Shares of Moderna (MRNA -5.06%) and its peers have been under pressure in response to a bomb the Biden administration's new trade envoy, Katherine Tai, dropped on America's technology-driven economy. On May 5, Tai voiced support for a World Trade Organization (WTO) proposal that would nullify intellectual property rights in COVID-19 vaccines for Moderna and its peers.
Fortunately for Moderna, the U.S. trade envoy's position is based on arguments that don't hold water. Here are four reasons the WTO's proposal shouldn't cause you to sell your Moderna stock in a panic.
1. COVID-19 is not extraordinary
The Biden administration's new trade envoy is right to consider the COVID-19 pandemic a global health crisis. But she couldn't be more wrong when she contends that this is an extraordinary circumstance that calls for extraordinary measures.
The COVID-19 pandemic isn't the first time in human history a new virus threatened the lives of people everywhere, and it certainly won't be the last. Epidemiologists have been warning world leaders about potential new respiratory viruses ever since a coronavirus associated with severe acute respiratory syndrome (SARS) infected thousands of people across dozens of countries in 2003.
The potential to save lives is an enormous motivator, but drug developers rack up a lot of bills that can't be paid with good intentions. Unwinding intellectual property rights for vaccines now will limit future development of vaccines to companies in line to receive government handouts.
2. It takes an uncoordinated village
Government-funded programs like Operation Warp Speed have played an important role in the timely development of new vaccines, but depending on government funding to quickly get us out of trouble in the future is a terrible idea. Remember, the first COVID-19 vaccine authorized for use in the U.S. came from Pfizer, a company that initially eschewed government funding.
Pfizer's partner, BioNTech (BNTX -2.91%), Moderna, and a slew of lesser-known companies had been developing messenger RNA (mRNA) technology for over a decade before SARS-CoV-2, the virus responsible for COVID-19, appeared on the scene. Moderna was in a position to jump on SARS-CoV-2 early because investors had been shoveling capital in the company's direction for years so it could develop lucrative therapies, not vaccines.
Viruses have been hijacking genetic processes with strands of RNA since life began, and your immune system can't differentiate between therapeutic strands and those that would do your body harm. Packaging therapeutic mRNA strands into tiny bubbles comprising nothing but lipids is a complex process; it never would have been developed without investors motivated by the potential for immense profits down the road.
Moderna's example isn't an unusual one, either. Coronavirus vaccines from Johnson & Johnson (JNJ -0.48%) and AstraZeneca (AZN 0.12%) rely on viral-vector technology that has been used for years to deliver gene therapies for rare inherited diseases. Their respective vaccines are the first examples of viral-vector technology used by large populations of relatively healthy people.
3. Vaccines are hard to make
The WTO's proposal contends that today's supply of COVID-19 vaccines is limited by patent protections the organization would like to unwind. This batch of malarkey isn't as silly as pretending future pandemics aren't inevitable, but it does ignore important facts on the ground.
First of all, traditional vaccines are not as simple to manufacture as the small-molecule drugs that come to mind when the average person thinks about pharmaceuticals. Production of Novavax's (NVAX -5.56%) recombinant protein vaccine has been limited by the availability of cell culture bags and filters, which has nothing to do with the company's intellectual property rights.
Moderna's mRNA-based COVID-19 vaccine made my arm sore for a couple of days, but I didn't suffer organ damage from a violent immune response. That's because the mRNA strands it's composed of stayed encapsulated in tiny lipid bubbles until they safely entered my cells.
A year and a half ago, purpose-built machines capable of precisely mixing mRNA with lipid nanoparticles only existed to produce small batches for clinical trials. Unwinding Moderna's intellectual property regarding its vaccine won't help the world produce mRNA-filled fat bubbles any faster, because there's still a limited number of people capable of setting up new facilities that can do the job.
4. Time is on Moderna's side
In the first quarter of 2021, Moderna sold 102 million vaccine doses, which worked out to around $1.7 billion in top-line revenue. The company expects to deliver more than twice as many doses in the second quarter.
Moderna recently raised its 2021 supply forecast to between 800 million and 1 billion doses. Further ahead, the company is building out capacity to produce up to 3 billion doses in 2022. These plans are going to play out whether the company's IP remains intact or not.
It will take months for Kai to gain consensus from WTO members that have biopharmaceutical industries of their own. Hopefully, this will be plenty of time for the organization to realize it's trying to shoot itself in the foot to solve problems that don't exist.