within Flagship, teams of about 20 hypothesize in as many different directions as possible, but always with the aim of creating a use for a new discovery.

How does this work in practice? Afeyan gave me an example of nine or 10 years ago, when researchers were just beginning to be able to measure the microbes that colonize the gut. There were multiple hypotheses for how that new science could be used, from the idea that you could diagnose different diseases by measuring microbes, to the idea that you could potentially come up with a subset of microbes that combatted a particular super-bug, to the idea of enabling fecal transplants. The third hypothesis led to a company, Seres Health. Other companies born out of the Flagship process include CiBO Technologies, which works on increasing yield in agriculture, and Axcella Health, which works on interventions to reprogram metabolism.

“There is nothing like a game about this,” he said. “If the science isn’t there, why are you talking about products?”

Moderna, founded in 2010 had a record-setting $600 million IPO in 2018, is one of Flagship’s big wins. Yesterday, it announced it would issue an addition $1.34 billion in stock to pursue its COVID-19 vaccine. The company, which according to Flagship was built on the insight that cells could be programmed to produce protein, is focused on the discovery and development of messenger RNA (mRNA) therapeutics and vaccines.