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Will the COVID Vaccine Companies Fall off the Patent Cliff?

By Taylor Carmichael - Updated Jun 26, 2021 at 11:04PM

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The U.S. now supports waiving patent rights at the World Trade Organization for COVID-19 vaccines. How bad is this news?

On May 5 the Biden administration announced that the government would support the removal of patent protections for COVID-19 vaccines at the World Trade Organization. "The Administration believes strongly in intellectual property protections, but in service of ending this pandemic, supports the waiver of those protections for COVID-19 vaccines," U.S. Trade Ambassador Katherine Tai said in a statement. "We will actively participate in text-based negotiations at the World Trade Organization (WTO) needed to make that happen."

Negotiations at the WTO can take months, or even years, because all 164 countries have to agree on the language that is used. So it's perhaps unlikely that the WTO will abolish the patent protections. But it could be bad news for vaccine companies like Moderna (MRNA -1.41%) and Novavax (NVAX -2.47%).

In this Motley Fool Live video, recorded on May 14, Corinne Cardina, bureau chief of healthcare and cannabis at Fool.com, and Fool.com contributor Taylor Carmichael discuss the "patent cliff" that sometimes hurts pharmaceutical stocks. 

Taylor Carmichael: You will see sometimes when a very big drug goes off-patent, the stock gets hammered. They call that the patent cliff. The reason it gets hammered is because generics are going to come in and make those drugs for a lot cheaper and it's going to cost you a lot of money.

Corinne Cardina: We saw that happened with Humira, which is owned by AbbVie. Of course, that's a biologic drug, so it's not called a generic, it's called a biosimilar. But it's the same idea. AbbVie has been losing its patent protection for Humira and they are scrambling to make that up elsewhere because they are heading toward the patent cliff. I think the fears here are that if Moderna and Pfizer and BioNTech lose their protection, will they be facing a patent cliff? We're going to talk a little bit more about what that might look like, but let's talk about who has the power to take away these IP rights.

Carmichael: Yeah, it's a government protection. Governments protect property rights. I don't know if I should use the word socialist. But if they go a little bit like, "We need these drugs, we're going to take them from you," they can. They just seize your property. When that happens, obviously that's awful for companies. To lose your patent is a very big deal. Governments can and do take patents. They can prolong patents. Governments are heavily invested in the whole patent thing. They create it, they protect it and they can dissolve it. It's like FDA approval, too. The government, for better or for worse, is heavily involved in the healthcare industry and pharmaceuticals.

Corinne Cardina owns shares of Moderna Inc. Taylor Carmichael owns shares of Novavax. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$171.81 (-1.41%) $-2.46
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$48.29 (-3.32%) $-1.66
Novavax, Inc. Stock Quote
Novavax, Inc.
NVAX
$40.34 (-2.47%) $-1.02
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$142.08 (0.81%) $1.14
BioNTech SE Stock Quote
BioNTech SE
BNTX
$158.59 (-1.45%) $-2.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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