Moderna (mRNA): Are their Patent Issues a short sellers best friend?

When I first started researching Moderna, I was fairly quickly reassured that it wasn't going to be a one-hit wonder, given its phase 3 pipeline (Further info here: https://www.reddit.com/r/stocks/comments/1bkiv8o/moderna_mrna_to_paraphrase_its_not_about_covid/ ) backed up by its plump phase 2 candidates. I also reckoned, and still do, that its platform will continue to pump out (oil-rig style!) an enviable supply of new potential drug candidates, not just in Respiratory (CV, Flu, RSV, combos), but also other modalities.

WHAT CONCERNED ME for some time & kind of surprised me that the Short Sellers weren't "discussing", were their various ongoing legal battles & what it could mean for Moderna’ valuation.

To be clear, keeping my zero medical knowledge company is my zero legal knowledge! I've tried to write as balanced a summary of the current situation as I can (I see no point in lying to myself, after all my own pension money is on the line), however hopefully there are some legal brains out there to correct / clarify if required.

##Sorry in advance that this isn’t a succinct post, there's just too much going on for that ##

To kick things off, The Financial Times reported (21Apr21) that Moderna has previously acknowledged that “one or more organizations will hold patent rights to which we may need a license or hold patent rights which could be asserted against us”. Similarly Weissman (one of the original mRNA scientists), apparently said everything that Moderna does uses our patent, our technology. BioNTech has other programs that don’t use it, but the vaccine they made uses our technology.

– However, a Jefferies analyst (Michael Yee) apparently said "We think Moderna is unlikely to settle on anything regardless near-term and like most patent trials for large cap cos – this hasn't been a major talking point for this stock or sentiment & unlikely to be a major impact after probability adjusting & given Moderna is a $35B cap."

SETTING THE GROUND BEFORE SUEING: In Mar22 Moderna announced it was “updating its patent pledge never to enforce its patents for CV19.” It said it now expected those outside the poorest 92 nations “using Moderna-patented technology” to respect its intellectual property. Given this, experts said royalties would probably only count after the expiry of the pledge not to enforce patents, thereby excluding the vast majority of sales so far. Also, Moderna didn’t seek an injunction to stop Pfizer & BioNTech selling their vaccine & has also excluded many of the sales to the US government.

WHY SUE: If Moderna wins it could gain a slice of $bn’s in revenues from the BioNTech/Pfizer Covid jab (anywhere from 1-10% of sales). It would also signal to investors and Big Pharma that the company is primed to dominate the future mRNA market. Also, per an 02Sep22 pod at 9.30.. It's litigating to see who's going to get the benefit for all of these future mRNA uses, it could be a commercial tactic, looking to negotiate royalties & license fees from Pfizer etc by adding pressure / getting leverage.

MODERNA SUES PFIZER & BioNTech:

1) Per a 04Sep22 pod at4.00 2 scientists (c. mid-2000's some mRNA tech was patented, 6yrs before Moderna) discovered that the nucleic acid coding sequence for mRNA, they could change one of nucleotides & chemically modify it & what that did decreased the toxicity & made the translation of proteins much more efficient.

2) Per the 04Sep22 pod at5.23 There are 3 things Moderna is alleging Pfizer copied,

2A] Chemically modifying a nucleotide (which Moderna did back in 2015) to prevent the body mounting an immune response [A 02Sep22 pod at3.05 said they allegedly had several candidates that wouldn't have copied this feature but they chose to move forward with the version that did & they knew they were doing that & allegedly said this is what Moderna is doing….]. This key modification is to reduce side effects, allowing Moderna to use a larger dose.

2B] the way in which the mRNA is packaged up into a lipid particle.

2C] & because Moderna made some earlier vaccines against Middle East Respiratory Syndrome (MERs) using in that vaccine a full-length spike protein (which teaches the immune system to recognize the virus; Moderna used this again in their CV19 vax) & Pfizer allegedly did something very similar.

3) Per the 17Feb23 pod at22.15 For Litigation in the US you have "discovery" & that means the lawyers on each side can request all the documents a party has related to this, but can also file papers called "interrogatories" were they can ask questions etc & then later can get people to swear things under oath were we can find out if there's an email saying "let’s do it Moderna's way" etc!

