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Why Moderna Is Fighting Its Biggest Customer

By Keith Speights – Nov 16, 2021 at 5:55AM

Key Points

  • Moderna and NIH are engaged in a war of words over patents for the company's COVID-19 vaccine.
  • If NIH wins, the U.S. government could license the vaccine to other manufacturers.
  • Investors don't appear to be overly concerned, partially because they have even bigger things to worry about.

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The NIH disagrees with Moderna over who deserves credit for inventing the company's COVID-19 vaccine.

There's an old adage in business that "the customer is always right." Even when companies don't actually believe it, they usually try to make customers happy -- especially their biggest customers.

But Moderna's (MRNA -1.76%) biggest customer definitely isn't happy with the vaccine maker these days. The U.S. government has signed deals to buy 500 million doses of Moderna's COVID-19 vaccine, more than any other country. However, there's a rift between the two parties. Here's why Moderna is fighting its biggest customer. 

A masked and gloved healthcare professional giving a shot to a masked patient.

Image source: Getty Images.

Behind the battle

Moderna filed for a key patent on its COVID-19 vaccine mRNA-1273 with the U.S. Patent and Trademark Office in July. This patent is at the core of the dispute between the company and the National Institutes of Health (NIH), a part of the U.S. Health and Human Services department that serves as the nation's medical research agency.

The NIH maintains that three of its scientists (two of whom are no longer with the agency) designed a genetic sequence for the spike protein of the coronavirus that causes COVID-19. This sequence was then used by Moderna to develop mRNA-1273, according to the agency.

Moderna acknowledges that the NIH collaborated in the development of its COVID-19 vaccine. However, the company argues that NIH scientists didn't help invent mRNA-1273 and therefore shouldn't be included in the key patent application. 

Despite this view, though, Moderna said in a public statement that it attempted to resolve the dispute with the NIH. The company said that it offered on Sept. 29, 2021, to make the U.S. government co-owners of any patent applications for mRNA-1273 that only listed Moderna's scientists as inventors. 

Potential repercussions

That olive branch was apparently rejected by the NIH. Dr. Francis Collins, longtime head of the agency, told Reuters last week, "I think Moderna has made a serious mistake here in not providing the kind of co-inventorship credit to people who played a major role in the development of the vaccine that they're now making a fair amount of money off of."

So what's next in this skirmish? In his interview with Reuters, Collins stated, "But we are not done. Clearly this is something that legal authorities are going to have to figure out." An NIH spokesperson later didn't go as far as saying that the agency would take the case to court, though. 

The conflict isn't just a symbolic one that really doesn't matter. If the U.S. government co-owns the key patents for mRNA-1273, it would be able to license the vaccine to other manufacturers. That would likely help the Biden administration achieve its goal of expanding vaccine access to poorer countries. It could also generate significant revenue for the U.S. government. 

Investors beware?

You might think that the market would have reacted in a decidedly negative way with Moderna embroiled in a war of words with the U.S. government. However, the vaccine stock didn't slip much last week. Investors probably expect that the matter will be settled in a way that doesn't significantly hurt Moderna. 

Perhaps just as important, investors could think that there are bigger things to worry about. Moderna's shares have taken a beating in recent weeks with several concerning developments.

The company missed Wall Street estimates in the third quarter and reduced its sales projection for full-year 2021. Moderna doesn't expect to be able to ship as many vaccine doses as quickly as initially anticipated.

Pfizer's overwhelmingly positive results for its COVID-19 pill also alarmed investors about the potential impact of the oral therapy on future vaccine sales. On top of all of this, the U.S. Food and Drug Administration (FDA) delayed its review of Moderna's COVID-19 vaccine in adolescents. As a result, the company pushed back its Emergency Use Authorization filing for the vaccine in younger children.

Normally, a tussle with its biggest customer would be the main reason for investors to worry about a company. But these aren't normal times for Moderna.

Keith Speights owns shares of Pfizer. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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