Did COVID Vaccine Giants Actually Develop The Critical Lipid Nanoparticle Particle Technology That Earned Them >$100bn?
Between them, the two biggest selling COVID vaccines - Moderna's (NASDAQ:MRNA) Spikevax and Pfizer's (NYSE:PFE) and German partner BioNTech's (BNTX) Comirnaty, racked up revenues of >$110bn across 2021 and 2022.
Both Moderna's and BioNTech's net profit margins across these two years were >50% (we do not have the precise figures for Pfizer as it does not break down individual drug profit margins, but the number is likely similar) - an astonishing figure that, in many people's eyes, makes the case that the companies were profiteering on the back of a global health crisis.
Moderna and BioNTech would likely argue that profits earned will be reinvested back into R&D - Moderna is working on several other vaccines, targeting Respiratory Syncytial Virus ("RSV"), and Influenza, as well a cancer "vaccine," while BioNTech also is working on personalized cancer vaccines ("PCVs"), and shingle and malaria vaccines. Pfizer, meanwhile, has spent most of the profits from Comirnaty on an M&A spree of nearly $70bn so far.
Another question worth asking is whether Moderna, Pfizer and BioNTech truly deserved all of the acclaim they received for developing the underlying science behind the >95% effective vaccines, and all of the revenue that followed?
Three companies that believe they do not deserve the credit - and are taking steps to prove it - are RNA-interference specialist Alnylam (ALNY), viral disease specialist Arbutus Biopharma (ABUS), and privately-held lipid nanoparticle ("LNP") developer Genevant Sciences.
LNP's have been referred to as the "magic bus" capable of transporting the delicate strands of messenger-RNA contained in the Comirnaty and Spikevax vaccines - passing instructions to cells to manufacture versions of the spike protein found on the surface of the COVID virus, so that the immune system could begin to build defenses against it - to their target destination.
Had it not been for LNPs, the mRNA would likely never reach its target before being digested by enzymes, and the vaccines would not have been effective. But who actually designed the LNPs used in the vaccines?
Not Moderna, or Pfizer or BioNTech, allege Alnylam, Arbutus and Genevant. In 2021, Arbutus and Genevant filed a lawsuit against Moderna in the U.S. District Court for the District of Delaware, claiming that Moderna allegedly infringed no fewer than six of patents relating to nucleic acid-lipid particles and lipid vesicles, composition of matter, and methods for their use.
The gist of the lawsuit was that Moderna, despite licensing Arbutus' LNP patents for other projects, opted against doing so for Spikevax, and in fact sought to invalidate Arbutus' patents via the United States Patent and Trademark Office ("USPTO") rather than paying Arbutus to use them.
In March 2022, Alnylam also decided to file a lawsuit against Moderna, and Pfizer - I covered this in a note for Seeking Alpha at the time - alleging that it was primarily responsible for developing LNP technology, which was used in its first approved RNAi therapeutic, ONPATTRO, and accusing both companies of patent infringement.
Alnylam has since filed two more suits against both companies, the latest filing occurring in May, and, for good measure, a fourth company, CureVac (CVAC), an mRNA specialist itself that failed to succeed with a COVID vaccine of its own, also filed a case against Pfizer and BioNTech, alleging the two companies infringed no fewer than nine of its patents.
By my count, that's at least seven companies - Arbutus, Genevant, Alnylam, CureVac, Moderna, Pfizer and Moderna - which all seem to believe the LNP technology that earned Pfizer, Moderna, and BioNTech >$100bn in COVID vaccines revenues apparently belong to them.
None of Arbutus, Genevant, Alnylam or CureVac are seeking to stop the vaccines from being manufactured and distributed, however all are seeking a share of the revenues earned by Moderna, Pfizer and BioNTech.
Many people's expectation might be that vaccine giants would be able to squash the Arbutus and Genevant lawsuits underfoot - Arbutus is, after all, a minnow with a market cap of <$350m, while Genevant apparently has less than 50 employees. But then again, only a few years ago, Moderna and BioNTech were private companies primarily focused on research, with no plans to commercialize a drug product.
Alnylam - market cap $24bn, and CureVac - market cap $2bn - are larger, better known companies, and Alnylam especially has been at the forefront of developing RNA drugs for nearly two decades, struggling primarily with drug delivery technology.
Although RNA is larger and more prone to destruction by the immune system than mRNA, it's not inconceivable to imagine the company developing an LNP-based COVID vaccine, and possibly even being first to market, had "its" patents not been appropriated by Moderna, Pfizer, and BioNTech.
Who knows, perhaps Genevant, with its billionaire hedge fund owner, or even little Arbutus, might have had a shot at COVID vaccine success if either could have proven LNP patents belonged solely to them. At the very least, allegedly they may have earned royalties in the billions of dollars.
None of the companies seem likely to give up on their pursuit of what they believe is their fair share of COVID revenues. A couple of days ago, for example, after a court found that Moderna's Spikevax does not infringe on two of Alnylam's patents, Alnylam announced its intention to appeal the decision.
If we imagine a scenario in which each suing company successfully claims for a 5% share of vaccine revenues, we could be looking at the vaccine giants being forced to hand over some $10bn of their profits - sums that are comparable to fines paid by vaccine giants as a result of the opioid crisis.
Even if the likeliest outcome is that "to the victor go the spoils" and Pfizer and Moderna successfully fend off these legal challenges - making the argument, perhaps, that so many companies claimed to have developed LNPs that perhaps no patents are valid, or all patents are infringed - Pfizer, BioNTech and Moderna also face a potentially much more serious threat - each other.