Various expert’s thoughts on the merits to Moderna's case:

1) 04Sep22 pod at6.40 The patent lawyers certainly think there is a decent case to be answered here.

2) Moderna appeared to have a “fairly persuasive case”, pointing in particular to the patent covering the spike protein.. That’s what enabled it to quickly produce the mRNA vaccine for CV19. There are some similarities in the technology there, so I think the case is relatively powerful.

3) The patent could still be invalidated if it is too broad or if someone else holds a similar patent that was filed even earlier.

4) A lawyer thinks Moderna has a good chance of winning. While mRNA has only recently become a success, scientists have been working on its development for so long that many of the earliest patents may have expired. All things being equal, it probably favors Moderna, but things could change in a hurry.

5) Most legal experts expect the battles to eventually conclude in a web of cross-licenses, which should ensure new vaccines and therapeutics get to patients.

MODERNA HAS BEEN SUED:

1) Pfizer & BioNTech: A 17Feb23 pod.. Pfizer & BioNTech have hit back with a countersuit, demanding a jury trial and refuting Moderna’s claims of infringement… Noting that Moderna is stretching its “already overbroad” and arguably “invalid” patents and is trying to “claim credit for others’ work” [i.e. Pfizer & the NIH].. Pfizer and BioNTech claim that their vaccine is “undeniably different” from their competitor's, with their vaccine using a different mRNA structure than the one present in Moderna’s vax, as well as different lipids…… A 17Feb23 pod at11.50 There is an argument to be made that Biontech has a patent, not specific for the covid virus, but a more generic/broader patent that refers to making a genetic change to one of the bases that's part of mRNA sequence that makes the mRNA immune responsive. There's a modification that Biontech believes is theirs that Moderna is using.

2) National Institute of Health (NIH): A 17Feb23 pod at18.00 the NIH patent dispute is that some of their researchers should have been named as inventors on the Moderna patents. If it turns out the Government should have been on the patents, then going forward they could decide to let anyone use the patent, which they probably wouldn’t.

3) Alnylam: A 17Feb23 pod at15.40 Moderna in particular has been sued by a few other companies (Alnylam, Arbutus, Genevant) for patents pertaining to those lipid nano particles; On 25Aug23 a court issued a ruling were apparently Alnylam & Moderna agreed to a final judgment of non-infringement, however Alnylam later said it “respectfully disagrees” with the ruling & will appeal. [BB: This is a bit confusing]

4) Arbutus: Back in Dec21 Moderna lost a court appeal against a patent ruling which analysts warned could leave its CV19 vaccine vulnerable to infringement suits. The US Court of Appeals for the Federal Circuit dismissed an appeal by Moderna against decisions by patent authorities to affirm two patents held by Arbutus Biopharma; In Feb22 Arbutus & Genevant Sciences filed a lawsuit against Moderna for infringement on six patents; In Feb24 it appears that the judge may favor Moderna (MRNA) on the '378 patent [“Lipid Formulations for Nucleic Acid Delivery”] but Arbutus on the '651 [“Lipid Compositions for Nucleic Acid Delivery”], with the judge indicating that he would work "expeditiously" on a decision, which may imply an order sooner rather than later.

Well done if you got this far! I personally find the legal stuff pretty tedious, however it's nonetheless part of Moderna's buy/sell case….. As for myself, I go back to the royalties "1-10% of sales" remark & reckon it would not be great if they lost but not too damaging a blow & if they win there's unexpected treasure! Overall I reckon the Jeffries analyst (above) has it about right, by remarking this isn't a major talking point for this stock or sentiment & unlikely, given its size, to have much of an impact on Moderna…….. So, all in all I don’t think there’s much to make a short seller happy.

FYI: Legal/patent podcasts

02Sep22 "Moderna Fires Shots in mRNA Wars" (13mins, fine, legal/patent)

04Sep22 "Moderna vs Pfizer, Marijuana.." (51mins, first 7.30mins only, ok-legal/patent)

17Feb23 "Pfizer, BioNTech strike back at Moderna with mRNA.." (25mins, from 6.50)



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