Despite being hot off $18.5 billion in revenue from sales of its coronavirus vaccine last year, Moderna (MRNA 1.34%) might just have trouble brewing. On Feb. 28, Arbutus Biopharma (ABUS -1.51%) initiated a lawsuit against Moderna, claiming that the company had infringed on several patents with its Spikevax vaccine. In particular, Arbutus took issue with the lipid nanoparticle (LNP) technology used as a drug delivery system for Moderna's jabs.
Though it's unclear exactly what terms or how much money Arbutus is looking for with the lawsuit, investors can assume that the threat to Moderna is real. And if the company is forced to settle, it could potentially be for quite a mighty sum -- here's why.
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It's all about the nanoparticles
Lipid nanoparticles are critical for Moderna, and its vaccine likely couldn't work the same way without them. Thus, the company has spent a lot of time fiddling with its lipid nanoparticle technology to optimize its efficiency. The situation is doubtlessly the same for Arbutus, even if its intended purposes for the technology may be different.
And therein lies the problem for Moderna. In 2019, it challenged one of Arbutus's patents for LNPs, but the challenge was rejected as the patent was found to be valid, and the rejection was upheld in an appeals court in mid-2020. Now, the fight has come home.
Let's crunch a few numbers to get a rough estimate for how much losing the lawsuit might impact Moderna's stock.
In prior situations where Arbutus has licensed its LNP technology to its collaborators, it has sought royalties in the low-single-digit range as a percentage of sales. Taking Moderna's Q4 revenue of $7.2 billion as an example, if we assume Arbutus would want 2%, it'd work out to be $144 million. It's true that 2% isn't much, but it's also unlikely that Arbutus would be satisfied with getting the licensing fees from only one quarter's worth of sales of Spikevax.
Since 2020, Moderna has made around $19.3 billion, with another $19 billion expected to be on the way this year. So, 2% of that works out to be more than $386 million, which wouldn't be a problem to pay off, given the company's $10.7 billion in cash.
And while investors probably wouldn't be thrilled about missing out on 2% of future revenue, it probably wouldn't harm the stock much.
The impact could be much higher
There's just one (giant) complication standing in the way of this lawsuit being a negligible issue for shareholders.
While Arbutus's royalties might be small for other biotechs that license its technology directly, in the past, it commanded rates as high as 20% for sublicensors like Genevant, a private biotech that it owns 40% of the equity in. And there's one very inconvenient factor that might mean that it'll attempt to get Moderna to pay that higher rate.
In 2017, Moderna was sublicensing Arbutus's LNP technology via a private company called Acuitas. But Arbutus successfully claimed in a legal fight against Acuitas that the company hadn't been granted permission to sublicense anything for the purpose of vaccine development.
Therefore, it's remotely possible that Moderna will be on the hook for 20% of its vaccine revenues rather than 2%. If it ends up losing the lawsuit and paying the higher rate, it could be liable for upwards of $3.8 billion, based on its cumulative jab sales.
That'd hardly sink Moderna, but it'd definitely leave a dent in its stock price. Furthermore, it'd call a lot of the biotech's successes into question. Investors should be wary of the potentially significant psychological impact of the company losing a case about something that's so foundational to its business.
But don't go selling your shares just yet. Lawsuits can take many years to conclude, and at the moment, there's no way to know which way the case will break. Even if Moderna loses the lawsuit, the company will be able to survive, as it has more than $10.7 billion in cash at the ready.