Almost exactly one year ago, Moderna decided to sue Pfizer and BioNTech for patent infringement, with Moderna CEO Stephane Bancel quoted as saying:
We are filing these lawsuits to protect the innovative mRNA technology platform that we pioneered, invested billions of dollars in creating, and patented during the decade preceding the COVID-19 pandemic
Unlike the others, Moderna said that it was seeking damages. The first suit was filed in Massachusetts, but suits also were filed by Moderna in Germany, the UK, Netherlands, and other jurisdictions.
This week, Pfizer and BioNTech struck back, employing the same tactic that Moderna used against Arbutus, by asking a government tribunal to cancel the same patents that Moderna is accusing the two companies of infringing, calling them "unimaginably broad," and suggesting that LNP technology existed as early as the 1990s. In December last year, Pfizer also asked a federal court in Boston to dismiss Moderna's case, insisting that Moderna's patents are invalid, and therefore, cannot be infringed.
These disputes have been rumbling on for some time, but they may take on an additional significance as Pfizer, BioNTech and Moderna prepare to launch new vaccines this fall, into a private, rather than a public market.
This week, FDA officials have been meeting to discuss preparations for the fall COVID vaccine season - this time, the agency is likely to approve three vaccines against a new strain of the virus, known as XBB.1.5 that's perceived as the most dominant current strain - produced by Moderna, Pfizer / BioNTech, and Novavax, whose vaccine does not use LNPs.
This time, the vaccines will not be provided for free by the government, however. Instead, the vaccines will be available via the commercial market, and prices per dose are expected to rise from ~$25 per dose, to ~$125 per dose, albeit health insurers are expected to cover most of the cost, with the government expected to provide a bridge program for those without insurance.
Nobody knows what kind of demand there will be within a private COVID vaccine market. Both Moderna and BioNTech are forecasting for ~$5bn of revenues in 2023, that figure could increase dramatically if demand is strong.
As recently as this month, Arbutus and Genevant filed fresh lawsuits against Pfizer and BioNTech, alleging patent infringement once again, and now there's a fifth complainant in the form of Promosome, claiming patent infringement.
Ultimately, these cases are not going away and must be resolved one way or the other. If Pfizer, BioNTech and Moderna continue to ignore them, the compensation due to each of the complainants if their cases are upheld in a court of law will surely increase.
It's not known when courts will begin to provide judgments in any of these cases - in reality, it could take many years, but clearly the implications for all companies are hugely significant.
If Pfizer, BioNTech and Moderna successfully defend themselves from Arbutus, Alnylam, et al, then their control of the COVID vaccine markets - however large they may be going forward - will be significantly strengthened, which will likely do their market valuations no harm.
Pfizer's share price - which was flat for the best part of the decade prior to the pandemic, finally found some momentum thanks to the enormous sales of Comirnaty, rising to peaks of $59 in 2021, and $52 as recently as December 2022, before gradually falling through 2023 so far.
The company has a chance to recoup some of those losses if it can show that there's a strong private sector demand for COVID vaccines, and that Comirnaty 2.0 is capable of delivering e.g. revenues in the double-digit billions. If a court decision goes against the pharma giant, however, the company could be looking at paying a similar figure in damages to the various claimants.
Potentially, Moderna and BioNTech have the most to lose however, since they currently have no other commercial products on the market, while the new vaccines they are developing targeting RSV, Flu, Malaria and Shingles will doubtless employ LNP technology.
Given both companies' futures depend upon these products being successful, might the companies seek to settle with their accusers sooner, rather than later, possibly offering to pay them royalties on future sales, to avoid potentially devastating damages. Although claimants promised not to demand product withdrawals when filing suits at the height of the pandemic, would the companies now change their tune given the global pandemic has now been declared over?
It's doubtful if any of the companies that became embroiled in the opioid crisis ever believed that they would one day be forced to pay out billions in damages, yet ultimately, the likes of Johnson & Johnson (JNJ), AmerisourceBergen (COR), Cardinal Health (CAH), and McKesson (MCK) paid out >$20bn, while Purdue Pharma was dissolved as a company in 2021.
The LNP litigation is very different - the cases are not about end users of the vaccine (who knows if that lawsuit will ever materialize?) but about patent infringement, but if judgments were to go against them, it's not inconceivable that Moderna and BioNTech could end up in as perilous a position as Purdue Pharma - as unlikely as that seems today.
What's more likely is that the market may not be taking into account the potential effect a reversal in the courts could have on each company's valuation. Recently, both companies share prices have been rising - Moderna's from ~$95, to ~$115, valuing the company at $44bn, and BioNTech's from $95, to $124, valuing the company at $29bn.
If it transpires that these valuations are built on sand - owing to the fact the two companies allegedly infringed patents to create the COVID vaccines that underpin each of their valuations - then someday - likely not in the next days, but someday, there may be a substantial price to pay. I recently made the bull case for both companies based on the emergence of the private COVID vaccine market, and while I would stand by that in the short term, with each day that passes we're getting closer to discovering how sharp the patent infringement "sword of Damocles" hanging over both company's really is.
As for the likes of Arbutus, Genevant, CureVac, and perhaps even Promosome, the financial gains these companies could realize if courts take their side of the argument are transformative, potentially running into the billions of dollars, or at the very least, a decent share of all LNP-based COVID vaccine revenues going forward. Even Alnylam, with a market cap close to $25bn, would realize a substantial gain.
As such, although there's no timeline on when courts across the US, Europe, and UK (and who knows what other jurisdictions) will pass judgment, there are several ways investors might think about playing the situation with a long-term view.
If you believe that Pfizer, BioNTech and Moderna are innocent and will be proven so, the case for their valuations continuing to rise thanks to a private COVID market is gathering pace. If you disagree, the case for selling the stock is persuasive. If you want to make a speculative bet on Arbutus, Alnylam, or CureVac, there's a persuasive case for doing so.